STPS

Understanding Truck Driver Classification: Employee or Contractor

Do you have questions about truck driver classification? Running a trucking company involves many crucial decisions, and one of the most important is how to classify your truck drivers. Misclassifying drivers can lead to legal troubles and financial penalties.

We know this decision can be confusing and stressful. You’re not alone in trying to figure out whether your drivers should be employees or independent contractors. Many trucking companies face this same challenge.

In this article, we’ll explain the basic differences between employee and independent contractor classifications for truck drivers. You’ll learn how the IRS defines these roles and the implications of each classification. By the end, you’ll have a clearer understanding to make informed decisions for your business

Employee Classification for Truck Drivers

When a truck driver is classified as an employee, they are considered part of the company’s internal team. This status brings certain responsibilities and benefits. Here are the key aspects of classifying truck drivers as employees:

  • Employment Contract:

    Hired under a formal employment agreement.

  • Regular Pay - W2:

    Receives a regular wage or salary with taxes withheld by the company.

  • Company Benefits:

    Often eligible for benefits. Such as health insurance, retirement plans, and paid time off.

  • Provided Equipment:

    The company owns and maintains the truck(s). They also pay for the fuel.

  • Work Control:

    The company controls work schedules, routes, and specific tasks.

Contractor Classification for Truck Drivers

Classifying a truck driver as an independent contractor means they operate as an independent business. This classification offers flexibility but also comes with more responsibilities. Key points include:

  • Business Independence:

    Operates alone, often providing services to more than one company.

  • Fee-Based Payment - 1099:

    Paid per job or contract, without tax withholding by the company.

  • Self-Managed Benefits:

    Responsible for their benefits, including health insurance and retirement plans.

  • Ownership of Equipment:

    Owns or leases their truck(s). Also, manages all maintenance and expenses like fuel.

  • Operational Independence:

    Has control over their schedule and what loads they take.

How the IRS Defines Truck Drivers as Employees

The IRS defines an employee as “anyone who performs services for you if you can control what will be done and how it will be done.” This draws attention to the level of control the company has over the driver and the nature of their relationship.

  • Behavioral Control:

    The company dictates the driver’s work methods and schedules.

  • Financial Control:

    The company provides equipment and can reimburse expenses.

  • Relationship Nature:

    The relationship often includes benefits and longer-term commitments.

IRS logo with American flag

How the IRS Defines Truck Drivers as Contractors

According to the IRS website: 

“The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”

  • Behavioral Control:

    The driver maintains significant control over how they perform their tasks.

  • Financial Control:

    Contractors manage their own business expenses and equipment.

  • Relationship Nature:

    The relationship is typically more temporary and lacks traditional employee benefits.

paying 1099 instead of W2 can get your trucking company in trouble

Ramifications of Misclassifying a Truck Drivers

Misclassifying truck drivers can lead to serious consequences for your business. Understanding these ramifications is crucial to ensuring compliance with laws and regulations. Here are some potential consequences:

IRS Penalties

  • Back Taxes and Penalties:

    If the IRS determines that drivers were misclassified, your company may be required to pay back taxes. This could include income tax withholding, Social Security, and Medicare taxes. Penalties and interest may also be assessed.

  • Extra Fines:

    The IRS can impose fines for failing to file accurate returns or pay the required taxes on time.

State Entity Implications

  • Unemployment Insurance:

    States may require companies to pay back unemployment insurance contributions.

  • Workers' Compensation:

    Misclassification can result in liability for unpaid workers' compensation insurance premiums. The company may be responsible for covering medical expenses and lost wages to an injured driver.

  • State Tax Penalties:

    States can require back payment of state taxes. These can include state income tax withholding and disability insurance contributions.

Labor Lawsuits

  • Wage and Hour Claims:

    Misclassified employees may file lawsuits for unpaid wages. These claims can lead to significant financial liability.

  • Benefit Claims:

    Misclassified drivers might claim they are entitled to employee benefits, such as health insurance or retirement plan contributions. Legal disputes over these benefits can be costly.

  • Wrongful Termination and Discrimination:

    Misclassified drivers could take legal action if they believe they were wrongfully terminated or discriminated against based on employment status.

By understanding these risks, you can protect your business from legal and financial liabilities. Always consult with legal and tax experts to make sure you follow all the rules.

How to Tell if You've Misclassified Your Truck Driver

How do you know if you have misclassified a truck driver? It can be complex, but there are some key indicators to consider. Here are a few signs that may suggest a driver has been misclassified:

  • Level of Control:

    If your company tells the driver how to perform their job, they should be classified as an employee. Direction could include specific routes, schedules, and procedures.

  • Financial Dependency:

    If the driver earns most of their income from your company they may be classified as an employee.

  • Supply of Equipment:

    If your company provides the trucks, fuel, and maintenance, then the driver is an employee.

  • Benefit Eligibility:

    Offering benefits like health insurance, retirement plans, or paid time off means the driver should be classified as an employee.

  • Long-Term Relationship:

    A long-term, ongoing work relationship without a set end date often means the person is an employee.

Now that you know the basic differences the next step is to weigh the pros and cons of each. In the articles below, we explore the benefits and drawbacks of hiring drivers as employees or independent contractors. Let us help you decide what’s best for your trucking business.

Pros & Cons of Using W2 Employees Pros & Cons of a Contractor

*** Consult our legal guide on truck driver classifications for an in-depth understanding and avoid costly mistakes. ***

Click here to read our article “Can I pay my driver 1099 or does it have to be W2”

This image features Melisa with long, light-colored hair smiling at the camera. She is wearing a bright blue top and is set against a solid dark blue background, giving the portrait a professional yet warm appearance.

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.