Do your research before considering life as Driver Inc.
August 1, 2000
I recently fielded several calls concerning truck drivers who offer their services as independent contractors, invoicing companies for their work rather than opting for traditional "employee" status.O...
I recently fielded several calls concerning truck drivers who offer their services as independent contractors, invoicing companies for their work rather than opting for traditional “employee” status.
One of the drivers was concerned about the implications for his loss of benefits, while another viewed it as a neat business opportunity that gave him the ability to write off certain expenses. The latter also had thoughts of developing the business relationship into a small driver service.
Contract services are commonplace throughout the business world – whether they involve an external security force, nursing services, temporary office personnel or a host of various business consultants. Of course, owner/operators are contractors who provide trucks and driving services.
In all of the above situations, some of the individuals are employees, while others are small business operators. However, an individual who provides driving services as an independent contractor is not the same as a conventional driver service. In the latter instance, drivers are driver service employees.
From a hard business perspective, it’s easy to see why someone would want to go the independent contractor route. I’m told that having an employee carries a cost of approximately 20 to 25 per cent on top of traditional paycheques once you consider payroll deductions such as Canada Pension, Unemployment Insurance, Health Tax, Workers Compensation, vacation payments, and other company-provided benefits. In other words, we’re talking about $8,000 to $10,000 per year on top of a $40K annual wage. There is a clear cost-saving for the fleet.
From the employee perspective, I expect that most drivers don’t care, and that the scenario of an independent contractor driver will never be an issue. Most current employers in the industry would not consider this approach unless, of course, it became commonplace. Most employees only look at the bottom line on their paycheque – and while there is considerable bitching about the amounts extracted in the form of tax and other deductions, they are used to it, regardless of where they work.
The one chap I spoke with was fairly excited about his opportunities, but I expect he wouldn’t represent many drivers. At one point, he had been an owner/operator- and a successful one – but opted for the role of a driver to be ensured more time at home. He understands the possible benefits associated with being an independent driver, particularly the enhanced deductions that flow to businesses but not to employees. And he particularly likes the notion that he won’t, as part of the equation, have to provide a truck. He will simply drive and be paid for that service.
There certainly are those who would view such arrangements as just another way to chip at employment opportunities and reduce employer obligations and responsibilities. While I agree with that part of it, I might add that one removed employment opportunity is offset by a small business opportunity that’s presented.
There are others who will take the approach that the whole thing is just a ruse to circumvent regulations and policies set by government agencies such as Revenue Canada or the folks at Worker’s Compensation. And yes, I would agree that in some instances, such a move may very well have the earmarks of a scam aimed at avoiding employer responsibilities and payroll deductions.
Speaking of Revenue Canada, they are going to be the most suspicious of such an arrangement. Payroll deductions are a major source of revenue for the federal government. In the case of a contract driver (certainly one that is incorporated) who is not an employee of his own company, but is a shareholder who draws dividends, RevCan loses big in the short term since neither the company nor shareholder would shell out for CPP, UIC.
If companies or drivers seek the independent contractor route, they should first obtain some serious accounting and tax advice. If the arrangement doesn’t pass the “look, feel, and smell” test, it will probably come under scrutiny from various government agencies. And the repercussions and tax assessments could be staggering.
For a small driver business to work, there must at least be a degree of independence. Ideally, the driver should work for more than one company. And certainly, drivers invoicing more than $30,000 a year must register for the GST. n
— Blair Gough is a consultant to the trucking industry and can be reached at 905-689-2727.