Employee Vs Independent Contractor

Topic 6809 | Page 1

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Pat M.'s Comment
member avatar

Just because you are paid on a 1099 does not mean that you are an IC. This gets a lot of companies in hot water with IRS, States and Workman's Comp. Most people do not understand the rules that determine if someone is a contractor or an employee. The only reason to classify someone as an IC is to avoid paying the company share of Social Security and Medicare taxes etc. This tells me that the company is not run properly and one ****ed off driver or other employee can make a phone call that could ruin that company with fines and penalties. How secure is your job then? Nothing in life is secure except taxes and death but if the company is not following these simple rules, what others are they side stepping?

Here are some quotes taken directly from the IRS web site...

Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employee-Common-Law-Employee

If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute (statutory employees) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social Security and Medicare taxes, below. A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done. A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson's principal business activity.

Refer to the Salesperson section located in Publication 15-A, Employer's Supplemental Tax Guide (PDF) for additional information. Social Security and Medicare Taxes

Withhold Social Security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply.

The service contract states or implies that substantially all the services are to be performed personally by them. They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities). The services are performed on a continuing basis for the same payer.

http://www.irs.gov/Businesses/Small-...tory-Employees

Be aware of this when you are looking at becoming a company driver for some outfits. You do not want to get in hot water yourself because someone wants to put the costs off on you. If you are driving someone else's truck, dispatched by them, routed by them and told where to fuel you are an employee not a contractor. Even if they leave the routing and fueling up to you, you are still an employee. Keep this in mind also if you ever find yourself in the position of hiring drivers or any other business that you may operate.

Old School knows all about this... LOL

HOS:

Hours Of Service

HOS refers to the logbook hours of service regulations.

OWI:

Operating While Intoxicated

Jopa's Comment
member avatar

Are there "pitfalls" you are trying to warn against? Is there a situation you personally have knowledge of that you are trying to prevent new drivers from falling prey to? Prime, Inc. has some 6,000 tractors, the majority of which are leased and said drivers are treated as "Independent Contractors." Most of the other majors are similarly structured. This has been so for very many years. I'm sure the IRS is well aware of this situation, yet it continues to be such. Do you really think these multi-billion dollar corporations are not aware of these rules you quoted from the IRS website? I don't quite understand what you are pointing out. Is it your contention that these companies are skirting the law to save a few dollars on their part of Social Security and Medicare contributions? How could such savvy business minds put their companies in such jeopardy and take such chances if it is so blatantly wrong to do so? Doesn't make any sense, does it? Just askin' . . .

Jopa

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Rick S.'s Comment
member avatar

If you are leasing a tractor (which means you are technically the owner) then you are an independent contractor - and you get a 1099. I don't know if companies allow it - but you might be better served forming a Sub-S Corp (or an LLC), and getting an EIN (employer identification number - or SSN for companies).

If you are driving someone's truck and they are paying all the expenses of the vehicle (fuel, maintenance, etc.) and you draw a paycheck (paid by the mile, etc.)., then you are an EMPLOYEE and (should) get a W-2.

Some of the smaller outfits may look to avoid the expenses associated with employee versus contractor - and this has to make you wonder WHERE ELSE they are "cutting corners".

As alluded to above - if a company takes you on as a "salaried driver", but pays you on a 1099 - then they (and you) can get jammed up pretty good by this. Getting paid on a 1099 gives you are greater (potential) tax liability, as there is no withholding, and no "matching funds" on ss/medicare payments (meaning the employee is liable for 100% of the FICA payments), plus you don't get any of the truck expense write-offs that a TRUE "independent contractor" is entitled to. So while it "looks like" you are getting paid more as a 1099 employee - in the long run, it costs you more.

Personally - I would run for the hills, if the company wanted to take me on as a "1099 employee" (company driver), god only knows what other kind of shifty crap they are doing in the office.

Rick

Pat M.'s Comment
member avatar

Are there "pitfalls" you are trying to warn against? Is there a situation you personally have knowledge of that you are trying to prevent new drivers from falling prey to? Prime, Inc. has some 6,000 tractors, the majority of which are leased and said drivers are treated as "Independent Contractors." Most of the other majors are similarly structured. This has been so for very many years. I'm sure the IRS is well aware of this situation, yet it continues to be such. Do you really think these multi-billion dollar corporations are not aware of these rules you quoted from the IRS website? I don't quite understand what you are pointing out. Is it your contention that these companies are skirting the law to save a few dollars on their part of Social Security and Medicare contributions? How could such savvy business minds put their companies in such jeopardy and take such chances if it is so blatantly wrong to do so? Doesn't make any sense, does it? Just askin' . . .

