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Thread: Compensation

  1. #1
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    I am starting a corporate car service to the airports.I was wondering what everyone out their pays there drivers. I have been told, an hourly rate, percentage of fair plus gratuity or flat rate per trip. I was also not sure if I should 1099 or take out payroll taxes. Any help in this matter would be appreciated.

  2. #2
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    Our drivers start at $6.00 per hr plus gratuity. All our drivers are part time on-call and happy working mostly for tips. I find they provide better service if they are working mostly for their tips, but none of my driver's are tip driven either if that make sense. Do the payroll taxes, it will save you many headaches later.

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    Brandy Fuller
    Owner S.L.S.

    [This message has been edited by Starlitelimo (edited 07-23-2000).]

  3. #3
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    Thats really interesting particularly in CA. I would not work for $6.00 an hour plus tips.
    Sorry
    Dick Hall

  4. #4
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    Starlite is in Eureka CA which is a smaller community up the Northern Coast of CA. I am not familiar with the cost-of-living there, but I am sure it isn't like San Francisco or San Diego! I don't think the $6/hr would fly in those bustling metropolis', but in Eureka, I think it is 'market'?

    Correct Brandy?

  5. #5
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    XENEFOX you are very correct. Eureka is only 80 miles south of the Oregon Border. We are the largest city with 28,000 people. Our largest airport within 275 miles is Arcata which is a small commuter airport. Airport service is our smallest income. The cost of living is very low so $6 per hr plus tips is a very good wage here. I agree that I would not work for that in San Francisco but you have to work with the area you have. Thanks for sticking up for me Xenefox.

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    Brandy Fuller
    Owner S.L.S.

  6. #6
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    No problemo!

    Michael

  7. #7
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    A few words to help you on this. The difference between employees and independant contractors is vast.

    If you pay an hourly wage, set the drivers schedule, or fully control the drivers work for you, then you may easily be considered by the IRS and your state Workers Compensation regulators as an employer.

    As an employer, you will be required to with hold FICA, Income and other taxes and pay those directly to the US and State governments. Workers Compensation Insurance will also be required to cover 'employees', an additional cost to you the company. Along with this, hourly wage and overtime wage issues will come into play and likely preclude the chauffeur employee from working in as flexible a capacity as an independant.

    Independant Contract chauffeurs are given the opportunity (usually a day in advance) to accept or turn down the daily assignments. They are paid a flat rate per job which usually includes the base fee plus a percentage of the gratuity. Any over tips are usually paid in full to the chauffeur.

    This relationship requires a 1099 and the chauffeur is then responsible for all taxes due to the fed and the state. It also eliminates the Workers Compensation Insurance expense for the company.

    It is important you review these various types of company / chauffeur relationships with your corporate attorney before deciding which one is right for you.

    Good luck with the new operation !

    The Florida Livery Association - HQ

    [This message has been edited by Rick Gonzalez (edited 07-31-2000).]

  8. #8
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    Although you have generally explained the difference between an employee and independent contractor, the fact of the matter is that a rose by any other name is still a rose - which is to say that an employee by any other name is still an employee. The IRS has a publication that can be downloaded from its web site with a 21-point test for when they consider a worker an employee, and almost no limousine company can qualify as using TRUE "independent contractors." In most areas of the country the IRS is very agressive in challenging the status of "independent contractors," and the risk is that they will come in and do an audit of your payments to independent contractors for a zillion years back, figure up what should have been withheld and paid by the employer, tote it all up, add a gazillion dollars in interest and penalties, and promptly put you out of business. There is one escape - there is a provision of either the Code or the regs (I forget which) which provides that if the prevailing industry practice in a given area is to treat drivers as independent contractors, then the IRS will let you alone on the theory that to penalize some operators would permit others to gain a competitive advantage. The states, however, which have similar claims for withholding taxes, unemployment comp and workers comp, and which are poorer than USA, are not so charitable, and you can get mixed results from the IRS and the state goverment. Any lawyer who covets his malpractice insurance will tell you not to go the independent contractor route - the ultimate risk, which can be great, is yours to take or not take. Basnkruptcy is not an option when faced with a gargantuan IRS assessment because the trust fund portion of the wages can be converted to a 100% penalty against officers and directors and those who sign checks, so this decision can follow you all the days of your life and into the Valley of the Shadow of Death - and beyond.

  9. #9
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    Dear jhj,

    I hate to differ with you ... however ... there is a clear difference between the two. There have been cases where the IRS has tried to classify chauffeurs as employees, subject to tax with holding, etc, only to loose at the hearing because the limo company had properly established their chauffeurs as independent contractors.

