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Truck Drivers, Employees or Independent Contractors

Client supplies the truck, insurances, repairs, fuel, tolls etc.  and pays based on mileage driven.  My understanding in this driver is an employee.

Client has supposedly been told by a CPA that if he pays based on a % of what he gets per load, rather than mileage driven, he can treat drivers as independents.

Any truth to this?

 

 

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    I don't think so.  Just because he changes the way he pays them wouldn't change the fact that they are employees of the business. 

    Topic 762 - Independent Contractor vs. Employee

    To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship itself.

    Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.

    Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes:

    The extent to which the worker has unreimbursed business expenses
    The extent of the worker's investment in the facilities used in performing services
    The extent to which the worker makes his or her services available to the relevant market
    How the business pays the worker, and
    The extent to which the worker can realize a profit or incur a loss

    Type of Relationship covers facts that show how the parties perceive their relationship. This includes:

    Written contracts describing the relationship the parties intended to create
    The extent to which the worker is available to perform services for other, similar businesses
    Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay
    The permanency of the relationship, and
    The extent to which services performed by the worker are a key aspect of the regular business of the company

    For more information, refer to Publication 15-A (PDF), Employer's Supplemental Tax Guide, or Publication 1779 (PDF), Independent Contractor or Employee. If you want the IRS to determine whether a specific individual is an independent contractor or an employee, file Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

     

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      Dasbling - unless your independent contractors are able to make the deliveries for you using their Toyota Prius, I think you are controlling or directing the result of the work done as well as providing the means and methods of accomplishing the result by the fact that you are providing the trucks to make the deliveries. 

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        I agree with IRMN and TAXOH.

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          So jimp, do you normally give tax advice based on what the rules are, or what snuck through an audit for another client?  Everybody has their own unique situations, so to just give an automatic green light to treating all truck drivers as independent contractors is a bit dangerous.  The more control the business owner has over the driver, the more the driver looks like an employee rather than an independent contractor.  In this case, the business owner is basically in complete control over the driver since he provides everything necessary to do the job.  I would not want the job of trying to defend the position that these drivers are independent contractors.

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             The MSSP on truckers is outdated enough that you can't even get it from the IRS website (but you can get it here: http://www.unclefed.com/SurviveIRS/MSSP/truck.pdf)

            That said, the #1 factor in employee vs contractor decisions given in the audit guide is "Who owns the truck?"

            Longstanding industry practice would be a possible out, but I believe it only works if you've always treated the drivers as contractors (you can't say "but everyone else does it" if you weren't doing it yesterday).

            FedEx just lost on an employee vs. IC issue.  They made their drivers buy the trucks, and it still wasn't enough.  

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              Dasbling - I agree with IRMN.  If they're using your trucks, your fuel and you're paying for the insurance they would be considered employees.

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                I agree with IRMN, TAXOH, and Grafton.

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                  Dasbling - The rules are pretty straight forward. Since you've read this thread so you know what the consensus among these preparers is. Trying to fit a square peg into a round hole doesn't generally work with the IRS.

                  Yes there are plenty of businesses that incorrectly issue 1099s when they should be issuing w2s. It doesn't matter what kind of justification they use if they get caught the fines and penalties are onerous.

                  If you're really concerned about doing things correctly, why don't you call your local IRS center and get in touch with an auditor or your State department of labor....

                  If they happen to agree with you, I'd suggest you get it in writing.

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                    As you stated Technically TAXOH is correct and she gave excellent  advice as what we are supposed to do even though we represent clients we are also bound by a standard to uphold regulations to prevent clients from having problems. Thank You TAXOH for setting a standard that we all need to follow

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                      I agree with Quilted, Grafton TAXOH and IRMN...... so Truck It ....they are employees

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                        sally tax - here are the rules for Minnesota workers compensation.  I'm not sure what world they come from but these are the rules Minnesota truckers need to live with anyway:

                         

                        2009 Minnesota Statutes
                        Resources
                        Topics
                        Workers Compensation
                        Recent History
                        2009 176.043 New 2009 c 89 s 2
                        176.043 TRUCKING AND MESSENGER/COURIER INDUSTRIES; INDEPENDENT CONTRACTORS.
                        In the trucking and messenger/courier industries, an operator of a car, van, truck, tractor, or truck-tractor that is licensed and registered by a governmental motor vehicle agency is an employee unless each of the following factors is present, and if each factor is present, the operator is an independent contractor:

                        (1) the individual owns the equipment or holds it under a bona fide lease arrangement;

