Regulations Simplified - Owner Operators
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The owner operator/independent contractor relationship is complicated on many levels and is governed by several entities. The regulation that govern owner operators for the purposes of DOT and FMCSA. Owner operator lease agreements are outlined at 49 CFR Part 376.
What is an owner operator/contractor?
An owner operator is a driver who owns and runs a his/her own business. They move freight based on getting loads on their own DOT number or they lease on to a fleet or fleets to move freight for them. The owner operator model is very popular in trucking because the owner operator is running his /her own business and is responsible for his/her own truck, taxes, licensing, insurance, fuel costs, worker compensation, and all other state and federal taxes. This makes owner operators favorable for fleets who do not want to carry the cost of employees.
Owner operators in todays market have a favorable outlook. Due to the truck driver shortage owner operators are in high demand.
When an owner operator leases on to a fleet they are required by law to have a lease agreement with the fleet hiring their services.
What records are owner operators required to maintain?
- If a owner operator is leased onto a company, the company must collect all of the regulated items of a normal employee driver.
- The fleet they lease onto will require a driver file, maintenance records, the driver participation in their drug and alcohol program,
- Hours of service (drivers logs) are also expected to be provided. This can be done with an electronic logging device the fleet provides or the owner operator already has in their truck.
- The fleet will provide placards of the motor carriers DOT number and name for the side of his/her truck.
- In addition as stated above the company that the owner operator is leasing onto must have a lease agreement in place.
Are owner operators who have their own DOT number and/or operating authority required to keep records like a multi truck fleet does?
Yes, if an owner operator is driving for themselves (operating under their own DOT number and getting loads off of a load board or from brokers) they are required to maintain all the items listed below.
- A complete driver file (see Driver Qualification)
- Enrolled in a drug and alcohol program (negative pre-employment drug test on file and in a random drug and alcohol program)(see Drug and Alcohol)
- Maintenance records (See Equipment and Maintenance)
- Proper state and federal regulations, DOT numbers, IFTA, and IRP account (see IFTA & IRP)
- Electronic logging device (supporting documents such as fuel receipts and scale receipts) (see HOS)
- Don’t forget to update your MCS 150.
Who else governs the relationship with owner operators?
The Internal Revenue Service
The Internal Revenue Service describes an independent contractor with this sentence “if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done” then the person is an independent contractor. IRS independent contractor definition.
Check with your state to see what the regulations are regarding how to maintain a contractor/non-employee relationship with owner operators.
What do lease agreements need to include?
FMCSA 49 CFR Part 376 outlines the FMCSA requirements for Independent Contractor or Lease Agreement.
- The agreement between the carrier and the owner operator must include:
- A written agreement
- Identification of equipment
- A statement or copy of lease to be carried in equipment
- The signature of both parties
- The contract/lease beginning and end date
- State that the carrier lessee shall have exclusive control and use of the equipment for the duration of the lease
- Compensation shall be clearly specified in the lease or in an addendum
- The authorized carrier shall keep records on each trip, beginning destination and ending destination.
- The Contract/lease also must clearly specify the following items.
- Which party will remove identification and markings.
- Who will pay for fuel, fuel taxes, empty miles, permits, tolls, ferries, and other addional fees and fines.
- Payment period (not more than 15 days from submission of documents)
- Freight documentation if payment is based on percentage of revenue.
- Charge back items.
- A statement that the lessor is not required to purchase or rent any products, equipment or services as a condition of entering the agreement.
- The contractor shall maintain insurance as required of FMCSA. Insurance may be purchased by the contractor/owner operator through the carrier. A policy and certificate of insurance must be provided.
- Clearly specify conditions which cargo or property damage may be deducted from the settlement.
- Explain conditions of escrow if applicable.
- Parties must sign and retain copies of the lease agreement.
What are some exceptions to the leasing agreement requirement?
- Equipment used in substituted motor-for-rail transportation of railroad freight moving between points that are railroad stations and on railroad billing.
- Equipment used in transportation performed exclusively within any commercial zone as defined by the Secretary.
- Equipment leased without drivers from a person who is principally engaged in such a business.
- Any type of trailer not drawn by a power unit leased from the same lessor.
All carriers must have a lease agreement on file for all owner operators and contractors. Three copies should be made at the time of signing: One for the motor carrier, the second for the truck driver to keep in his/her truck, the third a copy for the driver to keep on file.
For driver qualification, maintenance, IFTA/IRP, drug and alcohol, HOS. See toolbox for each item for recordkeeping requirements.
Suggestions from industry professionals:
- Do not use the word employee in your documents for owner operators.
- Make sure your internal contracts clearly identify that the document in no way create an employee employer relationship.
- Remember to talk to staff about how to work with contractors. You cannot have required contractors to do anything. The must be free to accept and turn down freight offered to them.
- For items that are required for successful operation of your company you can add to your agreements language that requires certain behavior as terms of the contract. It is then the contractor’s choice to accept the conditions of the agreement or not.
- Many company’s fine drivers for roadside inspection violations or late deliveries. Make sure you seek an attorney’s advice before your company decides to do this to make sure there is not state or federal regulation against it.
- Seek legal advice from an attorney that specializes in contractor employer relationships.
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