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Are FedEx Drivers Employees Or Independent Contractors?

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in Office Management

FedEx is under fire yet again for classifying its drivers as independent contractors.  The attorneys general (AG) in Montana, New Jersey, and New York sent a letter to FedEx last month notifying the company of their intent to sue over labor law violations that have resulted from the company's continued misclassification of drivers.

 

The AG offices reached their conclusion for the following reasons.

  1. Drivers work under an operating agreement in which the company specified the rules related to equipment and operations, vehicle operations, insurance, payments to drivers, service areas, and other aspects of package pick-up and delivery. 

  2. FedEx also controls all aspects of the pick-up and delivery work, including setting drivers' hours; directing and supervising the drivers' performance of their tasks; and mandating drivers' uniforms, down to the color of their socks.

  3. Drivers have limited opportunities to engage in non-FedEx-related work due to FedEx's rules.

  4. The drivers' work is at the very core of FedEx's business activities.

The states argue that the drivers are deprived of their rights under Workers' Compensation, anti-discrimination, and labor relations laws and are forced to undertake significant expenses, such as purchasing/leasing trucks, paying FedEx to use their uniforms and scanners, and paying for fuel and required maintenance for the trucks.  The states also point out that the company engages in unfair competition and hurts the states by not properly paying taxes.

 

What Makes An Independent Contractor An Employee?

Are you sure that each member of your workforce is properly classified?  If an employee is misclassified as an independent contractor, or an independent contractor is treated like an employee, your company could be held liable for back taxes, reimbursement of job-related expenses, overtime pay, and the like, plus tax penalties and even criminal repercussions.

 

A must: Conduct an internal audit to ensure that your worker classifications are correct.  The label you use for workers doesn't matter as much as the actual relationship you forge with them.  Rule of thumb: The more control an employer has over a worker, the more likely it is that the worker is actually an employee rather than an independent contractor. 

 

The IRS's control factors are separated into three categories.  The totality of circumstances is taken into consideration when making a determination.

 

1. Behavioral control: Does the company have the right to control what the worker does and how the worker does it?  Examples of excessive behavioral control that could tip the scale in favor of an employee designation include:

  • Requiring independent contractors to wear company uniforms or meet other appearance standards.

  • Providing independent contractors with tools/supplies.

  • Providing independent contractors with an employee handbook, company business cards, or a company e-mail address.

  • Providing independent contractors with training and direct supervision.

  • Subjecting independent contractors to discipline for violating company requirements.

2. Financial control: Does the company have the right to control the business aspects of the worker's job? 

  • Independent contractors are more likely than are employees to have unreimbursed expenses and to incur fixed ongoing costs regardless of whether work is currently being performed.

  • Independent contractors are more likely to have significant investment in the facilities used to perform services.

  • Independent contractors are generally free to seek business opportunities.  An employer should not prohibit independent contractors from marketing their services to the general public (via their own private business cards, for example).

  • Independent contractors are commonly paid a flat fee for a job, while employees generally receive a regular wage amount.

  • Independent contractors can make a profit or incur a loss.

3. Type of relationship: What facts illustrate how the company and the worker perceive the relationship?

  • Is there a written contract describing the intended relationship?

  • Are employee-type benefits provided (e.g., insurance, vacation pay)? 

  • Is the relationship expected to continue indefinitely?

  • Are the services performed a key aspect of the company's regular business?

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