                        (2) the individual is responsible for the maintenance of the equipment;

                        (3) the individual is responsible for the operating costs, including fuel, repairs, supplies, vehicle insurance, and personal expenses. The individual may be paid the carrier's fuel surcharge and incidental costs, including, but not limited to, tolls, permits, and lumper fees;

                        (4) the individual is responsible for supplying the necessary personal services to operate the equipment;

                        (5) the individual's compensation is based on factors related to the work performed, such as a percentage of any schedule of rates, and not on the basis of the hours or time expended;

                        (6) the individual substantially controls the means and manner of performing the services, in conformance with regulatory requirements and specifications of the shipper; and

                        (7) the individual enters into a written contract that specifies the relationship to be that of an independent contractor and not that of an employee.

                        History: 2009 c 89 s 2
                         

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                          I just looked at your profile, jimp. Where do you reside and practice?

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                            If Greynewfs' client "supplies the truck, insurances, repairs, fuel, tolls etc," then there is not much that the drivers can deduct anyway.

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                              Any of y'all ever wonder if maybe an IRS plant posts some of these questions?

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                                Salary, hourly, commission or rate per mile are all simply different methods of paying a worker. The method of calculating pay is NOT a factor in determining whether or not a person is an employee.  If a business has the RIGHT to SUPERVISE a person working for that business, such a worker is an EMPLOYEE of that business by definition..

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                                  The company owners pay for everything. Can the driver suffer a loss? Employees!!!

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                                    Absolutely correct, Atomic Man.  I don't really see why this topic has generated so much discussion.  It's black & white, IMO.

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                                      But the problem is, you can't classify an employee as an independent contractor solely for the fact that workers comp rates are too high. 

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                                        Bit of a problem with workers comp and doesn't really apply because he's breaking those rules also.....

                                        So let's say your client has his own workers comp policy and is only showing payroll (rating basis) for  his W-2 clerical and warehouse employees... (legally the independent contractor drivers are also covered unless they have their own workers comp policy)....  at the end of the year the insurance company conducts an audit and they find 200,000 payments to independent contractor truck drivers....  if your client can not provide proof (certificates of insurance) that the independent contractors have their own coverage then your client gets handed a bill.

                                        I don't think I've ever seen a $25 rate for truck drivers (usually $8 to $10) but the reason for the high rates is that the insurance companies end up paying claims for the independent contractors where they haven't collected premium.

                                        Comp rates are generally set by the individual state compensation rating board. The oversimplified version is that they take the total losses paid out for a particular class and divide by the amount of premium collected. 

                                        So, IMO, its the same old story... "everyone else does it... so will I" ....  but the fact is that there are plenty who run their businesses according to the law and somehow manage to make an honest living.

                                         

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                                          Sally Tax - It is obvious that you have no conception about worker compensation statutes, policies, rules, rates, etc. Your comments are way off base. If you're giving '<<real world>> advice then you ought to let them know about the <<real world>> penalties that will result.  

                                           

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                                            Sally tax,

                                            >>>Some people live in the real world. Others are somewhere else. <<<

                                            Would you consider Leavenworth part of the real world, or somewhere else?

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                                              Superwoman knows!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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                                                Technically, Wonder Woman is correct. On the other hand, I know 8 or 9 hundred drivers in the area, my clients as well others, 98% regularly have drivers and issue their drivers MISC 1099's at the end on the year. Perhaps a hundred have been audited over the past 18 months and the Employee/Contractor issue has never come up by any auditor

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                                                  jimp- out of 8 or 9 hundred drivers approx 100 have been audited in the past 18 months?  That seems like a high percentage of audits.  I wonder if it would have anything to do with them getting 1099's and deducting business expenses?

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                                                    Sorry if I offended any of the elitists out there. Absolutely TAXOH provided excellent advise to Greynewfs in support of his own understanding of employee/contractor and the example presented.

                                                     I was making a comment to Greynewfs (no intended advise) concerning Trucking Company owners. It seems some of us work in a perfect world while the others work in the real world. Drivers don’t usually ask for advise on this matter but will defend their position vigorously if it comes up. Tax audits help us in that they send a message through the Community much louder than we. As far as I know, currents audits have not addressed this issue. I work with various State and Federal Fraud Investigators including the IRS and it has come up in discussions but to my knowledge, no one is looking at it at the moment. Until they do, if Greynewfs continues to work with drivers, might expect this situation to come up often. Ultimately, Drivers must defend their own employee relations to the IRS since they can best define it, unless you’re also their book keeper. (Drivers I know don’t have one)
                                                    I might suggest also to Greynewfs that it’s a good idea to subscribe to the IRS newsletter since this information was recently covered by it. You can subscribe by going to irs.gov.
                                                    These statements also should not rise any higher than the level of a comment.

