Classify truck drivers properly, or face the consequences

Some trucking companies use a business model that has come to be known as “Driver Inc.” to classify their truck drivers as “independent contractors” when they are actually employees.

By misclassifying the drivers, Drivers Inc. companies are trying to avoid deducting certain payments which should be properly remitted, such as source payments for Canada Pension Plan contributions, income tax, and Employment Insurance. For employees, the companies are also supposed to contribute the employer’s share of CPP and EI to the Canada Revenue Agency (CRA), and report income and deductions on a T4  slip.

The self-employed drivers themselves are expected to make any necessary payments, which may not happen. If the drivers are not actually independent contractors, this misclassification is not legal and may have consequences.

But it is not just some companies who want the Driver’s Inc. model. Many drivers also want to be classified as “independent contractors” to access tax benefits and business expense deductions that might come with being incorporated, and also to avoid an employer’s statutory payroll deductions.

But misclassification is not permitted by employers or employees.

Employment status directly affects whether a person is entitled to EI, how the worker is treated under the Canada Pension Plan and the Income Tax Act, as well as other legislation.

From the company perspective, are your drivers properly classified? If you are a driver, how can you tell if you are an independent contractor or employee?

New drivers especially should learn their rights and obligations, and beware if any company or school is promoting the Driver Inc. model.

The consequences of Driver Inc.

With misclassification, there are consequences. The CRA, for example, has reaffirmed its commitment to protecting and maintaining the fairness and integrity of Canada’s tax system. Under-reporting income and inappropriately claiming expenses, or failing to remit taxes are serious matters.

Recently, various government agencies, including the Federal Ministry of Labour, have been moving to investigate and uncover Driver Inc. companies and/or misclassified drivers. This has included targeted inspections.

Employment and Social Development Canada has also confirmed that Driver Inc. drivers are in fact employees, which means the drivers working for federally regulated carriers will be entitled to all benefits under the Canada Labour Code.

Driver Inc. companies should also be aware of possible class actions or other legal action by misclassified drivers looking for denied or forfeited benefits.

Defining a personal service business

If found not to be an independent contractor, a driver may be reclassified as a “personal service business”, which does not have the same tax write-offs as a corporation, and back taxes may be owing. Part of the enforcement may include fines and penalties.

Being an independent contractor is certainly acceptable, but that classification must be a true and accurate one.

So, how can you tell? First, the driver can’t be operating as a business.

To determine the personal service business status, any review must  include:

  1. the control that the company has over the driver, or the independence that the driver has;
  2. the degree of financial risk and business responsibility the driver has;
  3. and whether the driver has an opportunity to make profit or is required to make an investment.

The CRA’s website, among others, lists the characteristics that are key to this determination, and which can apply in other sectors. The CRA looks at the working relationship between the company and the commercial driver.

Looking at the working relationship

With the exception of Quebec, a driver is likely an employee and not an independent contractor if the company:

  1. requires the driver to accept all loads and trips assigned to them, and the driver is not permitted to accept any additional cargo from other shippers, and is not permitted to subcontract carriage assignments without the company’s approval;
  2. requires the driver to follow specific routes or schedules;
  3. requires the driver to report daily and to explain delays or downtime regardless of their ability to meet any imposed deadline;
  4. requires the driver to get approval before taking a truck for repairs or other actions;
  5. requires the driver to park where the company directs when the vehicle is not in use;
  6. can impose disciplinary actions when the driver is late or is in breach of policies and procedures;
  7. dictates the method of pay, pay rate and/or how the pay is calculated;
  8. provides overtime pay, as required;
  9. pays for downtime;
  10. provides benefits that would not normally be available to non-employees, such as vacation days, sick days, short-term or long-term disability coverage, medical/dental insurance coverage, or a pension plan;
  11. requires the driver to ask for permission to take time off work or arrange for vacation time;
  12. provides all tools including truck and communication devices with no charge to the driver;
  13. pays for operating expenses such as fuel, oil, maintenance, insurance, and repairs;
  14. arranges for a replacement driver if the truck driver can’t take a route;
  15. pays worker’s compensation premiums for the driver;
  16. reimburses the driver for any expenses relating to the services they performed for the company;
  17. does not hold the driver responsible/liable if something goes wrong with the carriage.

The truck driver’s point of view

From the truck driver’s view, independent contractors are their own bosses. They have capital invested in their business (such as tools and a truck), manage their own staff, hire and pay individuals to perform the work, and establish a “business presence” through things like signage and a website. They have a risk of loss in their business, control their own schedule, and incur expenses that are not reimbursed while carrying out services.

A company or a driver can apply for a ruling on a driver’s classification. These requests can be made no later than June 29 of the year following the taxation year in question. So, for 2020 status, the deadline would be June 29, 2021.

Knowing whether you or your drivers are properly classified is essential to avoid any penalties that may be imposed after an investigation into the driver’s or company’s practices and procedures.

As always, getting professional assistance is always a good call.