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What’s the Difference Between an Owner/Operator and an Independent Contractor?

What's the Difference Between an Owner/Operator and an Independent Contractor?

The trucking industry is one of the largest employers in the United States, with roughly 9 million people in trucking-related jobs. Of that number, 3.5 million are truck drivers. Many truck drivers are classified as either independent contractors or owner/operators—two titles that are often incorrectly used interchangeably. The reality is this: An owner/operator is always an independent contractor, but an independent contractor is not always an owner/operator. While this may seem like semantics, the truth is there are very real distinctions that impact a driver’s workload, finances, and autonomy.

What is an Owner/Operator?

An owner/operator, in short, is someone who both owns their equipment—or finances their equipment through a financial institution on their own accord—and operates their equipment as their career. In other words, an owner/operator is “an independent contractor with a business attached to their name.” Owner/operators have the ability to operate under their own authority, which means they can legally transport freight independently without a carrier company contracting them. One of the upsides to being an owner/operator is you get to keep all of the revenue generated for each haul. Because owner/operators own their trucks and function as businesses, they face more responsibilities than independent contractors. Unlike many independent contractors, owner/operators are responsible for all of the maintenance and repairs on their trucks, the record-keeping for their taxes, the insurance for themselves as well as any other drivers they may employ, and scheduling and planning out their pickups and deliveries.

Not all owner/operators are 100% independent, though; some choose to lease onto a carrier company. Leasing onto a carrier company means an owner/operator provides the company with a truck and driver in exchange for guaranteed steady workflow from the carrier company for the duration of the contract. While this is a type of independent contracting, the driver still owns the truck and is therefore classified as an owner/operator. There is a downside, however, to leasing as an owner/operator; if an owner/operator gets into a lease with a carrier company, the driver cannot “haul freight for other companies or brokers that the company they are leased to [does] not have an agreement with.”

What is an Independent Contractor?

An independent contractor is a driver who signs into an agreement with a carrier company that will provide them with operating authority and guaranteed hauls for the duration of their contract. In exchange for the operating authority and guaranteed hauls, independent contractors usually have to give a percentage of their earnings to the carrier as part of the contract agreement. Furthermore, independent contractors do not necessarily own their trucks; oftentimes, they have to lease the equipment from the carrier company contracting them. While leasing the equipment from the company is more cost-effective up-front, if the driver decides to leave the carrier, the truck stays with the company and the driver is out of the money they paid to lease the vehicle during their time with the company.

One major benefit to being an independent contractor is contractors who are not in a lease-to-purchase agreement typically have less responsibility when it comes to the maintenance of the truck or any repairs that may come up during a haul as the driver does not own the vehicle. This is important because repairs on semi-trucks run anywhere between $10,000 and $20,000—and that’s without taking into account lost wages while the truck is off the road. With this in mind, many novice drivers begin their careers as independent contractors until they are financially ready to branch off on their own.

What Are the Biggest Differences Between an Owner/Operator and an Independent Contractor?

Ultimately, the difference between owner/operators and contractors comes down to three important aspects: ownership of the truck, operating authority, and autonomy. As an owner/operator, if you are unhappy with the company you are carrying for, you can leave and take your truck with you. Independent contractors, however, may not own the truck they’re driving, so if they’re unhappy with the carrier company, they can leave but won’t retain ownership of the truck—the carrier will. As an owner/operator, you also have the operating authority to legally deliver freight throughout the United States without a contract through a carrier. As an independent contractor, on the other hand, you can only operate a truck under the operating authority provided by the carrier you contract for. Even if you own your truck as an independent contractor but do not have legal operating authority in the United States, if you leave the company providing you with operating authority, you lose the ability to legally haul freight. There are pros and cons to being an owner/operator or an independent contractor, and depending on where you are in your driving career, you should take the time to weigh your options carefully and make the decision that is best for you.

Find out what owner-operators should do to achieve success!

