Employees Vs. Independent Contractors Revisited

Posted on May 26, 2016 by - Also by this author

With all the hoopla going on with TNCs trying to classify their drivers as independent contractors instead of employees, it’s time to revisit the two different models used in the luxury transportation industry.

I earned my education in this arena through trial and error. I mean, a real trial caused by an error on our part and uneducated business decisions. After a three-year battle with the feds and California State Employment Development Department, I learned the stark differences in the I/C vs. employee models of service in an expensive way. It took years to pay back the past due taxes with interest and penalties and that was after an Offer In Compromise was reached.

If I share with you some of the questions that were asked of me during the hearing, you will see exactly how the IRS views the relationship based upon certain criteria. I was asked, “At the end of a typical shift, when the chauffeur gets fuel, who pays for the fuel? Who owns the vehicle the fuel is being pumped into? Is it ever possible the chauffeur would end up putting money out of his own pocket into the fuel tank and sustain a loss for the day?”

Other questions included whether we had company policies and procedures in place a chauffeur would have to follow. We were asked if a chauffeur can work when desired or if we schedule them to work on a specific day. In other words, do we have direction and control over when they work and how they perform the job?

The bottom line is the true I/C chauffeur must have a financial investment and be subject to losses. If you charge the chauffeur a daily rental fee for the vehicle he drives and he buys the gas for it from the proceeds of the day’s jobs, then it probably would stand the scrutiny of the IRS. However, if he drives your car, uses your fuel and you pay him an amount for each hour worked, he’s more than likely an employee. The IRS and state taxing authorities will see you as simply trying to avoid paying your share of employer based payroll taxes.

Another common mistake is paying employee chauffeurs only for time serving a client. From the time a chauffeur picks up a company vehicle until the time he returns it, he is considered on-the-clock. If the employee has gaps between trips and you require him to keep the vehicle, he is still on the clock and should be paid. I am well aware most operators pay only by the job, but one rogue chauffeur hauling you before the Labor Board could become an expensive lesson for you in proper pay. It won’t be just the employee who filed the claim who gets the back pay. It will be every person in your company who was not paid correctly during the past three years who will be entitled to back pay with penalties plus interest.

Some due diligence coupled with vigilance can save you precious time, money, and reputation.

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