Should I be Hiring a Driver as an Employee or a Contractor?
Employee vs Contractor. W2 vs 1099. We address this topic a lot on our website, but why is it such a big deal? Either way, the loads get delivered, right? So why not do it the easy way and 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 a delicious mix of caramel and bubbles, dancing around on your taste buds, creating the most wonderful experience. The other is a far less superior blend of sugar and artificial syrup, I’ll let you decide which is which.
Getting back to the topic at hand, it’s the same with employees and contractors. They both have distinct guidelines that set them apart from one another, and it’s crucial to know the difference.
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, the trucks, loads, routes, and so on.
The IRS defines an employee as “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.”
With an independent contractor, you lose that control. They own their own truck, and you can tell them the load needs to get from A to B, but you can’t tell them which route to take.
The IRS defines an independent contractor as “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.”
The difference in pay:
When you pay an employee, you and the employee need to pay tax. Those taxes include:
• Federal Insurance Contributions (FICA) is 7.65% of the employee’s wages and covers a portion of their Social Security and Medicare
• Federal Unemployment Taxes (FUTA) is 6% of each employee’s first $7,000 in wages
• State Unemployment Taxes (SUTA) is required in most states
• Any state and local taxes
Other things that you might have to pay for include benefit packages, overtime pay, and worker’s compensation insurance.
An independent 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 that they are responsible for paying their own taxes, unlike employees who you would 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 decision 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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