Welcome to Part 3 of our blog series: independent contractors vs. employees. Last week, we focused on the two types of distinct livery services; the dispatch service and the transport service. While both have clear differences, there is always going to be “grey area.” This week, let’s take a look at this “grey area” and what sort of questions it may lead to.
As stated last week, the IRS made a good point and said that “limousine companies generally offer both dispatch and transport service and classifications issue most frequently arise in these mixed or typical service.” This is where the opinions start to differ and both livery services begin to mesh together because typically the livery companies contend that the drivers run a complete and separate business. This translates into a variety of areas that overlap and become confusing. The IRS is then prompted to ask a number of questions. These questions include:
#1: Do drivers have a significant investment?
• The company may own the vehicles but the drivers will lease the cars.
• The company may own the central telephone/radio system but the drivers own their own car phones and radios.
#2: Do drivers have an opportunity for profit and loss?
• The company may provide gas for the cars, but the drivers stock the vehicles with drinks, magazines and other courtesy supplies.
• The company may require their drivers to be available in the evenings; however, the drivers can refuse jobs that are offered throughout the day.
#3: Are drivers subject to instruction?
• While the company may require the use of drivers’ logs and payment records, the drivers maintain their OWN business records.
#4: Do drivers make their services available to the public?
• The company may advertise their business in the Yellow Pages and online, but the drivers have their own business cards to hand out, as well.
#5: Do drivers render services personally?
• The company may forbid the use of outside drivers, but the drivers could substitute other drivers if they ALSO work for the company.
In some cases, livery operations may even have a contract in place that states that the parties agree that the driver is an independent contractor. One would think the debate it over, correct? Well, no. The IRS took it another step further and developed a common law factor test in order to establish independent contractor status. Be sure to come back next week to learn more about this test!