Paying 1099 Instead of W-2 Can Get Your Trucking Company in Trouble

The significance of paying W-2 when the circumstance calls for it has been discussed in previous articles. Your trucking company could go bankrupt from the costs of noncompliance. However, if you avoid being detected, there are no expenses, right? The three most likely ways your trucking company will be caught for misclassifying employees are covered in this article.

1. Unemployment Benefits for Terminated 1099 Drivers:

Depending on the circumstances, a 1099 truck driver you terminate may choose to apply for unemployment benefits. They may even file knowing they asked to be paid by 1099 and signed a contract saying that they are 1099.

The state will then send claim forms to your trucking company. In response, you will state that the driver was not an employee but rather a 1099. You might even include the driver’s signed contract as proof of your position. Great! Problem solved right? Nope!

The driver’s ability to respond with a “poor me” story is the real problem. The driver would be claiming how they didn’t know what they were signing and how you don’t have the ability to waive their rights. This article has a recurring theme of truck drivers becoming extremely intelligent after they leave you.

The state will look into the driver’s claim that they are an employee and not a contractor. They’ll go into your trucking company and look around. Whether the truck driver was indeed an employee or a contractor will be determined by them. Even if you win—which you won’t—do you really want the government interfering with your trucking company’s business?

2. Workers’ Compensation Claims:

Healthcare providers are driven to file workers’ compensation claims. But what happens if you have coverage for occupational accidents (Occ Acc)? When it comes to owner-operators, Occ Acc might be an excellent alternative to workers comp; nevertheless, it has limitations and varies depending on the policy. Workers’ compensation is usually defined by the state and has no claim amount limit. There will be a limit on Occ Acc. If the providers haven’t already, anticipate that they will pursue your transportation company once the Occ Acc limit is reached. Furthermore, there are no additional lost salary benefits to be paid after the limit is reached. The driver’s family might hire a lawyer to help them sort everything out. All of this is presuming that the Occ Acc policy will actually pay the claim when it arises. What happens if the Occ Acc policy decides it should be work comp because the driver was an employee? What happens if a rider on the Occ Acc policy excludes or only pays for specific events?

Example:

The driver in this scenario gets into an accident and is taken to the hospital by ambulance. They’ll be questioned about whether the injury was related to their job when they get to the hospital. The incident would become clear that it was work-related as the EMTs removed the driver from the truck, which was registered to your trucking company. Both the ambulance service and the hospital would prefer to bill workers’ compensation insurance. Because they will receive less money if they bill Medicaid or health insurance. There are negotiable pricing for all personal health insurance plans, including Medicaid and regular health insurance. This isn’t the case with workers’ compensation insurance providers. The provider can bill their full rates. Like the ones you might see on an explanation of benefits form before the health insurance pays it.

A while back, I was discussing the whole W-2 vs. 1099 debate with a potential customer. I asked him what would happen in the event of an accident. He assured them that his family would be taken care of by the local community of his country of birth. I used to think, “Wow, it’s great that people are willing to step up and help, but who is covering the hospital’s costs?” In that sense, the hospital is not part of the community.

3. Truck Driver’s Income Taxes:

Suppose the driver requests that you 1099 them. Additionally, suppose you informed them that since you wouldn’t be deducting anything from their paychecks, they would owe taxes at the end of the year (don’t give tax advice unless you are qualified, refer them to someone). They acknowledge that they work as a 1099 for you and are accountable for paying taxes.

As the year comes to an end, they have a $65,000 1099 form. They file their taxes and discover that they owe $14,000. The driver finds it unbelievable and had no idea how much it would be! They want you to pay them now as though you haven’t paid them at all during the year. You could show them paper confirmation and remind them that they committed to handling their own taxes. When the driver returns, they claim that they have spent all of the money and do not have any more. They tell you to either pay it or they will go to the IRS and say they were supposed to be a W-2 employee. If they go to the IRS, you’ll have the same trouble as in the first scenario. Notice again how the driver got smart when it helped them.

So now you have a decision to make about $14,000. Even if you paid the $14,000 to the driver, they still could turn you in for employee misclassification and keep the $14,000. It’s a bad deal for you all the way around.

These are three ways that you could get found to be paying improperly but there are more. A work comp audit, a former driver that wants to stick it to you, and just luck of the draw are just three more. I urge you to think twice before paying a truck driver 1099 when they are supposed to be paid by W-2.

Written by Mike Ritzema

Before founding Superior Trucking Payroll Service, Mike was the CFO of a trucking company with 80 trucks and a thriving brokerage. This experience gave him the perspective that a payroll solution has to make the lives of the office people better. All the solutions he has designed are to benefit everyone. Our company mission is to help trucking families and that includes the company owners, the drivers, and the office.

Paying 1099 Instead of W-2 Can Get Your Trucking Company in Trouble