Real cause of UK driver shortage is an obscure UK tax law

The author of this piece contends that a UK tax law called IR35 is responsible for at least part of the driver shortage.

In the past, UK drivers were allowed to choose whether to be classified as contractors or employees. But with the change in April of 2021, employers now must decide whether drivers they use are contractors or employees.

According to the author, since April, many trucking firms have chosen to classify the drivers they hire as employees, due to the tax law. This has resulted in lower take-home pay for drivers. Naturally, drivers are upset about that. They can easily decide to quit driving and choose another form of work.

I don’t know whether there is statistical evidence for this phenomenon in the UK.

In the US, drivers themselves choose how they are classified. And they can be chosen to drive by any firm. Some firms, through union arrangements, or by choice, may decide not to hire contractors. However, a firm may also hire a mix of employees and contractors. In the US, employers are required to pay benefits, which include health insurance, unemployment insurance, and other services. According to the ATRI white paper An Analysis of the Operational Costs of Trucking: 2020 Update, benefits represent 10% of total average marginal cost, and wages represent 32%. This is a large amount.

But they do not need to pay those benefits to contractors. In the US, rates received by driver contractors are piece rates, and often the drivers come out worse than they would as employees, because they must buy their own benefits.

Also, contractor drivers must pay the costs of their vehicle, including fuel costs and lease payments. According to the ATRI study, in 2019, fuel costs were 24% of total average marginal cost and lease payments were 16%. These costs would be assumed by trucking firms hiring employees rather than contractors.

But in the US a major concern for drivers are the specific requirements associated with loads, such as picking up and returning chassis and containers, a shortage of parking to meet hours-of-service rules, and delays loading and unloading at warehouses and port terminals. These working conditions can be changed at will by trucking firms, on a trip-by-trip basis, and cause loss of income and waste of time for drivers.

I believe that in the US, this ‘supply chain adaptation’ is making many drivers look for other work. It’s hard for a contractor to avoid these work conditions, and employees, though they may be compensated for some of the time, may find it unsatisfactory for lifestyle reasons. They’d be very tempted to try some other line of work. Anecdotally, construction work is an important alternative.

While the contractor-employee distinction is equally important in both countries, the reasons offered seem to be different. Unions in the US trumpet the value of making drivers unionized employees, and it often does result in greater benefits for drivers, as well as the right to grievance arbitration. But it also means the driver does not get to choose which load to accept. Drivers choose to be contractors because they can choose who they work for and which load they take, in an atmosphere of changing and disadvantageous handling requirements that are often imposed. Regularize that, and drivers would be happier to work.

By Richard Clutterbuck 29/10/2021

The real cause of the driver shortage crisis is an obscure tax law called IR35 – The Loadstar