OWNER OPERATORS
AND
INDEPENDENT CONTRACTORS

Opinion by Mike England
President and Sr. Safety Consultant
DOT Compliance Help, Inc.

A lot of motor carriers have experimented with calling owner-operators independent contractors, and
many of them have had significant legal and financial problems because they don’t think through the
big-picture questions. The main questions that need to be answered are listed here.

Who is responsible for:

1. Income Taxes

2. Workers Compensation

3. Unemployment

4. Social Security

5. Safety Compliance

I have heard horror stories about owners of small trucking companies who have attempted to shift responsibility for all these things by using owner-operators and calling them independent contractors,
and I always tell people you need to think about who is taking care of these things.

Its one thing to have an owner-operator contract and CALL them an owner-operator (independent
contractor), but can you really not worry about workers comp insurance? Is it true that if a driver does
not pay social security or income taxes, these agencies can come back and hold you responsible
retro-actively? Is using an owner-operator a way to get away from paying unemployment insurance?

I have heard all these and more – this is just the beginning of the type of entanglements you might be
ahead. Here is the pro and con:

If a worker is an employee, you have certain obligations for income taxes, insurance, and so on. If
someone is self-employed normally they can’t file for unemployment just because a contract has end
d (unless they pay unemployment insurance taxes themselves). I often launch into a brief discussion
on this topic with the following Abe Lincoln quote:

“If you call a sheep’s tail a leg, how many legs does a sheep have?” Often, I have a bit of fun with this
because usually I can bait someone in a room to say “Five!” To which I respond, as Honest Abe did,
by saying “No sir. A sheep only has 4 legs. It doesn’t matter what you call his tail. Calling a sheep’s
tail a leg does not make it one. And calling an owner-operator an independent contractor does not
make him a separate trucking company.”

As Honest Abe said, calling a sheep’s tail a leg doesn’t make it one. And calling someone an
owner/operator (independent contractor) does not automatically relieve the company of all the
responsibilities of business ownership.

Some general guidelines:

An employee normally follows the directions of his employer, and is totally dependent on his
employer for income. A contractor is only asked to achieve a certain outcome, and has an individual
opportunity for profit or loss (he determines the procedures that will be used, provides his own
equipment, and so on).

A classic example would be a painting contractor who is hired to paint your building. Of course, a
driver who supplies his own equipment can also be independent, even if he contracts primarily with
one employer for an extended amount time. (There is no time limit on how long someone can be a
contractor, but if the individual has never advertised for other jobs and is generally under your control,
like being subject to reductions in hours, then he's probably an employee.)

In particular, you might look at the definition for a “statutory employee” which comes with certain
obligations for employment taxes. This category includes: “A driver who distributes beverages (other
than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry
cleaning, if the driver is your agent or is paid on commission.”

The FMCSA tends to follow the lead of other federal agencies in this area, and the IRS is typically the
strictest. Therefore, to make the best choice for yourself, the IRS is certainly something you should
not overlook. The issue of liability typically arises when someone was defined as an independent
contractor, but the facts show that he should have been an employee.

My position is simple. Who is better prepared to compel compliance with the FMCSRs? A truck driver
with his own DOT number who never did like the HOS regulations or a company with a terminal, a
parking lot, and a business relationship with a number of shippers? If you are trying to create the
impression a driver is a separate company, there are a lot of people (and government agencies) who
have a vested interest in showing that this is a fraudulent business relationship. I don’t think you can
outsmart them all.

My final comment on the topic is this:

If you have a good driver and you want him to have a good quality of life, you can only pay him so
much. If he wants to take on added responsibility and a moderate amount of risk in return for a better
quality of life, and you want to let him shoulder the responsibility for equipment maintenance, an
owner-operator contract is a perfectly legitimate transaction, as long as you are cognizant of the
FMCSA requirements such as those found in FMCSR part 376.

But, if you want to call an owner-operator an independent contractor, you may be involved in an
inherently illegal transaction and you should be in touch with an attorney to help you with this
important decision. Keep in mind, there are attorneys who specialize in this and tend to be in favor of
it. That doesn’t mean it is the right decision for your company. There are also a lot of attorneys who
frown on it. They don’t advertise as specializing in the process because they don’t have a particular
axe to grind.

To the left is a list of some resources meant to assist you as you try to understand all of the different
issues involved. They are all separate attachments that go along with this analysis. Good Luck and I
hope this helps you make the decision that’s right for you and your company.  

IRS Definition
Independent Contractor vs Employee

IRS Tax Tips
for Business Owners

IRS Brochure 1779
Employee Perspective

Department of Labor Fact Sheet
Employment Relationship under FLSA

Owner Operator Contract
Sample Lease Agreement

Alternative Legal Opinion
A View from the Other Side

Robert Franklin Analysis
Deficient Lease Agreements 

FMCSR Part 376
General Discussion Points