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Pros and Cons of Using W-2 Employees

If you own a trucking company, chances are you have considered the differences between hiring your drivers as 1099 contractors vs. W2 employees. Misclassifying workers can lead to massive violations from the IRS, and the differences between the two can be very confusing. 

As the only payroll company specializing in trucking companies in the United States, this is a dilemma we are constantly solving for our clients. After all, the last thing we want is for you to get a nasty IRS letter!

In this article, we’ll explain what it means to be a W2 employee in the trucking industry, discuss the benefits and drawbacks for your company, and highlight why some drivers prefer W2 status while others lean towards being 1099 contractors.

Understanding the Role of a W2 Employee Truck Driver?

A truck driver who is a W2 employee is a driver who operates company-owned equipment. The trucking company pays these drivers a regular paycheck and handles all payroll taxes. This includes calculating and withholding taxes like income tax, Social Security, and Medicare from the driver’s paycheck. The company is also responsible for making the necessary tax payments to government entities on behalf of the driver. As W2 employees, these drivers are protected under employment laws.

Pros of Using W2 Employees

  • Steady Income for Drivers

    W2 truck drivers receive consistent paychecks, whether paid a salary, hourly, or by the mile/load. This provides financial stability, even though their wages can fluctuate based on the amount of work they do.

  • Benefits for Drivers

    Trucking companies often offer benefits to W2 drivers, such as health insurance, retirement plans, and paid time off. These benefits are a significant part of the overall compensation package and can make the job more appealing. These benefits contribute to their overall well-being and loyalty to their company.

  • Employer-Handled Tax Obligations

    For W2 truck drivers, the company handles tax withholding calculations, including income tax, Social Security, and Medicare. They then make the necessary tax payments to government agencies, ensuring compliance with tax laws. This makes tax time easier for the driver because the company handles their tax payments.

  • Legal Protections and Security

    W2 truck drivers are entitled to various legal protections. These include unemployment benefits, workers' compensation, and specific rights under labor laws. These protections offer a safety net in case of workplace injuries or job loss.

Why a Truck Driver Would Want to Be a W2 Employee

Many truck drivers prefer to be W2 employees due to the stability and security it provides. As W2 employees, they benefit from steady paychecks, comprehensive benefits, and legal protections. These factors create a stable and safe work environment, which is great for drivers seeking long-term jobs. The employer also handles all tax obligations, reducing the administrative burden on the driver. This allows drivers to focus on their work without worrying about self-employment taxes.

Cons of Using W2 Employees

  • Limited Work Schedule Flexibility

    For trucking companies, employing W2 drivers often means adhering to strict schedules. W2 drivers typically follow schedules set by the company, which can limit the driver's flexibility. This can make it difficult for the company to adjust to sudden changes in demand or to accommodate special requests from clients.

  • Higher Financial Responsibility

    When hiring W2 drivers, the company assumes significant financial responsibilities. This includes payroll taxes, health insurance, retirement benefits, and possibly workers' compensation insurance. These costs can quickly add up, reducing the company’s cash flow, especially for smaller trucking businesses. Moreover, when loads are hard to come by and rates are not good, the financial burden of maintaining these benefits can be substantial.

  • Compliance and Administrative Work

    Managing W2 employees involves navigating complex regulations and labor laws. Trucking companies must handle payroll, benefits, tax withholdings, and compliance with employment laws. This requires significant administrative effort and resources. For smaller companies, this extra paperwork can take focus away from main tasks, making the business less efficient and raising costs. One way to reduce the workload would be to outsource your payroll to a reliable provider.

  • Dependence on Company Stability

    W2 truck drivers rely completely on the company for their income because they work for just one employer. This means the company needs to keep a steady work flow and stay financially stable. During tough economic times or low demand, it can be hard to provide enough work for drivers. If the company fails to do this, drivers may become unhappy, quit, and cause service problems. Unlike independent contractors who can work for multiple clients, W2 employees depend on the company’s stability. This increases the company's responsibility to keep things running smoothly and financially healthy.

What if a Truck Driver Wants to Be a 1099 Contractor?

Some drivers, who should be W2 employees, might prefer to be paid as 1099 contractors. These drivers feel like they earn more money. However, if a driver wants to be a 1099 contractor while using company trucks, it’s a red flag. This could mean they are trying to avoid taxes or hide from a garnishment.

Simple answer? Drivers using company trucks and following company rules should be W2 employees. Wanting 1099 status in these cases is illegal and could cause problems for your company. If your company is looked into and it is found you have misclassified drivers you will be looking at tax penalties, workers’ compensation penalties, and possible legal fees.

Classification Who Owns Truck Who Maintains Truck Who get Profit/Loss of Truck

W2 Employee
Trucking Company
Trucking Company
Trucking Company

1099 Contractor
1099 Contractor
1099 Contractor
1099 Contractor

To summarize, hiring W2 truck drivers has many benefits for the driver, like steady income, benefits, and legal protections. But it also means a higher quality of driver working for your company. This alone can minimize the extra costs and paperwork for trucking companies. 

Understanding these pros and cons is essential for making the best choice for your business. Choosing W2 employees will create a stable and secure work environment for your drivers, which will lead to a more reliable and dedicated workforce.

If you’re considering other options, it’s important to weigh them carefully. Your next step is to understand the opposite side of this coin,  the Pros and Cons of Using Independent Contractors. This will help you understand the full picture and determine the best fit for your company.

*** If you have any questions or need further guidance on this topic, feel free to contact us. We’re here to help you make informed decisions and ensure the success of your trucking business. ***

Next Step: Article - 1099 vs. W2: Is it Legal to 1099 a Truck Driver

Written by Melisa Bush

With over 15 years of experience in the trucking industry, Melisa is well-versed in the complexities of trucking payroll and adept at navigating special circumstances. Before joining Superior Trucking Payroll Service, Melisa worked at a trucking company, where she managed driver miles and expenses for a fleet of 50 trucks. This hands-on experience gives her unique insight into the challenges our clients face when preparing their payroll data.

Melisa’s top priority is customer service. She strives to treat each client as an individual with genuine needs, rather than just another number in the system. Her goal is to alleviate the burdens of our clients and make their daily operations smoother. 

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