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Why Owner/Operators Should Run Hard This Holiday Season

There is no doubt that the COVID-19 pandemic has had an impact on the vast majority of industries throughout the country; the freight industry is no different. Currently, carrier rates are skyrocketing, surpassing the all-time high for rate prices several times throughout the course of the year. As we enter peak freight season, now is the time for owner/operators to run hard in order to maximize revenue and take full advantage of a unique holiday season where spot rates are at record highs. Traditionally, owner/operators tend to work fewer hours when carrier rates are at their highest. With higher rates, drivers are able to reach their financial goals faster, using the extra time to catch up on rest or family time. A little downtime will always be a good thing, but this holiday season is shaping up to be different; rather than take time off, more and more owner/operators plan to run hard through the new year for multiple reasons.

Possible Country-Wide Shutdown

As COVID-19 infection numbers throughout the United States spike to global highs and the country prepares for a shift in leadership, the economic uncertainty in the air is palpable. The transition from President Trump to President-Elect Biden brings with it a new plan for combating the pandemic, which could mean another country-wide shut down. In November, the president-elect’s coronavirus advisors proposed a plan to shut the country down for four to six weeks at the start of the new year to combat the virus. Shutting down the country has a very real impact on the trucking industry, and owner/operators should understand the possible impact a shutdown could have on business and revenue streams.

Increased Wait Times for Pickup and Dropoff

While on the road, a driver’s livelihood depends on their ability to drop off one load and pick up another quickly and efficiently. Turnaround time for freight drivers makes the difference between a successful season and an unsuccessful one. During the first shut down, many truckers faced drastically increased wait times at pick-up locations due to social distancing measures and decreased on-site staff. For drivers, every hour is valuable and when they spend more time waiting they spend less time driving, or worse, less time resting—a tired driver is a dangerous driver. Ultimately, the increased time waiting leads to less time spent driving and loss of revenue. If another shutdown is on the horizon, owner/operators should use this peak season to prepare their finances to account for delayed travel times or anticipated time off if necessary.

Closed Towns and Changed Routes

These increased wait times weren’t even the worst problem many drivers faced. Many of the towns, businesses, and rest stops long-haul drivers rely on closed as well, leaving drivers with few, if any, options along their routes. Long-haul life can be daunting and dangerous, and with limited access to clean and safe rest stops and restrooms, a shutdown would severely impact a driver’s quality of life while on the road, forcing some to make the decision to avoid those routes completely. When drivers are forced to change their routes navigating unfamiliar routes can lead to increased time on the road, unsafe conditions, and even delays in shipments costing drivers valuable time and money in the long run.

Possible Increase in Industry Unemployment

In the event of a second shutdown, owner/operators should be financially prepared to take time off of work. The first shutdown led to record unemployment rates in the trucking industry, with 88,000 people losing their jobs in the month of April alone. The previous record was set in April 1994 when 49,000 people in the industry lost their jobs. While unemployment numbers have gone down, the industry still faces the very stark reality that a second shutdown could have comparable effects. Owner/operators should take this opportunity to build a nest egg for their families while rates are at their highest and opportunities are available—before the new year brings further uncertainty to the United States economy.

Record High Rates

Even if the country doesn’t enter a second shut down, freight rates will likely never reach today’s record prices again. In October 2020, dry van spot rates were 60 cents higher than in October of 2019—a 30% increase year over year. This rise in prices is only expected to continue through the holiday season as e-commerce sales soar, making this the perfect time to execute one last push before 2021 brings unpredictability and doubt. With the inevitability of either a second shutdown or prices returning to industry norms, owner/operators don’t want to miss out on the current gold rush happening in the industry.

Whether the country faces another lockdown or not, the rates are bound to return back to normal early in 2021. Many owner-operators understand the importance of the next few weeks to reaching their financial goals for the year. As we enter the high-demand holiday season, driver’s should run hard to maximize their annual revenue before the start of the new year.

