The challenges brought on by a shortage in truck drivers won’t be solved by misclassifying employees. Can fleets afford to classify their drives as independent contractors?
There is a loud chorus of voices out there calling for truck drivers to be classified as employees, regardless of how it impacts the bottom line. What would the associated costs be for reclassifying contractors as employees? Is it worth it?
Follow the Money
It isn’t hard to see where the problem lies. Treating truck drivers like independent contractors allows a company to avoid the cost and complexity associated with tracking hours and wages and doling out benefits.
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Both unions and federal regulators have been eyeing fleets that practice this form of classification with a suspicious eye. Last year the matter even reached the courts.
In 2014, Federal Express lost its appeal in the Ninth Circuit court in the case Alexander v. FedEx Ground Package Sys. In that case, the court found that many of the truck drivers working for FedEx as “independent contractors” actually should have been treated as employees.
How Are They Classified?
Federal tax regulations say that truck drivers should generally be treated as employees if the company is controlling and directing the driver. This goes beyond just the result, or the delivery, but also covers the details and means by which the freight is delivered.
The Internal Revenue Service has compiled a list of 20 factors companies should consider when they determine whether someone should be classified as employees or independent contractors.
Unfortunately, a cut-and-dry application of 20 factors does not adequately reflect the complex nature of modern commerce and industry. Factors like the right to control details of work and other pertinent facts aren’t always explained through a simple list of archaic factors.
Compounding the problem are different sectors of the trucking industry creating all different sorts of arrangements with their truck drivers. As a result, there’s a lot of gray area baked into the system.
The Affordable Care Act
New mandates put into place by the Affordable Care Act (ACA) dictate that companies that qualify as large employers must offer their employees employer-sponsored health coverage. Companies that fail to offer the necessary coverage risk getting penalized.
The ACA contains a number of provisions protecting workers, from adverse decisions to whistleblower complaints. Companies should be careful to keep these in mind as they set about classifying their employees.
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Considering the ACA focuses on employers sharing a significant portion of the load when it comes to reducing the number of uninsured, the government should have added incentive to prevent companies from misclassifying their employees.
Safety and Regulation
The final consideration is a matter of safety. The Federal Motor Carrier Safety Administration has been instating stringent safety regulations regarding truck drivers.
Truck drivers who may have been previously classified as independent contractors will have increased oversight and liability concerns. Although tax and employee benefits considerations may be driving the reclassification debate, fleets need to consider that it may have the unintended effect of increasing trucking’s regulatory exposure.
The focus on truck driver safety is only increasing. Might reclassification be merely shining a spotlight on other issues the government may decide needs more regulation?
The Obama administration has been very clear in making employee misclassification a priority. They note that misclassified workers lose out on necessary benefits, overtime, and job security. It also means the Treasury loses out on much-needed employee tax revenue.
In the end, trucking companies need to take a look at their current structure and determine whether or not the current classification is defensible under both recent case law and IRS guidelines.
If it isn’t, it might be prudent to begin trying to figure out how to quickly transition away. After all, nobody wants to have to defend themselves from costly penalties or lawsuits in the court of public opinion.