    This is one of the primary reasons it is important for a company to consult a qualified corporate attorney and impliment an Independant Contractors Agreement which satifies the IRS criteria.

  10. #10
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    JHJ (James) is an attorney! Although I am not sure if his specialization is corporate.

    - <

  11. #11
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    It is not possible for a limousine company to qualify its drivers as independent contractors in the face of an IRS challenge. Read the criteria used by the IRS and the courts. The only hope is the safe-harbor of prevailing industry practice. And, yes, my specialty is corporate and business law and litigation, and I personally know of no case, nor is there a reported case anywhere in the U.S. that I have found, where a limousine company prevailed in claiming its employees were independent contractors. Any such decisions, to my knowledge, turn on prevailaing industry practice, NOT on whether the employee is or is not an independent contractor. In limousine operations, drivers are "employees" who are "treated as" of "paid as" independent contractors, the safe-harbor being the prevailing industry practice exclusion. By the way, this is something a trade association should be doing, i.e., trying to carve out a statutory exemption for limo drivers as the real estate industry has done for its sales agents. Sales agents are, by any reasonable criteria, "employees," but the IRCode was changed some years ago to specifically provide an exception for real estate sales agents.
    As to the comment that there is a clear difference between the two - you are correct, there is a clear LEGAL difference between an employee and an independent contractor, but there is no difference IN FACT in the limousine industry - drivers are employees by the statutory and regulatory definition. Go to http://ftp.fedworld.gov/pub/irs-pdf/fss8.pdf for the official IRS form used to determine employee status. Other than wishful thinking, you cannot design answers to this form that will escape employee status. If you know of a single case where a limo operator prevailed OTHER THAN THE SAFE-HARBOR EXCEPTION, I and many other attorneys would be delighted for the reference.

  12. #12
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    I forgot to make one other observation. When the IRS challenges the independent contractor status they simply tote up all the taxes, penalties and interests and issue an assessement and demand for payment. Except for the very largest of companies, the legal fees to challenge the assessment in tax court are astronomical and in most cases exceed the amount of the assessment. We had a unique situation in the Pittsburgh area several years ago where, amazingly, a number of limousine companies actually worked together to fight off the IRS challenge, successfully I might add. However, the success was based on the safe-harbor, not on proving the imposible, that drivers are independent contractors. If anyone reads LCT magazine (the next to most recent issue with the 50 largest operators in the U.S.), you will see that John Ryan of Pittsburgh Limousine claims credit for fighting off the IRS using the safe-harbor exception, which was hardly the case at all since his company was driven to the edge of bankruptcy by the IRS assessment. The state, however, has still not caved in, and there is no safe-harbor in state law in most states, and cases in Pittsburgh involving state withholding, workers comp and unemployment comp are still waiting for trial.
    Bottom line - any limousine company which pays its drivers as independent contractors is playing with fire and either plans on taking the money and running and not being around for the long-haul, or is using the money saved to make a bundle in the stock market on the theory that when the tax-man shows up and its time to pay the piper, there will be a net arbitrage gain. By the way, in the same referenced issue of LCT you can see how the top 50 companies pay their employees and, almost universally, the drivers are paid as employees - because they are employees. This move by larger companies to pay drivers as employees is eroding the safe-harbor based on prevailing industry practice and, eventually, and in the absence of a statutory change such as in the case of the real estate industry, all drivers will be paid as employees. This is OK, so long as EVERYONE pays drivers as employees. It will increase costs and prices and be passed on to the customer, but at least everyone who's trying to maintain an argument for independent contractor status will then be out of risk.

  13. #13
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    jhj,

    I really hate to seem like a nudge .. lol .. however, the NLA has assisted limo companies in successfully challenging the IRS .. and won. While I don't claim to be an expert (only know enough to get into trouble), people may wish to contact the NLA for additional information. The Institute for Justice in Washington, DC may also be a good source of help.

    P.S, Here in Florida most professional chauffeurs are in fact independant contractors. Guess it must have something to do with our not getting any snow down here .. hehe

    Take Care

    [This message has been edited by Rick Gonzalez (edited 08-03-2000).]

  14. #14
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    I have a feeling telling jrj that the NLA is the solution, or a fall-back, will be futile.

    There is another thread going on around here pertaining to jrj's thoughts regarding the effectivness of the NLA.



    [This message has been edited by XENEFOX Media Corporation (edited 08-03-2000).]

  15. #15
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    I'm very aware of more that just his (jhj)concerns regarding the effectiveness of the NLA. The cases I referred to were handled when Wayne Smith was still there. But regardless of the NLA's present standing, they still can provide some information, if nothing else.

    [This message has been edited by Rick Gonzalez (edited 08-03-2000).]

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