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Do-it-Yourself Disaster

by Jim Park

Ever dream of being self-employed? There are plenty of opportunities out there these days, even for company drivers. If that's a path you'd like to travel, be warned that some of the schemes we've heard about sound more like scams.

Being a contract driver, or one-man driver service, can work to your advantage if the arrangement is set up properly from the start, but it might just ruin you if you're trying to cut corners or skirt the law. In fact, it appears that some such schemes have been conceived to do just that. And when the 'deal' is explained to the unsuspecting driver, it can be spun to sound like the best thing since sliced bread. That's the danger really: it sounds too easy. And it's too easy to get screwed.

We recently heard about a major carrier in southern Ontario whose owner-operators were all subpoenaed by that province's Workers Compensation Board to pay the back premiums owed on their hired contract-drivers' earnings. The owner-operators thought the drivers, through their driver-service arrangement, were paying the premiums themselves or had opted out of WCB in lieu of some other form of disability insurance. That was until one of them rolled a truck, got banged up rather badly, and discovered that he had not maintained his WCB payments.

The carrier was left holding the bag, and the owner-ops had to dig pretty deep to come up with the unpaid premiums for their drivers. When the driver/owner-operator arrangement came under scrutiny, it was discovered that few of the drivers had bothered to incorporate and fewer still had a plan in place to pay their taxes and other financial responsibilities. They seemed to think they could just take the money and run.

Here's how a typical arrangement works: a truck owner will hire a driver who has agreed to sign a contract stating that he's a self-employed contract driver, providing professional driving services to the owner of the truck. In return, the owner agrees to pay the driver a fee for services rendered, namely an agreed-upon mileage rate plus any extras deemed appropriate. At the end of the week, the owner cuts a cheque for the full amount he's been invoiced by the driver and the deal's complete. If the driver runs 2500 miles at 35 cents a mile, he's handed a cheque for $875.00. Simple as that.

At that point, it's up to the driver to pay CCRA, the Canada Revenue and Customs Agency, the appropriate amount of income tax, Canada Pension, Employment Insurance contributions, as well as the premiums on the earnings reported to Worker's Comp. The truck owner doesn't pay the employer's portion of those costs, as he would in a typical employee/employer relationship, because the driver isn't actually a hired employee; he's a hired contractor.

On the surface, it's not much different from hiring a plumber to repair your toilet, or having the kid next door cut your grass. That individual isn't really your employee, you're simply paying him for providing a service.

It's easy to see why a scheme like this might seem appealing, but all too often the drivers neglect to pay their share of tax, and sooner or later they get whacked by CCRA. In other words, many of these contract single-driver driver services aren't paying enough attention to their legal obligations, assuming they're even aware of them in the first place.

The Gray Zone

To prove yourself as a legitimate contract driver in the eyes of CCRA and WCB, they apply a few tests to the relationship. First, is there any other source of income, such as other carriers or other services that you provide? Second, who owns the tools and who retains the most control in the relationship? Third, is there any risk or potential for loss as a result of the business relationship? And fourth, have you the ability to refuse to do the work without penalty or disciplinary action?

Assuming you've met the criteria, and the officials decide you are in fact an honest to goodness contract driver, you're away to the races. But in trying to satisfy all those requirements, at some point you should be asking yourself, who is the real beneficiary of the contract-driver relationship?

If it's simply a matter of convenience for an owner-operator or carrier to hire you as a contractor because it lessens the administrative burden at his end, then maybe they're asking you to take on too much of the risk.

When managed properly, self-employed status for drivers can be an agreeable alternative to an employee/employer relationship. But the gray area here demands an examination, and we've heard several conflicting opinions on the legality of the whole thing.

Among the benefits of incorporating a small business like this are the typical business expenses that now become deductible, such as travel to and from work, office and administrative expenses, and other little perks like uniform, telephone and meal expenses.

