The real and only solution for AB5 and other laws like it:
So, we all know that California AB5 is now law as the United States Supreme Court decided not to hear the case brought to find it illegal. There is a lot of gnashing of teeth about this and I understand why but that doesn’t help.
We need to settle the contractor/employee line in trucking once and for all. Until we do that, we are going to have 50 states with 50 different sets of rules and the federal government with its own set. This will just keep us fighting in the courts which is only good for the attorneys, not the trucking companies or the drivers.
Where do we draw the line?
California’s AB5 and other states’ laws use the ABC test to determine employee or contractor. The IRS 20-point test for this determination. The “B” in the ABC test asks if the worker is doing work that is outside the usual course of business of the company. For example, someone that comes in to paint the walls of the building is not an employee of a trucking company but if they were a painting company, the worker would be an employee. That all works fine for painting companies and most other jobs but we all know that trucking is a little different.
Before we get there we need to recognize an issue:
There are many trucking companies that are abusing the 1099 system to the advantage of the company and the disadvantage of the driver. Either straight up 1099ing drivers that drive company equipment or making up sham leases to pretend that they are legit owner operators when there is no way the driver will ever own the truck they are allegedly paying on. This practice needs to stop and we will need to remember that when trying to construct a solution.
How do we draw the line?
We can agree that the companies that 1099 company drivers in company trucks are not paying legally. We can also agree that a driver that owns their own truck, pays their own fuel and maintenance, and gets to keep the savings is a contractor, right? Great, well let’s draw the line there. It’s similar to the IRS 20-point test but allows us to ignore the requirement to work for other companies since the DOT will not allow it. If the driver is financially responsible for the success and failure of the truck (fuel costs, maintenance, etc..) they should be a 1099 contractor. If not, or if they can walk away from the truck without risk, then they are W-2.
Check out these articles for a more in depth explanation of 1099 vs. W2:
Until then what do we do?
Since I am not the king of the world or POTUS, I can’t wave a magic wand and make this happen. In the meantime, we will need to do other things. If you are a California trucking company and have 1099 owner operators, you should tell them to get their own MC authority. Someone like Bobby at truckingangel.com can help them through it. If you are not in California, keep watching your state’s laws as a law like AB5 could come to your state.
Written by Mike Ritzema
Before founding Superior Trucking Payroll Service, Mike was the CFO of a trucking company with 80 trucks and a thriving brokerage. This experience gave him the perspective that a payroll solution has to make the lives of office people better. All the solutions he has designed are to benefit everyone. Our company’s mission is to help trucking families and that includes the company owners, the drivers, and the office.
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