5 Tips for Winterizing Your Semi-Truck

Working as a long-haul owner/operator is a difficult, dangerous career not meant for the faint of heart. Ever-changing road and weather conditions, unfamiliar locations, 70-hour workweeks, and almost total isolation—the modern owner/operator faces unparalleled challenges day in and day out. As the winter season creeps in, drivers have their work cut out for them as they deliver all of those unbelievable Black Friday deals and Santa’s nice-list promises. With that in mind, it’s imperative that owner/operators plan ahead for the harsh winter weather and prepare their trucks for what is sure to be one of the busiest holiday seasons to date.

Here are five tips for winterizing your semi-truck to stay safe and save money while on road:

1. Inspect Your Battery

Many people don’t know this, but extreme weather can zap the charge from a vehicle’s battery. According to Farm and Dairy, “Cold temperatures wreak havoc on batteries because they slow the chemical reaction inside of the battery. Though batteries can function under myriad conditions, the cold weather tends to degrade high-quality batteries and may render subpar batteries useless.” The last thing an owner/operator needs is to wake up to a dead battery as their truck sits in a parking lot in the middle of nowhere, therefore losing valuable driving time and increasing expenses. Avoid battery problems by inspecting the battery connectors for corrosion, securing the mounts, and checking the electrical components. If the battery is over two years old, consider replacing the battery prior to peak season.

2. Install an Electric Block Heater

Diesel engines require significantly more heat to turn-over than their gasoline counterparts—the combustion range for gasoline is 700 to 1,000 degrees Fahrenheit while the range for diesel is 1,000 to 1,200. In cold enough temperatures, a diesel engine may struggle to turn-over, and during the most inclement winter weather, there may be no viable way for the engine to reach the necessary temperatures. This can be avoided by installing an electric block heater to keep the engine warm while the vehicle is off overnight, ensuring it rolls over on the first try regardless of the weather outside.

3. Check Your Tires

Ideally, drivers should inspect their tires religiously as tire blowouts account for roughly 6% of semi-truck accidents. The need to inspect tires increases with the colder weather as worn-out, damaged, or underinflated tires can struggle to gain traction in snow and ice, creating unsafe driving conditions. Additionally, owner/operators need to pack the correct size and number of tire chains in case their route takes them through a state where semi-trucks are required to use chains. Tire chains are an owner/operator’s best friend when driving on icy terrain; they can make all the difference between reaching your destination safely or sliding into a ditch—or worse. Stay prepared and plan ahead.

4. Inspect Your Cooling System

A semi-truck’s engine cooling system has to work overtime during the winter months. This is due to the fact that the harsh winter weather forces the engine itself to work significantly harder than in the warmer months. The cooling system should be thoroughly inspected and tested by a mechanic prior to the winter season to make sure no hoses are worn or damaged, hose clamps are tight and secure, and the radiator has no damage or leaks. If the cooling system fails, the entire engine will fail along with it, costing you precious dollars and quite possibly your deadline. The last thing an owner/operator wants is to be stranded on the side of the road with no fix other than replacing the cooling system completely.

5. Prepare an Emergency Kit

Sometimes, no matter how much you plan, or how much you prepare, you still run into the proverbial—or literal—bump in the road. If an owner/operator finds themselves stranded in harsh winter climates while in route to their destination, it can be incredibly dangerous without the necessary supplies to ensure your safety and survival. Always prepare an emergency kit to protect yourself from the weather or other threats you may face while on the road. We recommend including the following items in your emergency travel kit:

● Extra blankets
● First aid kit
● Flashlight and extra batteries
● Canned food and bottled water
● Gloves
● Scarves
● Hats
● Snow boots
● Snow shovel
● Flare and flare gun
● CB Radio
● Extra coolant, washer fluid, engine oil
● Extra fuel filter and fuel filter wrench
● Spare Diesel fuel
● Tire chains

These items will make sure you are safe, protected, and have extra supplies on-hand in case the problem can be easily solved—such as low oil levels or running out of fuel.

