It’s a simple test. If you’re responsible for the well-being of a driver while he’s on the road, tell him what to do on a day-to-day basis, and have ultimate control over his actions by dictating some sort of company policy, then you’re his employer in the eyes of the Canada Customs and Revenue Agency-CCRA. That means you’re liable for source deductions like Canada Pension Plan, unemployment insurance, and other taxes, as well as employment benefits like workers’ comp and severance pay.

Yet it’s a test owner-operators, small fleets, and so-called “contract drivers” fail all the time. CCRA’s principles of “care, direction, and control” have snared lots of truck fleets, owner-operators, and drivers who weren’t aware of their obligations or worse, tried to skirt them.

In fact, it appears that some such schemes have been conceived to do just that. And when the “deal” is explained to the unsuspecting driver, it can be spun to sound like the best thing since sliced bread. That’s the danger, really: it sounds too easy. Too easy to pass off your rights and responsibilities as an employer.

Using a contract driver, or one-man “driver service,” can work to everyone’s advantage if the arrangement is set up properly from the start, but it might just ruin you if you’re trying to cut corners. Even if you hire someone for one working day, he’s your employee. You’re responsible for making the proper source deductions for payroll remittances.

It’s only by convention that CCRA may recognize a short-term hiring situation and thereby dismiss the employer’s obligations-as long as the contract driver reports the income and takes the proper deductions himself.

We recently heard about a major carrier in southern Ontario whose owner-operators were all subpoenaed by the province’s Workers Compensation Board to pay the back premiums owed on the earnings of the contract drivers they hired. The owner-operators thought the drivers, through their driver-service arrangement, were paying the premiums themselves or had opted out of WCB in lieu of some other form of disability insurance. That was until one of them rolled a truck, got banged up rather badly, and discovered that he had not maintained his WCB payments.

The carrier was left holding the bag, and the owner-ops had to dig deep to come up with the unpaid premiums for their drivers. When the driver/owner-operator arrangement came under scrutiny, it was discovered that few of these contract drivers had bothered to incorporate and fewer still had a plan in place to pay their taxes and other financial responsibilities. They seemed to think they could just take the money and run.

It’s hardly unusual. Here’s how a typical arrangement works:
A truck owner will hire a driver who has agreed to sign a contract stating that he’s self-employed, providing professional driving services to the owner of the truck. In return, the owner agrees to pay the driver a fee for services rendered, namely an agreed-upon mileage rate plus any extras deemed appropriate.

At the end of the week, the owner cuts a cheque for the full amount he’s been invoiced by the driver and the deal is complete. If the driver runs 2500 miles at 35 cents a mile, he’s handed a cheque for $875. Simple as that.

At that point, it’s up to the driver to pay CCRA the appropriate amount of income tax, CPP, EI contributions, as well as the premiums on the earnings reported to worker’s comp. The truck owner doesn’t pay the employer’s portion of those costs, as he would in a typical employee/employer relationship, because the driver isn’t actually a hired employee; he’s a hired contractor.

On the surface, it’s not much different from hiring a plumber to repair your toilet, or having the kid next door cut your grass. That individual isn’t really your employee, you’re simply paying him for providing a service.

It’s easy to see why a scheme like this might seem appealing. But all too often the drivers neglect to pay their share of tax, and sooner or later they get whacked by CCRA.

In other words, many of these contract single-driver services aren’t paying enough attention to their legal obligations, assuming they’re even aware of them in the first place. You may think that’s their problem. It’s yours, too, if you’re deemed to be the driver’s employer.

To determine what is a legitimate contract driver, CCRA and WCB apply a few tests to the relationship. First, is there any other source of income, such as other carriers or other services the driver provides? Second, who owns the tools and who retains the most control in the relationship? Third, is there any risk or potential for loss as a result of the business relationship? And fourth, does the driver have the ability to refuse to do the work without penalty or disciplinary action?

