Truck Driver Independent Contractor Agreement: What is it?
Truck driver independent contractor agreements are written contracts that explain how a company and truck drivers will divide work responsibilities, including the sale of services to customers. It can be helpful for both the company and truck driver to sign this agreement in order to mitigate the risk of costly future litigation. A company should not dictate whether its truck drivers are employees or independent contractors. That is usually determined by the Federal Internal Revenue Service based on control.
If there is no written contract , the company may not be able to show the IRS how it divided work responsibilities and the truck driver may be considered an employee. The IRS takes a serious look at how a relationship is set up between a trucking company and its drivers. As an owner operator truck driver, a person should resist being an employee by making sure the relationship is structured properly. Here are a few pointers:
Key Elements of Truck Driver Independent Contractor Agreement
When engaging a truck driver as an independent contractor, it is imperative that the independent contractor agreement contain the essential aspects of the agreed upon relationship. The important elements which should be addressed include, but are not limited to:
Payment Terms
a. How often is the driver paid?
b. Are payments pursuant to mileage, stop’s, or a flat fee for loads or a flat fee for a period of time.
c. Is fuel included in any of these fees
d. What expenses on the part of the driver are expected to be reimbursed
Work scope
a. Are all and any details of the drivers responsibilities covered
b. are any of the drivers tasks left to be casually filled by statements such as "all other reasonable tasks as may be delegated by the carrier"
Limitations of liability
a. Covering damages to the cargo while in the possession and control of the driver
b. Covering damages to the truck while in the possession and control of the driver
c. Covering damages to other vehicles and persons while in the possession and control of the driver
Termination of Agreement
a. How much notice must be provided by either party to terminate the contract
b. Can the contract be terminated immediately upon breach of the contract
c. What level of warnings or education of the agreement must be provided to a driver to avoid termination
Employee v. Independent Contractor: What’s the Difference?
Employees and independent contractors differ in several key areas. These differences are rooted in the nature of the relationships between the parties, and significantly affect how the employer-employee relationship is treated under the law.
Under state and federal laws, such as the Fair Labor Standards Act (FLSA), independent contractors are not entitled to the same benefits and protections as employees. The FLSA does not apply to independent contractors, and they are not entitled to overtime, minimum wage, or equal treatment in the workplace. Importantly, IA drivers are also excluded from the hours-of-service provisions of federal regulations because they tender their services as contractors and not employees.
Federal employment laws generally only apply to employees and therefore do not protect independent contractors. This means that independent contractors: Independent contractors do not receive the same tax benefits as employees. Employers do not withhold income or Social Security taxes for independent contractors. Instead, independent contractors are responsible for paying all applicable taxes throughout the calendar year. Additionally, unlike employees, independent contractors cannot contribute to IRS-sponsored retirement accounts like a 401(k).
Because they are not considered employees, independent contractors are not subject to the same legal rights and obligations as employees. For example, independent contractors are not entitled to the same employee rights with respect to workplace injury, benefits and pay, or retirement. When it comes to workplace injury specifically, an independent contractor injured while performing services for a trucking company would not be entitled to workers’ compensation under state workers’ compensation statutes.
The Internal Revenue Service (IRS) lays out the guidelines for distinguishing between employees and independent contractors. Factors considered include the following: According to IRS guidelines, employers generally are required to withhold income and Social Security taxes, as well as to pay unemployment tax on wages paid to employees. However, employers are not required to withhold or pay any taxes on payments to independent contractors.
Steps for Drafting a Compliant Truck Driver Independent Contractor Agreement
The process of drafting an independent contractor agreement for drivers is crucial. Whether a company selects an internal employee to draft the agreement, or whether the company hires an outside independent contractor, it should retain legal counsel to review or draft the driver independent contractor agreement to ensure that all appropriate federal regulations are adhered to and that the terms are contractual and not entrepreneur-type terms. To the extent that an outside independent contractor is selected, transportation companies must ensure that the independent contractor does not exercise control over the drivers. If an independent contractor is selected to draft the driver independent contractor agreement, and retains outside legal counsel to provide guidance, the transportation company should ensure that any such agreement is signed by both the company and the independent contractor, and must also ensure that the driver receives a fully-executed copy of the agreement.
Mistakes on Truck Driver Independent Contractor Agreements and How to Fix Them
One of the most common mistakes in truck driver independent contractor agreements is failing to adequately list out the specifics of what the independent contractor is responsible for and what they will be paid for. From dividends to monthly lease costs, ensure that each expense is clearly defined and agreed upon so that it’s difficult for an employee to try to later argue for something that’s not in the agreement.
There’s often a very fine line between an employee and an independent contractor, and if you don’t structure the relationship properly up front, you can be on the hook when the IRS or your local state agency comes knocking for back taxes and unemployment . The best way to avoid this is to clearly lay out in the contract that you have the right to dictate the schedule and driving routes on a day-to-day basis, that you own the truck, and that the driver cannot refuse trips without losing the contract. Any incidental payments to the driver like bonuses or performance incentives should be treated as a truly independent compensation system, so that it’s not tied to the completion of a specific job or task.
Legal Issues and Truck Driver Independent Contractor Agreement Disputes
When challenged, the legally binding nature of an independent contractor agreement may be rendered ineffective. The most common disputes arise from improper classification of an independent contractor. If a dispute hits the court or an administrative action is taken, both the employer and the independent contractor should provide adequate documentation that the relationship fits the legal definition. For example, if the employee files for unemployment compensation and the employer refuses to pay for unemployment, the employer must prove that the employee was indeed an independent contractor. Alternatively, the administration may challenge the agreement. For example, if the specific worker is hired without a written independent contractor agreement, an agency such as the Federal Motor Carrier Safety Administration or Internal Revenue Service may investigate the employer. If an agent discovers that the worker was indeed misclassified, it will hold the employer equally responsible. Our trucking lawyers in Pennsylvania provide proper documentation and consult with experienced tax specialists to ensure compliance with federal, state and local guidelines.
Updating and Reviewing Truck Driver Independent Contractor Agreements
As always, it is good business practice to regularly review and update the truck driver independent contractor agreements. Regular reviews allows for the agreement to be updated to reflect any changes in the law and operational needs. As an initial step, tax law and other legal requirements should be reviewed by an experienced professional to determine if there are any changes. Then, a review of operational needs should include additional drafting to explicitly address any practices that may have been implemented but were not originally included in the agreement. This may include additional language that better ties new tracking technologies into the agreement. If an existing provision has proven to be useful, then just make sure it is specifically restated in the newly revised agreement .
For example, if the trucking company has been having drivers track their progress through the use of GPS, that warping GPS language might be included in the agreement. Alternatively, specific language may be added indicating what happens when the driver fails to keep up with the truck tracking and uses the technology for other purposes. Further, the length of time until the next update of the agreement could be more frequent (i.e., a one-year agreement with an automatic renewal for one year instead of for two years).
Regular reviews should also contemplate whether the company may be able to reduce exposure by revising the agreement to have fewer any independent contractors or to split the agreement into two separate agreements: one for its owner-operators and a second for leased drivers in order to limit joint employment and independent contractor misclassification claims.