Independent thinking

Todd Dills | November 01, 2011

But at Rudolph, working in general freight, the transition for the operators was fairly simple, says recruiter E.W. Dennison. Costs for the owner-operators rose only marginally. “We’ve always required workers compensation insurance or occupational accident,” he says, as well as general liability. Rudolph now covers higher cargo insurance premiums for their power providers, and new commercial auto liability requirements for the newly independent owner-operators were affordable with savings in other areas and a boost of a few cents in mileage pay. “From their standpoint,” Dennison adds, with the exception of an extra paperwork step with bills of lading, “their lives didn’t change at all.”

Leasing through another party

Cleveland-based attorney Richard Plewacki describes a leasing model in which an independent entity, a “transportation agent” (TA), sits between the carrier and its independent contractors.

This model may gain traction as an alternative to traditional owner-operator independent contractor arrangements if carrier worries over control challenges continue to intensify.

It works like a traditional lease, but there’s a middleman – the TA – who holds a contract with the owner-operator and the carrier. The carrier is utilizing the TA to outsource most of its administrative functions as they relate to the independent contractors. Still, “the rights and benefits” afforded the contractor by the federal Truth in Leasing regulations “have to be in place,” says Plewacki. In the contract between the TA and the motor carrier, the TA agrees to take on the responsibility of ensuring that “the owner-operators he brings to the table have legal right to the equipment,” Plewacki adds, “and that they’re DOT-qualified.”

When an owner-operator contracts with the TA, he agrees to comply with whatever “spec sheet” the TA has agreed to with the motor carrier. The spec sheet, Plewacki says, may include items such as the required use of certain communications devices or standards for powered equipment.

Variations in the TA-owner-operator contract could enhance independent contractor freedom, Plewacki says, further protecting all parties from classification challenges. For example, “the transportation agent may require that the owner-operator doesn’t put the motor carrier on the base plate,” he says. “The same could be true for an IFTA account, ultimately giving the owner-operator more flexibility to work for others.”

Arizona-based Contractor Management Services (ICtherightway.com) is moving in the direction of the model that Plewacki describes, says Executive Vice President Scott Glandys. Today, the company acts “as a clearinghouse,” he adds, taking over the validation of owner-operator credentials for carriers during the signing-on process and monitoring those credentials during the owner-operator’s term with the carrier, making the company something of a third-party relationship service provider rather than pure transportation agent.

Getting closer to Plewacki’s description of the TA model, the company plans to “leverage our software and services to create that front-end recruiting,” Glandys says. Owner-operators will be able to “use the system to find a motor carrier, and vice versa.” An individual owner-operator’s qualification file will be maintained “with constant monitoring” as long as the operator has a contract with CMS, streamlining the matching process for carriers and owner-operators alike. This holds the potential to make changing carriers much more easy for owner-operators, eliminating much of the recurring costs for switching, Glandys says.

CMS is also “plugging in with partners that will provide discounted services,” anything from various insurance policies to “things such as getting operating authority set up,” he says, to help operators as their businesses evolve. Further, facilitation of trip-lease agreements is on CMS’ radar – helping carriers work together when an IC who may not have his own authority is going to run under another carrier’s authority.

Goal of greater freedom

These new approaches to using owner-operators would help eliminate what National Association of Small Trucking Companies President David Owen says is a central problem for carriers utilizing ICs. “Based solely on the criteria of the IRS, there’s no real 1099 independent contractor at a carrier where owner-operators are under the control of dispatchers or fleet managers,” he says, referring to the tax Form 1099 earnings reports companies supply independent contractors.

But carriers have long had “safe harbor” from some of the right-of-control rules based on Section 530 of the Internal Revenue Service code. The section spells out requirements for companies utilizing independent contractors. The safe harbor provision makes the prevalence of the IC classification in a particular industry a reasonable basis for classifying workers as ICs.

Without the provision, which would have been gutted by recent attempts at federal legislation addressing IC classification, companies utilizing leased owner-operators wouldn’t be able to do so without significant contract changes.