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Pros and Cons of Using Independent Contractors in the Trucking Industry

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 an independent contractor in the trucking industry, discuss the benefits and drawbacks for your company, and highlight why some drivers are considered independent contractors while others really are W2 employees.

Understanding the Role of an Independent Contractor

A truck driver who is an independent contractor is a self-employed driver who operates a truck they own or lease. These drivers normally work with multiple companies and manage their business operations. They handle their taxes and do not get employee benefits from the companies they work with.

Pros of Using Independent Contractors in Trucking

  • Flexibility and Cost Savings

    Independent contractors provide flexibility for your business and you can hire them as needed without long-term employment contracts. This helps manage changing workloads and seasonal demands. Hiring independent contractors saves money by reducing HR tasks, such as handling payroll taxes, benefits, and workers' compensation.

  • Reduced Administrative Burden

    Payroll for independent contractors is very straightforward. This payroll process lowers administrative costs with no payroll taxes to calculate, withhold, or pay.

  • Access to Specialized Skills

    Independent contractors often bring specialized skills and experience to your company. They can be valuable for specialty loads or routes that require expertise and special permits. This can improve the efficiency and quality of your operations.

These are some great advantages of hiring independent contractors. However, there are also several challenges to consider. Let’s explore these challenges.

Why a Truck Driver Would Want to Be a Independent Contractor

Many truck drivers choose to be independent contractors. As a result of the decision, they have chosen to run their own business. Some will decide to run their business under their Social Security Number. Others will register a business name and receive an FEIN number from the IRS.

As independent contractors, they choose the companies they work with. They also choose the rates they want and control their schedules. This level of independence directly impacts their income and allows them to be their own boss. Running their own business allows them to find the best jobs and make more money.

Warning: Drivers Using Company Equipment Are NOT Contractors

It’s important to be cautious when a driver, operating company equipment, insists on being paid as an independent contractor. This is a significant red flag. When a driver uses company-owned equipment, it means they are likely under the company’s control, which contradicts the independence required for contractor classification. Misclassifying these drivers can result in serious legal and financial problems, including penalties from tax authorities, lawsuits for unpaid wages and benefits, and compliance issues with labor laws. Read more here on “What if My Driver Doesn’t Want to Switch from 1099 to W-2?”

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

1099 Contractor
1099 Contractor
1099 Contractor
1099 Contractor

W2 Employee
Trucking Company
Trucking Company
Trucking Company

Always make sure that drivers using company equipment are classified as W2 employees. This will protect your business and maintain compliance with labor and tax laws.

Cons of Using Independent Contractors

  • Income Instability and Turnover

    Independent contractors face income changes based on the availability of loads and market conditions. This can lead to higher turnover rates, as drivers may leave looking for more stable and better-paying jobs.

  • Legal and Compliance Risks (IRS link)

    Misclassifying employees as independent contractors can lead to legal issues and penalties. It's crucial to make sure drivers meet the rules for independent contractor status under federal and state laws.

  • Lack of Control

    Because they are not employees, you have limited control over their work schedules and methods. This means you cannot dictate when and how they perform their tasks. Independent contractors set their own hours and choose what loads they take. Additionally, independent contractors may prioritize higher-paying clients, affecting their availability for your loads.

What Should You Do If Your Company Has Misclassified Drivers?

If your company has misclassified drivers as independent contractors, it’s crucial to correct this mistake smoothly and legally.

Start by looking at your driver classifications.  Have you classified your drivers correctly? Do you comply with labor laws?

Finding a trustworthy payroll provider who knows trucking will greatly assist in this process. They will make sure you understand what needs to happen and how. They will also manage your payroll taxes and benefits, to ensure your drivers are correctly classified. This change can improve driver satisfaction and create a more stable workforce.

In conclusion, choosing the right classification for your drivers, either 1099 or W2, is not only essential but urgent to make sure your trucking company is running legally. 

Understanding these pros and cons is important for making the best choice for your business. Choosing independent contractors (1099) will give you a more flexible workforce and less overhead, but can also have adverse effects as well. This is why it’s crucial that you review your legal obligations, as well as your needs as a business owner before making this choice.

If you’re considering other options, it’s important to weigh them carefully. Make sure you also understand the Pros and Cons of Using W2 Employees. This will help you understand the full picture and determine the best fit for your company.

Here's your 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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