by
Tim Brady
Should you pay your drivers by the mile, by percentage, or by the hour? Truckers aren’t covered by the 1937 Fair Labor Standards Act, or by the federal minimum wage law, so the decision as to which method to pay truck drivers is left to each individual motor carrier. But, remember, you get what you pay for.
After considerable thought and after reviewing the many conversations I’ve had with truckers—as employees and lease operators, company owners and managers—as well as reviewing university studies concerning driver pay, my conclusion is that per mile is the least attractive of the three wage scale options.
Per-mile pay is very difficult to understand because of the various methods of computing pay. For which miles are drivers being paid? Odometer, PC or pro miles, or origin-to-destination? What about deadhead miles? There’s a lot of room for confusion by both driver and management, and that confusion can easily lead to discontent and even conflict between drivers and management—and this, in turn, leads to driver turnover.
These misunderstands can be reduced by choosing to pay drivers either by percentage of revenue or by-the-hour. Each method is far easier to calculate with less bookkeeping than per-mile calculations and both are easily understood.
Also, incentives such as improved mileage, ‘no violation’ inspections, safe driving, on-time delivery, no accidents or no moving violations can be added, allowing drivers to receive additional revenue for good performance. Again, this is far easier for everyone to understand.
WHAT DRIVERS WANT
A study done in 2005 by Professors John E. Delery, Ph.D., and Nina Gupta, Ph.D., of the Sam M. Walton College of Business at the University of Arkansas, outlines needs that must be met in order to retain drivers. These are:
Should you pay your drivers by the mile, by percentage, or by the hour? Truckers aren’t covered by the 1937 Fair Labor Standards Act, or by the federal minimum wage law, so the decision as to which method to pay truck drivers is left to each individual motor carrier. But, remember, you get what you pay for.
After considerable thought and after reviewing the many conversations I’ve had with truckers—as employees and lease operators, company owners and managers—as well as reviewing university studies concerning driver pay, my conclusion is that per mile is the least attractive of the three wage scale options.
Per-mile pay is very difficult to understand because of the various methods of computing pay. For which miles are drivers being paid? Odometer, PC or pro miles, or origin-to-destination? What about deadhead miles? There’s a lot of room for confusion by both driver and management, and that confusion can easily lead to discontent and even conflict between drivers and management—and this, in turn, leads to driver turnover.
These misunderstands can be reduced by choosing to pay drivers either by percentage of revenue or by-the-hour. Each method is far easier to calculate with less bookkeeping than per-mile calculations and both are easily understood.
Also, incentives such as improved mileage, ‘no violation’ inspections, safe driving, on-time delivery, no accidents or no moving violations can be added, allowing drivers to receive additional revenue for good performance. Again, this is far easier for everyone to understand.
WHAT DRIVERS WANT
A study done in 2005 by Professors John E. Delery, Ph.D., and Nina Gupta, Ph.D., of the Sam M. Walton College of Business at the University of Arkansas, outlines needs that must be met in order to retain drivers. These are:
- Consistent pay week to week
- Pay for all tasks required to complete a load
- Consistent home time
The
professors concluded in the study that per-mile pay wasn’t conducive to meeting
these needs.
When a trucker is paid by the mile, any slow travel or idle time reduces the driver’s pay. In other words, the more dangerous the conditions, the lower the amount of pay the trucker receives. Paying by the mile can and does cause drivers to take unnecessary risks because they feel that if they don’t make the miles, they won’t make the take-home pay they need. So this now becomes a safety issue.
What about by-the-hour and percentage pay? This really comes down to the individual situation of the trucking company and what type of hauling you do. It also depends on how much revenue information you’re willing and/or able to share with employees and contractors.
Let’s first examine the employee driver. Since he/she is an employee, you’re withholding taxes from each paycheck. This is conducive to either an hourly or percentage-based pay scale. Personal preference and what works best in your segment of the business would be the determining factor.
One thing about paying percentages is that the employee becomes a part of the business. The lower everyone can keep the costs, the more money everybody can earn. By-the-hour can create an opportunity for employees to pad the time it takes to complete a job, thus costing the carrier more than it should have if the job had been paid on a percentage basis. On the other hand, if the work is tedious and very detailed—and it’s important for the employee to take the time to cover all the intricacies—then per hour might be better.
It gets a bit dicey for lease operators (contractors), as it comes down to how much of the contractor’s business are you, as the carrier, controlling?
Many states and the IRS are closely looking at whether drivers are employees or independent contractors, so while you may believe that one way is better, you should understand the differences. The IRS uses three characteristics to determine the relationship between businesses and workers.
Behavioral control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means. Financial control is whether the business has a right to direct or control the financial and business aspects of the worker’s job. And finally, how do workers and business owners perceive their relationship?
Following are some of the things every business owner must consider before hiring:
When a trucker is paid by the mile, any slow travel or idle time reduces the driver’s pay. In other words, the more dangerous the conditions, the lower the amount of pay the trucker receives. Paying by the mile can and does cause drivers to take unnecessary risks because they feel that if they don’t make the miles, they won’t make the take-home pay they need. So this now becomes a safety issue.
What about by-the-hour and percentage pay? This really comes down to the individual situation of the trucking company and what type of hauling you do. It also depends on how much revenue information you’re willing and/or able to share with employees and contractors.
Let’s first examine the employee driver. Since he/she is an employee, you’re withholding taxes from each paycheck. This is conducive to either an hourly or percentage-based pay scale. Personal preference and what works best in your segment of the business would be the determining factor.
One thing about paying percentages is that the employee becomes a part of the business. The lower everyone can keep the costs, the more money everybody can earn. By-the-hour can create an opportunity for employees to pad the time it takes to complete a job, thus costing the carrier more than it should have if the job had been paid on a percentage basis. On the other hand, if the work is tedious and very detailed—and it’s important for the employee to take the time to cover all the intricacies—then per hour might be better.
It gets a bit dicey for lease operators (contractors), as it comes down to how much of the contractor’s business are you, as the carrier, controlling?
Many states and the IRS are closely looking at whether drivers are employees or independent contractors, so while you may believe that one way is better, you should understand the differences. The IRS uses three characteristics to determine the relationship between businesses and workers.
Behavioral control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means. Financial control is whether the business has a right to direct or control the financial and business aspects of the worker’s job. And finally, how do workers and business owners perceive their relationship?
Following are some of the things every business owner must consider before hiring:
- If you have the right to control or direct not only what’s to be done, but also how it’s to be done, then your workers are most likely employees.
- If you can direct or control only the result of the work done—and not the means and methods of accomplishing the result—then your workers are probably independent contractors.
Employers who misclassify workers as
independent contractors can end up with substantial tax bills. Additionally,
employers can face penalties for failing to pay employment taxes and for failing
to file required tax forms.
Workers who know their proper status can avoid higher tax bills and lost benefits, and companies can avoid potential IRS penalties. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee. They can file Form SS-8 to request determination of the status of a worker for purposes of federal employment taxes and income tax withholding with the IRS.
The bottom line? Whether your truckers are employees or independent contractors, the objective is to create a pay structure that encourages your drivers to stay and not seek greener pastures while still providing the necessary profitability to the company.
Workers who know their proper status can avoid higher tax bills and lost benefits, and companies can avoid potential IRS penalties. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee. They can file Form SS-8 to request determination of the status of a worker for purposes of federal employment taxes and income tax withholding with the IRS.
The bottom line? Whether your truckers are employees or independent contractors, the objective is to create a pay structure that encourages your drivers to stay and not seek greener pastures while still providing the necessary profitability to the company.
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