Incorrect Classification of Tow Truck Employees Can be a Costly Mistake
In June 2021, the U.S. Department of Labor’s (DOL) Wage and Hour Division determined that ACD Emergency Road Services LLC misclassified its hourly workers as independent contractors instead of employees, resulting in several Fair Labor Standards Act violations.
What did ACD do wrong as a result of the misclassification? Because they didn’t consider them employees, they didn’t follow DOL’s rules in handling
employee pay. They paid their employees a straight hourly wage regardless of how many hours they worked in a week. Also, they illegally docked their employees’ pay for vehicle damages, traffic tickets, uniform costs, and failing to give sufficient notice when resigning.
They’ll be paying over $166,000 in unpaid overtime and reimbursements to their 56 employees. This isn’t the first towing company that had an incorrect classification of tow truck employees. In May 2013, the same agency found United Towing & Transport liable for more than $157,000 in back wages to drivers and roadside assistance technicians who were misclassified as independent contractors.
Why can’t they be classified as independent contractors?
Companies may feel that by classifying tow truck drivers as independent contractors, they have more flexibility in pay and scheduling. However, because independent contractors do not share the same rights as employees, the law is very strict about what it takes to be considered an independent contractor. According to the IRS, three common law rules serve as the first filter to determine whether a person can be considered a contractor:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does their job?
If your employees have working schedules and you have rules about accepting jobs and responding to them within specific timeframes, they don’t meet this standard.
- Financial: Are the business aspects of the worker’s job controlled by the company?
If they are on your payroll system, if you determine what they are paid (versus the worker giving you a quote for how much they’ll charge for the job) and provide tools and equipment for them to use, they don’t meet this standard.
- Type of Relationship: Are there written contracts or employee-type benefits?
If your workers receive PTO, vacation or sick leave, health insurance, or participate in a retirement plan, they don’t meet this standard.
Essentially, an independent contractor is a person who owns their own business. They determine how much they will charge for their work; you pay them by check and report what you’ve paid them annually with a 1099 form. They use all their own equipment and perform the work however they see fit. These workers track their income and expenses, pay quarterly tax estimates, carry liability insurance, and complete work for multiple entities. In some states, they may be required to have a business license.
What should you do if you think you are misclassifying your employees?
If there’s a chance you may be misclassifying your employees, your first step should be to contact an employment attorney. They will provide you with the best guidance to review your practices and determine what steps you should take to move forward.
Another way to protect your company is by providing your employees with quality towing equipment from Collins Manufacturing.
Collins Manufacturing has been an industry leader in towing equipment for more than 45 years. Our Hi-SpeedⓇ Dolly and Carrier Dolly systems are lightweight and durable, providing your employees with safe, easy-to-use equipment that can handle getting any vehicle out of challenging situations. Collins systems also keep tow vehicles safe, so it’s simple to get them where they need to go without injuring the tow vehicle or your employee. Check out Collins Manufacturing today and learn how our Hi-SpeedⓇ Dolly and Carrier Dolly systems can transform your towing business.
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