Jopa

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Rick answered it pretty good.

Most people do not realize that your hourly wage actually costs the company anywhere from 30-40% more than your hourly rate. What you pay for FICA taxes the company matches. The company pays unemployment insurance. The cost of the person that computes payroll etc.

When they pay you on a 1099 you are now responsible to make sure your income taxes are paid and you are responsible for both halves of the FICA deductions.

Pitfalls? How about not paying the FICA and then not having Social security when you are ready to retire. I know, it might not be around for some. Or the company getting caught and then you for not paying the FICA tax. Financially this can ruin you. Usually this comes out to be a very poor paying job after the taxes.

Jopa's Comment
member avatar
Pitfalls? How about not paying the FICA and then not having Social security when you are ready to retire. I know, it might not be around for some. Or the company getting caught and then you for not paying the FICA tax. Financially this can ruin you. Usually this comes out to be a very poor paying job after the taxes.

Again, who are you warning? Is there a bunch of companies out there putting new hires at risk? . . . or is it your contention that any trucking outfit who pays and then reports said payments on a 1099 is skirting the law? I understand that there are unscrupulous employers - they exist in all types of companies . . . just trying to get a handle on your motivation I guess . . . most new hires go to the larger companies which I contend are abiding by the laws . . . just thinking out loud here, no big deal . . .

Jopa

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Pat M.'s Comment
member avatar
double-quotes-start.png

Pitfalls? How about not paying the FICA and then not having Social security when you are ready to retire. I know, it might not be around for some. Or the company getting caught and then you for not paying the FICA tax. Financially this can ruin you. Usually this comes out to be a very poor paying job after the taxes.

double-quotes-end.png

Again, who are you warning? Is there a bunch of companies out there putting new hires at risk? . . . or is it your contention that any trucking outfit who pays and then reports said payments on a 1099 is skirting the law? I understand that there are unscrupulous employers - they exist in all types of companies . . . just trying to get a handle on your motivation I guess . . . most new hires go to the larger companies which I contend are abiding by the laws . . . just thinking out loud here, no big deal . . .

Jopa

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I am warning anyone. Even experienced drivers are not aware of the legal and financial ramifications of being paid on a 1099. When 90% of trucks are operated by companies that have less than 6 trucks I would say that most do not go to the mega companies. With companies like Swift having what 16,000 trucks when there are millions on the road it is a very small number. If the company is paying on a 1099 and you do not own the truck then yes they are skirting the law. I agree that the larger companies are abiding by the law. You are probably going to move around during your career and you will run into this at one point or another.

Everyone wants to protect their CDL from points and fines and you also need to protect other aspects in your life. You do not want to have the government on your back any more than they already are with the regulations.

CDL:

Commercial Driver's License (CDL)

A CDL is required to drive any of the following vehicles:

  • Any combination of vehicles with a gross combined weight rating (GCWR) of 26,001 or more pounds, providing the gross vehicle weight rating (GVWR) of the vehicle being towed is in excess of 10,000 pounds.
  • Any single vehicle with a GVWR of 26,001 or more pounds, or any such vehicle towing another not in excess of 10,000 pounds.
  • Any vehicle, regardless of size, designed to transport 16 or more persons, including the driver.
  • Any vehicle required by federal regulations to be placarded while transporting hazardous materials.
Sun King's Comment
member avatar

From all the research I've done, the stories are there where companies take advantage of their employees and put them in a bind. Most of these situations are smaller companies that are not well known. I see Pat's side and Joppa's side. I agree if you are branching out your search to smaller companies you will want to cross your T's and dot your i's. Joppa's point is the reason I am keeping my search to the larger companies. They are most likely going to follow the letter of the law because they have so much to loose if they don't.

Once I understand the industry better and can get a better sense of what the red flags are, then I might consider straying from the larger companies. At least that is my thinking.

DOT:

Department Of Transportation

A department of the federal executive branch responsible for the national highways and for railroad and airline safety. It also manages Amtrak, the national railroad system, and the Coast Guard.

State and Federal DOT Officers are responsible for commercial vehicle enforcement. "The truck police" you could call them.

OOS:

When a violation by either a driver or company is confirmed, an out-of-service order removes either the driver or the vehicle from the roadway until the violation is corrected.

Patrick B.'s Comment
member avatar

I run a small fleet of flatbed trucks out of Northwest Wisconsin. We W2 all of our drivers, no exceptions. But in the past two years, we are getting more and more inquiries from drivers who are insisting on being 1099'd.

I think drivers need to educate themselves on the difference as well, because they are going to be ass deep with the IRS before they know it. I don't understand why they would want to be 1099'd, but more and more drivers are asking for it.

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