5 Things CPAs Must Be Aware of When Filing Taxes for Owner/Operators

The COVID-19 pandemic created a situation where e-commerce sales have grown astronomically—with total online spending in the month of May reaching upward of $82 billion (an increase of 77% year-over-year). This rapid increase in online sales also led to an upsurge in the demand for trucking services, and with trucks having limited storage capacity, the trucking industry as a whole has seen a steep uptick in demand and revenue—in September alone dry-van spot rates hit a record high of $2.37 per mile. With success comes responsibility: More than ever, it’s important for owner/operators to ensure their taxes are filed accurately and on time to maximize their return and avoid penalties.

Here are five things CPAs must be aware of when filing taxes for truck owner/operators:

1. Per Diem Rates

Filing taxes as an owner/operator can be complicated and navigating the tax code can feel arduous. One of the most beneficial tax incentives for an owner/operator is the ability to deduct certain costs under the travel expense tax category, including a per diem tax deduction equal to 80% of $66 per day. In order for an owner/operator to be eligible to receive a per diem deduction, the IRS has two specific requirements:

    1. The owner/operator will be away from home overnight while traveling for work
    2. Work requires travel substantially longer than the length of a workday

Be sure to keep track of receipts from travel expenses, including meals and lodging, in order to capitalize on all per diem tax deductions and avoid losing hard-earned money while on the road.

2. Mileage Deductions

For owner/operators, the IRS considers a semi-truck to be a qualified non-personal use vehicle, which means mileage cannot be deducted as a part of business expenses. This is because owner/operators are taxed only on the profit they make and receive deductions for time off and “deadhead miles,” or miles driven without a load on a truck’s trailer. Although mileage cannot be deducted while on the road since the truck is considered a non-personal vehicle, what can be deducted are actual expenses for the truck such as fuel costs, oil changes, minor and major repairs, insurance, and even tires. Additionally, while truck mileage may not be deductible, mileage on personal vehicles used for work can be deducted if the vehicle is used for business-related driving such as during trips to a supply store or the bank.

3. Depreciating Property Deduction

One of the largest tax deductions owner/operators are eligible for is the depreciable property tax which allows owners to deduct the depreciated value of the equipment that they use—most importantly, their truck and trailer. Owner/operators have the option to choose from a variety of different depreciation schedules in order to meet their specific tax needs, providing owners with the option of an expense deduction up to $1 million for a new truck in the first year of service.  The depreciating property tax may be one of the most important tax deductions an owner/operator needs to be familiar with.

4. Tax Form 1099-NEC

For the tax year 2020, the IRS resurrected the 1099-NEC (non-employee compensation) tax form requiring owner/operators to file their taxes differently than they have in the past. Typically, at the end of the year, an owner/operator would receive a 1099-MISC form from the companies they contracted as a driver for, fill out the form, and submit that form to the IRS. This changed for 2020; now the IRS requires owner/operators to complete both the 1099-NEC and the 1099-MISC. The 1099-NEC is used exclusively to report the compensation received by contractors for fees, commissions, rewards, and other forms of payment for services rendered while the 1099-MISC is used to report miscellaneous income such as rent or legal settlement payments. Ensuring the appropriate tax forms are correctly filed within the IRS deadline is important to prevent the IRS from performing an otherwise unnecessary audit of an owner/operator’s finances.

5. Security Dog

If an owner/operator brings their dog on the road with them, there are circumstances where expenses related to the dog can be used as tax deductions. If an owner/operator uses their dog as a form of security for themselves and their truck, then expenses related to the dog while on the road are tax-deductible. These expenses can include dog food, training, veterinarian bills, or other expenses incurred in the process of caring for the dog. In order to utilize this tax deduction, the IRS requires any dog used as a guard dog must receive training from an accredited training service or school—the cost of training is deductible as well.

