Owner-operators in over-the-road trucking traditionally have been recognized as independent contractors because of the owner’s substantial investment in equipment. The safe harbor was expanded to include equipment made available by the carrier under lease/purchase to the owner-operator as long as the owner-operator’s financial stake was preserved (see www.irs.gov/pub/irs-utl/van-ops.pdf).
Unfortunately, this safe harbor has been put under attack by the Obama-Durbin-Kennedy Bill, introduced as the Independent Contractor Proper Classification Act of 2007 (S. 2044). This bill, if passed in Congress, would authorize the Treasury Department to issue new criteria for determining independent contractor classification. Whistleblower protections would be imposed to encourage disgruntled owner-operators to contest classification, and the IRS would adjudicate the disputes. The safe harbor provisions allowing carriers to rely on industry standards would be repealed. Passage of this or similar legislation clearly is a scary proposition.
To hedge their bet and preserve their independence, owner-operators may need to incorporate or even acquire their own operating authority, entering long-term contracts with broker affiliates of asset-based carriers.