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With recent discussions and news coverage regarding the U.S. Department of Labor (DOL) independent-contractor rule, now is a good time to review independent contractor status guidelines and which classifications are best suited for your business. As you think about your strongest asset, your people, the independent contractor classification goes beyond today’s cost, as misclassification can result in much higher costs down the line.  Now is also a good time to consider your options when hiring company drivers and what resources are available to successfully manage the risk of employing company drivers.

There was a change to Independent Contractor Status under the Fair Labor Standards Act in early 2021 that was later revoked, so as of right now we are back to using the longstanding methods of determining independent contractor status.  Determining independent contractor status requires using a myriad of factors and considering the totality of the relationship between carrier and driver.

First, review the Fair Labor Standards Act (FLSA), which entitles employees to minimum wage, overtime pay, and other benefits, and affects workers' compensation. The FLSA applies only to company employees and not to independent contractors.  However, the definition of “employee” is broad, resulting in many court cases making the ruling whether workers were misclassified as contractors and treated as employees but not receiving FLSA protections.

Second, examine the relationship between the worker and business, as the IRS describes:

“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, not what will be done and how it will be done. Small businesses should consider all evidence of the degree of control and independence in the employer/worker relationship. Whether a worker is an independent contractor or employee depends on the facts in each situation.”

The IRS also details using three categories for determination: behavioral control, financial control, and the relationship of the parties. 

California uses the ABC Test for independent contractor classification, and other states, like New Jersey and Illinois, also use a stricter list of factors for determining a properly classified independent contractor.

Similar to the ABC Test in California, the House recently passed an act to amend the National Labor Relations Act, titled the Protecting the Right to Organize Act of 2021 or the PRO Act.  Part of this act proposes three requirements for independent contractors to meet in order to maintain independent contractor status. The Act states:

“An individual performing any service shall be considered an employee (except as provided in the previous sentence) and not an independent contractor, unless—

  • (A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;
  • (B) the service is performed outside the usual course of the business of the employer; and
  • (C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”

The concern for the trucking industry is the second requirement, where the usual course of business of the employer is concerned. If independent contractors are defined as a carrier that is trucking goods, then trucking companies won’t be able to hire someone that is conducting the same business.  Independent contractors would then need to be classified as employees, which may not be desired by the drivers or the company.

Though the future of the PRO Act in the Senate is uncertain, changes to the independent contractor definition in legislation continue to be introduced. Reviewing the various rules for independent contractors and your employee classifications now is imperative so that you are prepared if the law changes in the future.

The Department of Labor states, “Employers may not misclassify an employee for any reason, even if the employee agrees.”  Misclassification can become a costly mistake, and you don’t want to find yourself having to pay for back wages, insurance settlements, and other financial penalties.  For example in 2019, Knight-Swift Transportation Holdings agreed to a settlement estimated at $100 million for improperly classifying drivers as independent contractors. J.B. Hunt and Prime, Inc. have also experienced lawsuits and settlements regarding independent contractor classification. The best course of action is to make sure your drivers are classified correctly and reduce your risk for misclassification.

Whether you are using company drivers today or looking to possibly add company drivers to your lineup of independent contractors, there are many resources for hiring and employing company drivers, including recruiting, HR services, payroll, benefits administration, compliance, etc.

Also, there is a solution for employing drivers without the liability risk.

Using a workforce partner like TeamOne Logistics will eliminate the employee-related risk and liabilities, including workers’ compensation.   With TeamOne Logistics employing your drivers, you don’t have any employee-related risk.  TeamOne Logistics handles everything for the employee, including workers compensation, EEOC, regulatory compliance, as well as payroll, benefits administration, safety, compliance, recruiting, and more. 

We take on all worker’s compensation liability with first-dollar coverage, eliminating this risk from your business. This means you no longer bear the employment-related risk and have no deductible should a worker’s comp issue arise.

With TeamOne Logistics as a partner, you can eliminate your workforce risk while reducing cost and complexity, allowing you to focus on the revenue side of your business, concentrate on your customer relationship, and fine-tune operations. 

As the situation regarding independent contractor classification continues to evolve, you need to be ready as new rules come into play by having the right partner by your side.  Contact TeamOne Logistics today to find out more about eliminating workforce risk.