You've got the truck. You've got a client (or two). You've formed the company. You've bought insurance. Now what do you do?
Here is part three of a five-part series on How to Create a Trucking Company:
You need drivers, and like everyone else, you think they should be independent contractors. The benefits of independent contractors are well-known to small business owners, and the trucking industry is no different. No employment taxes. No workers' compensation issues. No unemployment insurance. Sounds like a great deal for the trucking company owner. But the widespread use of independent contractors has lowered the quality and documentation of independent contractor-owner relationships and heightened government oversight. Independent contractors have become the designer handbags of the trucking industry: Sure, everyone has them, but are they real?
Often, they are not. And this can create huge (and expensive) legal issues down the road. We have seen a crackdown in some states, especially by State tax authorities. What do they want? All that money that you have been saving on employment taxes. Best case scenario you can expect an uncomfortable audit; worst case scenario you could owe your state millions in back taxes. The problem is this: Even if you consider a person an independent contractor, they could still be a "statutory employee"-i.e., an employee in every way but name. The legal test boils down to an owner's control over the independent contractor. A court will look at a laundry list of elements to determine if you treat your independent contractors as employees by controlling components like their schedule, their uniform, their tools, and how exclusive they are to your company.
We anticipate that this will be a heavily litigated issue in the next few years. The government wants its money. Plaintiff attorneys want their money. And too many trucking companies have left themselves exposed and vulnerable.
Here are some tips to keep in mind when thinking about hiring drivers for your trucking company:
1. Hire a lawyer to draft your independent contractor agreements. Sometimes the best advice is that you need better advice. The internet is replete with copy-and-paste solutions, but if you want something that is going to protect your company in your state, hire an attorney who does it for a living. Don't bet your company on blogs, articles, or other free resources. The future of your company is worth an attorney's hourly rate.
2. Require your independent contractors to form an LLC. This is such an easy way to offer your company a whole lot of protection. It's a hard argument for any regulator to make that your independent contractor is an employee when you're paying another company, not an individual. Make sure you only pay the independent contractor's LLC.
3. Take a long look at your operations. Do the majority of your independent contractors work exclusively for you? Do you require them to come to work at a specific time? Do you require them to wear uniforms? Can they sell, assign, or delegate their jobs or responsibilities to others? Sit down with your lawyer and run through your company's day-to-day operations. A few tweaks could offer a substantial amount of protection.
4. "A rose by any other name..." We hear the trucking industry equivalent of "but the other kids are doing it" all the time from clients. Just because you call them independent contractors does not make it so. Take the time to review your policies and strengthen them where necessary. Seek expert advice. See what similar companies are doing. Don't feel comfortable just using 'independent contractor': there are rarely magical words when it comes to the law.
Please check back to our blog next week for Step Four - Safety.
Mike H. Bassett is a Senior Partner at The Bassett Firm. Mr. Bassett's practice focuses on Insurance Defense, Transportation Litigation, Products liability, Premises Liability, and Employment Litigation. He received his B.B.A from the University of Texas El Paso in 1984 and his J.D. with distinction from St. Mary's School of Law in 1987. Mr. Bassett was voted a Texas Super Lawyer in 2006.
R.G. Bradshaw Hawkins is a Law Clerk at The Bassett Firm. Mr. Hawkins received his undergraduate degree with honours from University of St. Andrews, Scotland, and is in his second year at Southern Methodist University Dedman School of Law in Dallas, Texas.