With recent attacks to the independent contractor model in the transportation industry, we put together this list of seven of the most important practices for dealing with independent contractors. These tips are essential in maintaining a distinction between the motor carrier and the contractors.
1. Have a solid Equipment Lease Agreement that is written by an experienced Transportation Attorney.
The Equipment Lease Agreement is your operations manual, your operating bible and the center for which all decisions are based upon. A good agreement must meet the FMCSR Leasing Regulations parts 376.11 & 376.12 requirements and should include language that allows your company to successfully operate yet adhere to the agreement.
2. Maximize the Choices you offer Your Independent Contractors.
It is important to make sure your IC’s know they can haul occasionally for other companies. Encourage owner-operators to perform service for others or otherwise demonstrate evidence of business income earned from other sources.
If you have both Company Drivers and IC’s, make sure your IC’s can net more money than your company drivers. The money they net is based strictly on the decisions they make and not forcing them to take loads against their will.
3. Independent Contractors Should Be Separate Entities
Independent Contractors should be established as a separate corporation, LLC, partnership or other form of business entity. At minimum, the owner-operator should maintain a “dba” with a separate federal employer identification number other than his or her social security number.
4. Document use of the IC's company name on business materials
Contractually require Independent Contractors to maintain and provide copies of business cards, letterhead and other documentation under the Independent Contractor ’s business name.
Keep this evidence of a separate business in the Independent Contractor’s working equipment file. Have the Independent Contractor take out an ad in their local business Yellow Pages under their business name.
5. Require owner-operator to provide proof they're paying taxes
Contractually require the owner-operator to provide proof that he or she has paid self-employment taxes and/or if a fleet operator with employees, that all payroll tax, unemployment and workers compensation insurance have been paid and/or provided for the workers. Failure to document that your independent contractors have proper insurance can be a significant source of risk in the event of an accident.
6. Pay "advertising fees" for displaying the motor carrier's name
The Independent Contractor should be paid “an advertising fee” with respect to the display of the motor carrier’s name on the vehicle or in a logo on a uniform that the Independent Contractor owner operator may be required to wear. Any Uniform logos or magnetic signage on vehicles displaying the motor carrier’s logo should be modified to state that the owner-operator is an independent contractor under contract with the motor carrier.
7. Negotiate – Negotiate – Negotiate!
The Independent Contractor should meaningfully negotiate rates and fees for services rendered. All negotiations should be documented as proof of Independent Contractor relationship.
These are just a few of the many operations best practices” that trucking companies should incorporate into their standard operating procedures when using Independent Contractors in their business model.