Should I be hiring a driver as an Employee or a Contractor?
Employee vs Contractor. W2 vs 1099. We talk about this a lot. Why is it such a big deal? Either way, the loads get delivered, so why not do it the easy way or make the driver happy? It’s all the same right?
Not quite. Saying that W2 drivers and 1099 drivers are the same is like saying Coke and Pepsi are the same. One is delicious. A beautiful blend of caramel and bubbles, dancing around on your taste buds, creating the most wonderful experience. The other is a far less superior blend, stumbling around, making a subpar experience. I’ll let you decided which is which. I drink the diet version anyway.
Getting back to the topic at hand, it’s the same with employees and contractors. They both have distinct differences that set them apart from each other. Am I saying that paying your driver one way is bad? Well, kind of yeah. But only if it’s illegal. It is extremely important to know the difference. If you misclassify the driver it could be the end of your company.
In this article, we will talk about:
• How they are different
• The difference in pay
• The true test if you are unsure.
So how are employees and independent contractors different?
Well, it’s more than just taxes.
With employees, you have control and the final say. You are also in charge of the equipment. You tell the drivers what truck is theirs, and they are responsible to make sure the truck is in good working order. You tell the driver what loads to move, if they can or can’t have their dog in the truck, what route to take, the list goes on.
The IRS defines an employee as:
An employee is “anyone who performs services for you… if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action.” Bottom line? Your the boss get to tell them how things are done.
With a contractor, you lose that control.
They own their own truck, so you can’t tell them their significant other or dog can’t ride along. You can tell them the load needs to get from A to B but you can’t tell them what route to take.
The IRS defines an independent contractor as:
An independent contractor is a worker for whom “the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” Bottom line? You are the boss but you don’t get much say.
The next difference? The pay
I mentioned taxes earlier. A lot of people think this is the only difference between employees and contractors. While it’s not the only one, it is a big one. Let’s dive in. I know, sounds super fun.
Paying employees
When you pay an employee, you and the employee need to pay tax. Those taxes include:
• Federal Insurance Contributions. (FICA) This is 7.65 percent of the employee’s wages. This covers a portion of their Social Security and Medicare.
• Federal Unemployment (FUTA), which is 6 percent of each employee’s first $7,000 in wages.
• State unemployment taxes (SUTA), are required in most states.
• Any state and local taxes.
Other things you might have to pay for.
• Benefits packages
• Overtime pay
• Worker’s compensation insurance
Paying contractors
A contractor is classified as a self-employed individual. They can also be classified as individuals who are employed through another entity, such as an outside vendor. This means they are responsible for paying their own taxes. Unlike employees, who you split the tax burden with.
So why would you ever hire an employee?
Short answer? It’s the law.
In the eyes of the IRS, employees and contractors are not interchangeable. They both have their own legal classification. If you hire someone as a contractor and they should be an employee, you can get in serious trouble. You will be penalized and subjected to retroactive payroll taxes along with other costs. The fees and other costs for a single employee are enough to put a small trucking company out of business.
So do you need to hire an employee or an independent contractor?
You will need to ask yourself a lot of questions about what you will need from them. Who’s the equipment they are using, are you in control of how the worker does the job, and so much more.
Now I’m sure you are thinking “what are the other questions?” I’m so glad you asked! Let’s head on over to the IRS 20-factor test.
Please remember, it’s not up to the driver when it comes to how they are classified. Even if they sign a contract saying it’s what they want. If they should be an employee and you are found out, that piece of paper is worthless.
Disclaimer: This article is meant to be a general overview. Consult your attorney before you make any decisions to ensure that you are following local laws
Written By Harley VanDyke
Harley joined Superior Trucking Payroll Service (STPS) in early 2019. With nine years of customer service experience, she truly understands what it takes to make our clients happy. She loves working at STPS because of the family-like atmosphere. Harley’s favorite place to be is Traverse City, Michigan or anywhere that has hippos.
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