When managed properly, self-employed status for drivers can be an agreeable alternative to an employee/employer relationship. But the gray area here demands an examination, and we’ve heard several conflicting opinions on the legality of the whole thing.

Among the benefits of incorporating a small business like this are the typical business expenses that now become deductible, such as travel to and from work, office and administrative expenses, and other little perks like uniform, telephone, and meal expenses. Of course, the margins we’re talking about here are razor thin, and all the applicable taxes must still be paid.

But, as the president of his own corporation, an incorporated driver may be able to opt out of WCB in favor of a less expensive alternative insurance plan. Leo VanTuyl of Truckers Business Consulting Group in Kitchener, Ont., estimates that when done properly and above board, an incorporated driver could lower his taxable income by as much as $5000 if all the available deductions are taken properly.

According to VanTuyl, the only legal requirement for establishing this kind of working relationship is for the driver to become incorporated.

“There really has to be a third-party relationship between the driver and the carrier,” he says. “Otherwise, CCRA, WCB, and everybody else will assume that you’re just trying to work around the system, which carries its own set of penalties.”

The practice of using contracted drivers is most prevalent in the relationship between multi-truck owner-operators and their hired drivers. It happens within fleets as well, but we were rather surprised to learn that more than a few driver services-personnel agencies-were actually hiring drivers out to other carriers while treating them as independent contractors.

For what it’s worth, for the driver there seems more to be lost here than gained. Many go into this kind of deal with their eyes only half open, never asking why the person they’re about to work for wants them to enter an agreement like this. Who has the most to gain, or perhaps we should ask, who has the greatest reason for wanting to avoid any formal employee/employer relationship?

Regardless of which side you’re on, it isn’t a pleasant experience to think that you’re in the type of arrangement we’ve just described, only to find that you aren’t. Believing that all the T’s have been crossed and the I’s dotted when CCRA comes looking for the tax you should have paid can be frightening. Having to pay back money you’ve already spent, believing it was really yours in the first place, can ruin your finances.

And then there’s the really sinister aspect to all this. We understand there are driver services around today, even large ones, who’ll deliberately mislead a driver, especially the young and inexperienced ones, into thinking this whole deal is straight up and legal. The company owners have no assets and no connection to the business, and therefore are very hard to hold accountable for the losses incurred by their contractors. And because the contractors aren’t employees, there’s no way short of going to court to remedy the problem.
And here’s another issue to consider, one that plagues the entire trucking industry: rates. How much is a fair deal?

There’s risk involved beyond what a contract driver might expect in a traditional employer/employee relationship, so you might expect there to be some greater return to compensate for the exposure. But that’s not always the case.

Often, notes Kieran J. O’Briain of Kee Transport, a major player in the personnel leasing business, the single contractors as well as the fly-by-night driver services don’t charge enough to cover the costs of employing the driver.

For example, it may cost a carrier $12.50 an hour directly to pay an employee driver $10 per hour. The extra $2.50 covers the employer’s contribution to EI, CPP, WCB, EHT, and all the other costs of employment. A personnel agency, on the other hand might add another $1.50 an hour to the bill to cover its overhead and earn a profit. That driver is in fact costing the carrier $14 an hour, while the driver may only be taking home $8.50 an hour after deductions.

A one-man driver service might think he’s getting away with something if he only charges $12 an hour while paying the contract driver the entire $10 an hour and letting him worry about the deductions. This may be why, like the carrier and shipper problems, it’s hard to find a decent rate for the time you spend on the job: there’s just too much competition from folks who aren’t playing fair.

There is a host of other concerns to sort out as well, such as drug and alcohol testing, long-term disability insurance for permanent injuries suffered on the job, and the scary spectre of personal liability resulting from a lawsuit after a motor vehicle accident, especially in the United States.

As well, you need to remember that as a citizen of this country, you’re required to pay taxes. If you are an employer-or are self-employed-it’s your responsibility to make sure you’re paying the appropriate taxes and deductions. Any scheme that purports to offer a way to skirt the system is in fact a scam.