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Should I Hire Truck Drivers as Employees or Contractors?

Choosing whether to hire a truck driver as an employee or as an independent contractor is critical when running a trucking company because it can have significant implications for your company’s payroll, taxes, and overall operation. In this article, we’ll go over the key factors to consider when deciding whether to hire a truck driver as an employee or as a contractor. You can make an informed decision that aligns with your business objectives and ultimately positions your company for long-term success by investigating these critical considerations.

So how are employees and independent contractors different?

The term “independent contractor” refers to a person who works as an independent contractor. Employees work for your company and are subject to your direction and control. You are in charge of paying their salaries, providing benefits, and withholding taxes. An independent contractor, on the other hand, is a self-employed individual who works for themselves, sets their own hours, and is responsible for their own taxes and benefits.

To the left is a video on driver classification

Both options have advantages and disadvantages when it comes to trucking. Let’s look at each option in more detail.

Hiring a Truck Driver as an Employee:

Employing a truck driver can offer significant advantages, such as greater control over their job responsibilities and schedule. As an employer, you can establish their working hours, allocate specific routes, and provide training to ensure they meet your company’s standards. Furthermore, offering employee benefits like health insurance, retirement plans, and paid time off can help you attract and retain quality drivers.

Despite these advantages, hiring employees also comes with responsibilities such as paying payroll taxes. These taxes encompass Social Security, Medicare, and unemployment, and as an employer, you must also withhold federal and state income taxes from your employees’ paychecks. These additional costs can accumulate rapidly, and you may need to engage a payroll specialist to handle your payroll efficiently.

Hiring a Truck Driver as an Independent Contractor:

If you opt to engage a truck driver as an independent contractor, you will have limited influence on their schedule and tasks. They will bear the responsibility of their own taxes, and you won’t need to cover payroll taxes or offer benefits, potentially saving costs in the short run. However, there are potential drawbacks to consider.

The primary challenge with hiring independent contractors is the possibility of misclassification. If the IRS concludes that your independent contractor is indeed an employee, you may be required to compensate for payroll taxes, penalties, and interest. Moreover, independent contractors may not exhibit the same level of allegiance to your company and may choose to work for your competitors.

How to pay employees and independent contractors:

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 even hire an employee?

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.

Should you hire an independent contractor or an employee?

When deciding whether to hire a truck driver as an employee or contractor, you need to consider your business’s unique needs and goals. If you need more control over your drivers and are willing to pay for benefits and payroll taxes, hiring employees may be the best option. On the other hand, if you want to save money in the short term and are comfortable giving up some control over your drivers, hiring independent contractors may be the way to go.

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.

Regardless of which option you choose, it’s essential to consult with an experienced payroll specialist or attorney to ensure you are complying with all applicable laws and regulations. They can help you determine whether your drivers should be classified as employees or contractors and provide guidance on how to manage your payroll and tax obligations.

Bottom Line:

In conclusion, there are pros and cons to both hiring truck drivers as employees and independent contractors. Ultimately, the decision will depend on your business’s needs and goals. 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 and regulations and managing your payroll and tax obligations effectively. By making an informed decision, you can set your trucking business up for success in the long term.

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Written by Melisa Bush

Before coming to Superior Trucking Payroll Service, in 2011, Melisa worked for a trucking company with 50 trucks. She was the one who processed the driver’s miles and expenses.

Because of this experience, she understands the challenges our clients go through each week while preparing their payroll data for us. Customer service is #1 for Melisa. Her goal is to treat our clients like people with true and real needs, not just another number.

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