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How Truckers Can Prepare for the Holiday Season Amid COVID-19

How Truckers Can Prepare for the Holiday Season Amid COVID-19

Days are becoming colder and shorter, festive lights are appearing on every street, and fleets of semi-trucks are working to move holiday goods in tandem with their essential deliveries. This peak season, you can anticipate a 10-20% increase in your mileage as you travel the U.S. to transport products and meet high consumer demand. The combination of demand, winter road conditions, and the restrictions of the COVID-19 pandemic can lead to truckers feeling more pressure than usual.

Not to mention, this year, companies like Amazon and UPS plan to fill over 100,000 seasonal distribution jobs throughout the United States. As these large retailers hire seasonal workers, the demand for shipping providers will mirror the growth—which means you need to prepare yourself and your rig before starting on a busy haul during peak season. In this blog, we will discuss how you can prepare, get ahead of your competition, and reach your maximum earning potential while staying safe and enjoying the holidays.

1. Preventative Maintenance

Caring for your rig is crucial to the survival of your operations. A great way to start the caretaking process and prepare your truck for peak season is through preventative maintenance. If your truck has recently been idle for an extended period, you could be looking at rusted parts, sludge where there once were fluids, and other potentially critical issues. With the holiday season approaching, take your semi to a mechanic to perform a full inspection; they can then handle any necessary maintenance, like an oil change or hose replacement. While this may seem like a costly process, it could mean the difference between a successful season and a broken-down rig. In the long run, taking care of your truck will keep you safe and your truck running smoothly all season long—which means more jobs and greater revenue.

2. Vary Freight Sources

When COVID-19 forced America to shut down, around 88,300 drivers lost their jobs in April alone. This hit was devastating to the trucking industry, and it caused many owner/operators to reevaluate how they run their fleet. As technology progresses, mobile apps and load boards are on the rise in popularity among drivers. A source like DAT keeps up with the industry’s varying factors, like the economy or the weather. Technology can also provide real-time updates and insights to keep you in touch with your supply chains and help obtain your maximum earning potential.

On top of mobile apps and load boards, you can work with companies like Amazon, Walmart, Target, and more. As e-commerce demand sets new records year after year, the holiday season continues to see spikes in spot rates as companies meet their contract limitations but rush to keep up with shipping demands brought on by the COVID-19 shutdown. Spot rates have hit a record high of $2.37 per mile this year and will most likely surpass that number in these next few months. Keep an eye out for these job openings over the next couple of months.

3. Revisit Your Insurance

Another way to prepare for this unique holiday season is to revisit your insurance. The COVID-19 pandemic brought immeasurable amounts of uncertainty, and it’s during times like these that insurance becomes crucial. While commercial trucking insurance is one of the more expensive components of owning and operating, it reduces the majority of your expenses and covers you in the event of an accident. With the winter weather bringing harsh weather conditions, your chances of an accident increase, making peak season the perfect time to reach out to your provider and reevaluate your damage and rental coverage.

4. Practice COVID-19 Protocol

Possibly the more obvious way to prepare for the COVID-19 holiday season is to familiarize yourself with the standard protocol. As you travel, you’ll find yourself in unfamiliar locations; plan your route by keeping in mind where you can eat, sleep, and refuel. Restaurants and fast-food locations across the country have had to change their operation hours, so you’ll need to consider that when planning your route. On the bright side, some of these restaurants are providing discounts and other offers for the inconvenience. These can be found under the International Franchise Association at franchise.org.

The same restrictions and benefits go for accommodations as well. Try to limit your exposure by decreasing the number of times you interact with frequently touched objects and disinfect these objects and surfaces when you can. Stay socially distanced from others during stops or when loading and unloading, and use a proper face covering in public. Wash your hands after visiting a location or handling items like clipboards or other frequently touched objects. To keep up with state and local regulations, use government resources like the CDC, ATA, CVSA, FMCSA, FHWA, and the SBA.

Now that you know what it takes for a successful peak season, it’s time to get to work.

While this year has higher shipping demands due to COVID-19, the holidays have always come with their own set of challenges. Read our post, How the Holiday Season Impacts the Trucking Industry, to see what obstacles the holidays present and how to overcome them.