Of course, the margins you're dealing with are razor thin, and all the applicable taxes must still be paid. But, as the president of your own corporation, you may be able to opt out of WCB in favor of a less expensive alternative insurance plan. Leo VanTuyl of Truckers Business Consulting Group in Kitchener, Ont., estimates that when done properly and above board, an incorporated driver could lower his taxable income by as much as $5000 if all the available deductions are taken properly.

According to VanTuyl, the only legal requirement for establishing this kind of working relationship is to become incorporated.

"There really has to be a third-party relationship between the driver and the carrier," he says. "Otherwise, CCRA, WCB and everybody else will assume that you're just trying to work around the system, which carries its own set of penalties."

From what highwaySTAR has learned, the practice of using contracted drivers is most prevalent in the relationship between multi-truck owner-operators and their hired drivers. It happens within fleets as well, but we were rather surprised to learn that more than a few driver services - personnel agencies - were actually hiring drivers out to other carriers while treating them as independent contractors.

The Downside

For what it's worth, we think that there's more to be lost here than gained, especially if you're going into this kind of deal with your eyes only half open. Ask yourself why the person you want to work for wants you to enter an agreement like this. Who has the most to gain, or perhaps we should ask, who has the greatest reason for wanting to avoid any formal employee/employer relationship?

It isn't a pleasant experience to think that you're in the type of arrangement we've just described, only to find that you aren't. Believing that all the 't's have been crossed and the 'i's dotted when CCRA comes looking for the tax you should have paid can be frightening. Having to pay back money you've already spent, believing it was really yours in the first place, can ruin your finances.

Then you're going to have the folks who decide not to pay their bills. As a contractor, you've got no recourse but to file suit to recover your earnings, and that's just not cost-effective.

Remember the term 'labor law'? Well, you can forget that one while you're working under contract. None of the usual perks employees can get used to in a hurry apply any more - no vacation pay, no statutory holidays, no recourse on a pay dispute, no guarantee that you'll ever see the money you've earned, and no secured-creditor status should your carrier go belly-up. In short, you're on your own, except for the courts.

And then there's the really sinister aspect to all this. We understand there are driver services around today, even large ones, who'll deliberately mislead a driver, especially the young and inexperienced ones, into thinking this whole deal is straight up and legal. The company owners have no assets and no connection to the business, and therefore are very hard to hold accountable for the losses incurred by their contractors. And because the contractors aren't employees, there's no way short of going to court to remedy the problem.

And here's another issue to consider, one that plagues the entire trucking industry: rates. How much is a good deal for you?

There's risk involved beyond what you'd expect in a traditional employer/employee relationship, so you might expect there to be some greater return to compensate for the exposure. But that's not always the case. Often, notes Kieran J. O'Briain of Kee Transport, a major player in the personnel leasing business, the single contractors as well as the fly-by-night driver services don't charge enough to cover the costs of employing the driver.

For example, it may cost a carrier $12.50 an hour directly to pay an employee driver $10 per hour. The extra $2.50 covers the employer's contribution to EI, CPP, WCB, EHT and all the other costs of employment. A personnel agency, on the other hand might add an additional $1.50 an hour to the bill to cover its overhead and earn a profit. That driver is in fact costing the carrier $14 an hour, while the driver may only be taking home $8.50 an hour after deductions.

A one-man driver service might think he's getting away with something if he only charges $12 an hour while paying the contract driver the entire $10 an hour and letting him worry about the deductions. This may be why, like the carrier and shipper problems, it's hard to find a decent rate for the time you spend on the job: there's just too much competition from folks who aren't playing fair.

There are a host of other concerns as well, such as getting into a drug and alcohol testing program, long-term disability insurance for permanent injuries suffered on the job, and the scary spectre of personal liability resulting from a lawsuit after a motor vehicle accident, especially in the U.S.

As well, you need to remember that as a citizen of this country, you're required to pay taxes. Any scheme that purports to offer a way to skirt the system is in fact a scam.

At best, you should be a little leery of any organization that offers or suggests that you might want to consider doing business in this fashion. They might well be looking out for interests other than yours.

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