Canadian fleets that misclassified drivers as independent contractors are scrambling to change their payroll models as a wave of federal audits shows the crackdown on Driver Inc. arrangements may finally have teeth.

Roy Craigen, president of Edmonton-based fleet contract management firm Transcom Fleet Services, says he has worked with six Alberta fleets to convert drivers of company equipment from incorporated drivers to employees.

Federal Labour Code audits and the threats of large and ongoing financial penalties have created a sense of urgency for fleets that classified company drivers as independent contractors. Critics say the model denies labor protections to drivers while allowing both carriers and drivers to avoid certain payroll deductions and taxes.

A fleet Transcom recently worked with was audited by Employment and Social Development Canada, which oversees the Canada Labour Code through its Labour Program. The audit found about 40 of its 60 drivers were misclassified and gave the carrier six weeks to restructure its payroll system to recognize those individuals as company drivers or face fines of up to $250,000, plus $3,000 per day for continued non-compliance and a 24-month reach-back for unpaid but collectible income tax.

“What I have seen is a swift and broad-brush attack on Driver Inc.,” Craigen said, using the term often applied to trucking companies that misclassify employee drivers as independent contractors.

In a further interview with trucknews.com, Craigen said auditors are leaving no question about the consequences of noncompliance. A common fear of fleets with misclassified drivers is that they’ll quit if forced to work on payroll.

Proponents of the incorporated driver model say it’s because they want the freedom that comes with taking time off when they want to, and having more influence over their work schedules.

Critics say the real motivation for drivers is the ability to underreport income and pay less income tax. Regardless, Craigen said, “Not one single driver talked about quitting” at the firm he most recently converted to a traditional payroll model.

“It’s how we present it,” he added. “If they leave and go to another company, they might get away with Driver Inc. for another few months, but that company is going to be faced with the exact same thing.”

Craigen encourages such companies to be transparent about the change, and explain that it’s government-, not company-driven. That also means being honest about the tax implications. Payroll drivers could see their income taxes triple if they haven’t been compliant as contractors or personal services businesses, Craigen says.

But they also gain benefits as a company driver, such as labor protections afforded to Canadian workers.

Asked if he believes auditors are targeting specific fleets based on location or ethnic composition, Craigen was quick to dismiss that argument.

“I would say anyone who’s complaining about this is just crying wolf,” he said. “What we are seeing is an attack on Driver Inc. and it doesn’t matter the size of the fleet. It doesn’t matter if it’s a legacy fleet or a fleet that started up last year, from what we see. They’re going after everybody.”

His advice to a fleet that is still running with independent contractors as company equipment drivers? “Do it,” he said of converting them to payroll. “It’s not hard to do and if you don’t do it, you’re going to be forced to do it out of penalties.”