What Would Our World Be Like Without Truck Drivers?

Just about every facet of consumers’ lives is made possible because truck drivers deliver goods on a daily basis. According to the American Trucking Associations, the trucking industry carried 72.5% of all freight transported in the U.S. in 2019, equating to 11.84 billion tons. If truck drivers were to stop operating, we’d be in big trouble.

Navigating COVID-19

During the current COVID-19 crisis, truck drivers have proven to fit the government’s “essential worker” title. National Truck Driver Appreciation Week took place on September 13-19, 2020 to emphasize the vital role truck drivers have played during the coronavirus pandemic. While many places of business such as restaurants, clothing stores, and bars, have shut their doors to contain the spread of the virus, local and federal authorities have requested the trucking industry continue to keep the supply chain in motion.

In the words of a trucker quoted in USA Today, “If the freight’s there, it’s got to move. If people are going to eat, the trucks are gonna move. If they need medical supplies, the trucks are gonna move. If we stop, the world stops.” Thankfully, the estimated 3.5 million United States-based professional truckers are continuing to keep the shelves of grocery stores stocked with food and household necessities for consumers, along with ensuring medical staff receives supplies needed to give proper healthcare.

What Would Happen if We Didn’t Have Truckers?

Many people outside of the trucking industry do not think about where all of their goods originate from, nor give a thought to the dire scenario that could be presented if truckers stopped operating completely. Consider the example of the week-long strike carried out by truck drivers across Brazil in 2018. CNN reported the results heavily impacted the country as the strike “prevented the delivery of goods to supermarkets and gas to petrol stations.” It even affected public transportation since gas stations ran out of fuel.

So, if truck drivers stopped operating here in the States or other countries around the globe, would chaotic disorder ensue? In short, the answer is yes, especially while we’re in a pandemic.

The first 24 hours would hurt the medical field the most. Due to the lack of delivery, medical supplies would become depleted. Hospitals would run out of basic supplies such as syringes and catheters. Therefore, if the trucking delivery network stopped, hospitals, clinics, and pharmacies would quickly run out of necessities. Looking for a check from your employer or a gift from a relative? There’s a good chance you wouldn’t receive it since the USPS, FedEx, UPS, and other package delivery operations would cease. Also taking place within a day would be the onslaught of food shortages and service stations would begin running out of fuel. Further, without manufacturing components and trucks for product delivery, assembly lines would shut down, resulting in the unemployment of thousands of people.

And that’s just the beginning.

In a matter of two to three days, ATMs across the country would run out of cash. Thus, banks wouldn’t be able to process transactions. Garbage would begin piling up in both great metropolitans and suburban areas. Essential supplies such as bottled water and canned goods would disappear resulting in even more food shortages, especially when consumers panic and hoard foodstuffs (we’ve seen it during natural disasters). Service stations would completely run out of fuel for all vehicles, including the essential working trucks. Imported goods shipped from other countries from the sea would remain in ports.

Within a week, due to the lack of fuel, automobile travel would come to a standstill. Hospitals would begin to run out of oxygen supplies. By the fourth week, the clean water supply would be completely exhausted, and water would only be safe for drinking after boiling. You might be wondering, “What’s a truck driver have to do with the water supply?” Everything. Every 7-14 days, truck drivers deliver purification chemicals to water supply plants. Without such chemicals, water cannot be purified and made safe for us to drink. Inevitably, the water supply plants would run out of drinkable water in two to four weeks.

Thank a Trucker Today

The future’s indeed bleak when you think of a world without our all-important, heroic truck drivers. The magnitude of a ceased trucker operation would produce a trickle-down effect that would ultimately impact everything—right down to our physical health. This information isn’t meant to frighten you. Instead, we hope it bolsters your appreciation for truck drivers internationally. They’re carrying out a job that’s difficult even when we’re not enduring a global crisis. Next time you meet a local truck driver, be sure to thank him or her for their service—because, without them, we’d lack the necessities and comforts we’ve come to take for granted.

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