                                                    PS. Thanks Phoebe for your input. Its a good one also. I downloaded a copy for future reference.

                                                    TAXOH; In October of 2007, the IRS took the challenge to audit about 11,000 self employed returns a month, I believe they are still working to that goal. I know  about 12,000 families and folks share with me a lot of things. To my knowledge, employee/Independent, 1099/W-2 never came up in any audit that I know about although it has in conversations with fraud investigators while looking at other matters. 

                                                    I'm not defending the practice, I know they are out of compliance, I'm just stating that from my corner, most Truck Driving Companies do not us W-2's.
                                                     

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                                                      Here's the catch - client's parents own the same type of trucking company.  Mom comes to me in 2006 because her prior tax preparer, a CPA, had died.  I saw all the numbers and the situation with all the trucks they owned and NO employees.  I suggested she might want to change method of paying drivers.  Well, never had a problem and *** WAS a CPA so she would have told me.  Ok.  Three days later, she gets greetings from Uncle Sam - auditors determined the independents were employees for all the reasons I mentioned and they are still paying off $126,000 in back assessed payroll taxes.  And yes, they did pull the returns of a few of their drivers for expenses they were not entitled to.

                                                      They never mentioned pay by a % and this won't happen.  Make them employees, now.

                                                       

                                                       

                                                       

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                                                        Nope - not me - in the willywags of TN - serving an area abundant with rumors and nonsense...but...read everything I could find on paying by % and just couldn't come up with an answer.  I did not want to disclose the specifics of the parents and prejudice any responses.  I never assume I know it all especially when I can't find any IRS "reg" that addresses the specifics of my question.

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                                                          I didn't mean to imply anything about you, Greynewfs. But it just occurred to me in reading some of the answers you got, that, if I were an agent, I could probably spend a profitable day or two browsing around in here for flaky-sounding questions (and answers).

                                                          On another forum in which I participate, we've been batting around the issue of whether a handgun and ammo are "ordinary and necessary" business expenses for a repo man or a rent collector.  That discussion too has produced some conversations that I think would be of interest to the IRS (FWIW, there was NO consensus).

                                                           

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                                                             If he's got a concealed-carry permit (or is otherwise legally authorized to have the gun handy for self-defense while on business), I'd have no issue with it.

                                                            Do I think it would be a wise decision for a repo guy to hang around while things escalate to the point that a handgun would come into play? Maybe not so much.  But if, in his judgement, he felt that having a legal gun made him safer, I'm not going to be telling him otherwise.

                                                            I think there would be a statutory prohibition against a deduction for a gun he couldn't legally use while on business.

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                                                              I am a co-owner of a new Logistics company and own 2 trucks so I have been looking for the same answer on this.  I found this through some research on this topic:

                                                              A general rule to classify an Independent Contractor is that the payer has the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

                                                              Using the above logic,  I simply tell the 2 drivers of my trucks that a particular load of freight needs to pick up here and be there by a certain date.   I do not instruct them on how to load it, which roads to drive on to get it there nor how to unload it.  Also, we do not tell them "you have to work Monday - Friday from 9-5" and that if they decide to take a week off whenever they like, they simply turn the truck in and we put another driver on it in the meantime.  We also pay them a % of what the truck makes and not a set wage.  Based on all of these factors, I feel that it is safe to call them "Independent Contractors" .  Finally, they drivers consider themselves independent so it seems we have a mutual agreement on how they are classified. 

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                                                                The problem in this industry is the cost of workers compensation.Last i checked the premium for truck driver was twenty five dollars per hundred of payroll.Small time employer simply cannot afford it.Another industry which comes to mind is roofers.Same problem.Forces employers to go 1099.In my experience the expense of the payroll taxes for the employer was never the issue.

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                                                                  Some people live in the real world.Others are somewhere else.

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                                                                    And some people follow laws and others don't.

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                                                                      Very good IRMN -

                                                                      Seems like there may be some similarities between the IRS and MN..... for that matter MN follows the same NCCI rules as 45 other states so most of us are on the same planet...... the other 4, WY WA ND & OH are monopolistic and I understand that compensation rules are more stringent.

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