Illegal incorporated driver model a stain on our industry
Underneath the surface of the transportation industry is a movement of drivers and carriers that are embracing an incorporation model, sometimes referred to as Driver Inc.
Under this model, drivers are incorporating themselves to work for companies as independent operators, even though they are operating a company truck, have no more rights of movement than a company driver, and are in all sense of the word, a company employee.
Canada Revenue Agency (CRA) deems this type of employment, if identified correctly, as a personal service business (PSB). This comes with the task of independently filing and paying taxes under the driver’s business — not the employer’s they’re working for — and a higher tax burden. Write-offs that are available to true independent contractors, such as meals, fuel and repairs, are not available to a PSB.
This means that carriers are saving money by hiring what they claim are “independent drivers.” This type of practice allows carriers to avoid paying for incentives that often come to an employee, such as benefits. It also does not include the legal protections that are in place for employees, such as short- and long-term disability, sick leave, holidays, overtime, and termination rights.
These incorporated drivers are left to their own devices – running a business without guidance, incentives, or systems in place to support them in the long-term – while the carrier reaps the rewards of reduced payroll costs and obligations.
The PSB disadvantage
This is simply the root of the problem. The domino effect of issues that improperly classified incorporated drivers creates and leaves behind impacts all facets of the industry. For instance, carriers that work under and encourage this model have the capacity to bid on jobs at a reduced rate, in comparison to others, because their operations costs are likely lower than they should be as a result of dodging tax obligations and other required source deductions.
This means carriers that legitimately operate their businesses with employees or legitimate incorporated drivers and owner-operators need to lower their costs to compete and gain the work. But they can’t afford to do so.
Meanwhile, there are some incorporated drivers who are ill-versed about the financial obligations that come with operating a PSB. Therefore, they aren’t filing their taxes properly or, in some cases, at all.
According to Teamsters Canada, the Canadian Trucking Alliance and Association du camionnage du Québec, this type of fraud is costing governments at least $1 billion annually. In addition, the tax rate for a PSB is 33% – meaning that incorporated drivers under this model would be paying more in taxes than company drivers (if they are filing properly).
There is zero legal benefit for a driver to become incorporated under this model. However, it continues to gain traction. Simply put, we need to be better at educating others about what it means to operate under an employer, and the financial obligations and protections that come with employment. And we need to enforce the rules when others break them.
Educate employee drivers
For example, we’ve had members share stories of new hires questioning why there was money deducted off their paycheques. To prevent any misunderstanding of how your company operates, take the time to educate new hires about the many benefits that come with being an employee – including having access to benefits, short- and long-term disability insurance, employment insurance, sick leave, holidays and overtime – and what the financial breakdown looks like on their paycheques.
This level of transparency from the word ‘go’ will help set the stage for trust, nurture your company’s workplace culture, and remove the risk of turnover.
Other members have shared stories of learning about a driver operating under the incorporated model while operating a company vehicle for another company. If you discover a driver working for a carrier operating under this model, report the carrier to the CRA or talk to your supervisor, who will handle the report on your behalf.
We need to band together to prevent this problem from gaining even more momentum and taking away from all that we’ve worked towards — a legitimate place to drive, operate and serve in the transportation industry.
Have your say
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We have helped over 500 payroll drivers to large trucking companies become lease ops this year already. A number of these lease ops are hauling agr goods and supplies often for larger farms
Many 0f the lease ops only spend 7 to 8 months of the year in Canada
They often have their family in another country and by average the income over 12 months they pay less tax for the year. To attract and keep local drivers on payroll they need to gross about $1750 a week or a take home after taxes of about $1400 a wk. Over the road drivers are telling me that they need to make $2;200 on payroll or a take home of at least $1 700 a week to support their family of a wife and 3 children under 10 yrs of age in Ontario. I have many farmers that we are finding lease ops for
I see more disabled homeless truck drivers who had been on payroll than I do lease ops in homeless shelters in Ontario. The trucking companies and gov of Ont need to come with better housing for lower income people including disabled truck drivers. Many of these lease ops came to Canada to work for a large trucking company and as soon as the get their P R they leave these trucking companies. We should ask why they would sooner be a lease op to a farmer or a contractor than stay on payroll and bring their children and wife to ont or Vancouver. The main reason in my opinion from what have been told is they are better as a driver or a mechanic to to work 7 to 9 months of the year in ont and share a camper trailer or a converted (cube) van with 1 to 3 other men than pay higher housing costs than in their own country very often India
From what I understand: CRA needs to get serious about this or the Transportation industry will disintegrate into a lawless sector!!
In the US and especially in California, the governments have clamped down on employers having their employees mis classified as independent contractors. In order to be classified as an independent contractor in California the contractor must prove (1) that the employer has no right to control the manner by which the contractor does the job; (2) that the contractor is free to solicit and does solicit other customers and (3) that the contractor is not doing the same type of work as the employer. By way of example, if a trucker hires an electrician to re wire its office, this is a classic case of an independent contractor.
From the employer’s perspective, it is understandable that they would want to have the truckers be independent contractors. That way the employer does not pay payroll taxes, worker’s compensation, unemployment insurance, medical and dental benefits and other costs of being an employer. On the other hand, the contractor losers out on those benefits. The government wants the contractors classified as employees largely for tax purposes. That way they get income tax and payroll taxes and unemployment taxes collected when payroll is made. Otherwise, they would have to chase the contractors. Also, it is much easier administratively to have the employer account for all of the truckers at one source.
Notwithstanding the substantial penalties which can be imposed for mis classifying a contractor as an employee, there are substantial risks to the employer for doing so. First, if the employee does not pay his or her income tax and/or self employment taxes through his or her corporation, the employer can be forced to pay them. Second, it the contractor is hurt on the job and there is no worker’s compensation insurance in place, the employer can be liable for what the workers’ compensation would have paid. For both of these items, the owners and managers of the employer can be held personally liable.
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If you want to bring in the California model that includes protection for truck drivers and lease ops I would fully support that. I see too many sick injured payroll truck drivers not get the care they need. This falls back on the non-profit groups to cover the costs when the ont gov doesn’t pay for temporary housing or medical costs. I think we should a minimum of a 5 person panel 1 from the health care workers 1from the truck drivers 1 from the lease ops 1 from the O T A or C T A and one from non-profit groups that are currently left with transportation or provide other care when truck drivers and lease ops fall through the cracks in the system.
This article doesn’t seem factual for a number of reasons. If there are no driver benefits, why do so many drivers choose the incorporation route? What is the benefit of reporting a carrier employing incorporated drivers to CRA? Many carriers are engaging incorporated drivers legally. How is this different than working for Uber or Lyft? How is this different that the independent workers who drive Bell and Rogers vans installing residential communications equipment?