September 27th 2019
Driver Inc. - A Trucking Industry Disease
Munden Ventures Ltd. Is a trucking, harvesting and commercial vehicle inspection and repair business based in Kamloops, BC entering its 4th generation. Greg Munden, President, has been actively involved in association and committee work with the BC Trucking Association, Canadian Trucking Alliance and Log Truck Technical Advisory Committee, among others. He is interested in initiatives that attract new and young workers to the industry, as well as policies that provide for level-playing field operating conditions for all trucking companies across Canada. This article deals with a growing epidemic of the incorporation of drivers to work as contractors rather than employees.
As with all industries, there are those who constantly seek out ways to circumvent the laws, gaining a competitive advantage and jeopardizing the quality, above-board players in the sector in the process. Such is the case with the latest tactic being employed by some players in the Canadian trucking industry - Driver Inc.
As the name implies, Driver Inc. refers to drivers incorporating themselves and hiring onto trucking companies as contractors rather than employees. In employing a “contractor”, trucking companies do not make such deductions as income tax, CPP or EI, not to mention negating the costs associated with Workers Compensation and health benefits, all while circumventing labour laws that an employee driver would be subject to. Because companies are paying the gross wage to the incorporated driver, they may even get away with paying a slightly lower “wage” than they might to an employed driver who’s pay is subject to deductions.
From there, the incorporated driver receives pay without deductions, and then proceeds to make “business deductions” against his/her income. Of course, the incorporated driver is responsible for declaring his/her own “wage” and remitting income taxes, cpp, workers compensation premiums, etc. To what extent drivers actually fully report their income is unclear, but anecdotal reports indicate it is well below the gross earnings they would have paid taxes on as an employee driver. Already Driver Inc. is believed to be responsible for more than $1 billion dollars per year in tax avoidance as well as business practices that are far outside of current labour laws.
In many ways, the trucking company employing the incorporated driver may not be crossing any legal lines. After all, it is legal for anyone to “incorporate” as a Personal Services Business (PSB). However, what they are doing is placing a significant amount of risk on the incorporated driver. The problems begin with the deductions that incorporated drivers then begin to take off their income. PSBs are not eligible to make business deductions like other normal corporations because they do not share the same characteristics as a typical corporation, such as: risk for business losses, ownership of assets, control over the work schedule, etc. PSBs are also subject to combined income taxes of 33\%, instead of the recent low corporate tax rates of 12-14\%. As well, PSBs who drive company equipment are deemed to be eligible for all of the labour laws of a regular employee, including overtime, statutory holidays, etc. - here’s where things could get very sticky for companies trying to use Driver Inc. to avoid labour laws.
CRA (Canada Revenue Agency) and ESDC (Employment and Social Development Canada) have recently acknowledged that, if it walks like a duck, and quacks like a duck, it really is a duck (okay those are my words) when relating a contract driver under the Driver Inc. model to an employee driver. Learn more about CRA’s treatment of Personal Service Businesses here. Further, CRA indicated that they would begin enforcing the requirement that company’s issue T4A’s to disclose revenue paid out to contracted 3rd parties...which will make hiding income as a Driver Inc. contractor, much more difficult to hide.
So why would a driver take the risk of becoming a Driver Inc. contractor with all of the potential pitfalls? There may be more than one reason for this. First, the driver may be unaware of the risks they are taking. They may have limited knowledge of the laws of incorporating, particularly of a personal services business, and may not have access to high quality legal or accounting advice.
Secondly, some trucking companies are simply making it a condition of employment that drivers become incorporated. They can mislead unsuspecting drivers with incorrect information about the “upsides” to incorporating, encouraging the incorporated driver to take advantage of their own business deductions and avoiding taxation on their full gross earnings.
It is estimated that trucking companies employing the Driver Inc. model may be saving 6\% or more on overall operating costs. In trucking, where margins can often be 2-5\%, this kind of cost savings is a game-changer.
Moreover, as the federal government continues to introduce increasingly stringent labour standards related to overtime, leave, notice of schedule changes, etc., it only further encourages trucking companies to be tempted to adopt the Driver Inc. model. Not only is this
bad for the trucking industry’s legitimate players, it is bad for the Canadian government and economy as a result of the tax evasion that goes hand-in-hand with the Driver Inc. scheme.
Trucking Associations across Canada are actively engaged in ensuring governments at all levels are aware of this scheme, as well as warning unsuspecting drivers who may be caught up in this program about the significant risks they are running in becoming Driver Inc.
Interested in chatting more about this or other industry topics? Email me at firstname.lastname@example.org
Recent Blog Articles.