We recently hired Desirae as a driver and during the initial interview she asked “do you guys pay overtime?” It turns out that Desirae’s previous employer, another Arizona non-emergency medical transportation (NEMT) company, considered her an independent contractor and did not pay her overtime when she worked over 40 hours a week. We assured her that we do things right, all of our drivers are hired as employees and we pay them overtime for hours worked over 40 hours a week.
Early on, we had serious debates about the options to hire drivers as employees versus engaging them as independent contractors. We had numerous discussions with Sunwest Employer Services, the company we outsource our HR and payroll to. And, they have advised us against engaging drivers as independent contractors. It was clear that we would be breaking labor and tax laws, given our business model.
Why Independent Contractors?
Some NEMT companies classify drivers as independent contractors to cut cost and gain a competitive advantage. This saves them over 35% of the total labor cost considering overtime premium, payroll taxes, workers compensation insurance, and other benefits – this is based on our own estimates and is a huge advantage in a highly competitive market.
Rebeccah Sotelo, president of Sunwest Employer Services, says as long as companies like us control what will be done and how it will be done drivers must be classified as employees. More specifically, she cites the following as why our drivers are employees and not independent contractors:
- Our drivers cannot refuse a manifest or trip assigned to them, and must execute it in the order assigned.
- We specify when daily shifts start and end.
- We provide each driver with a company branded vehicle, cell phone, app for reporting trip status, and a badge.
What About other Business Models?
On-demand transportation and taxi companies lend themselves more to the independent contractor relationship with drivers. However, even these models are currently being tested. In a recent case, a driver was deemed an employee by the California Labor Commissioner and the shared-ride app company was ordered to reimburse the driver for expenses and other costs. In another case, a Florida driver was classified as an employee by the Florida Department of Economic Opportunity and found him eligible to receive unemployment benefits. While these cases may be heading to appeals, they will have an effect on these emerging on-demand models and how their drivers are classified.
These classification options are intricate and confusing to us as employers and equally to the employees. This post portrays our experience and how we have navigated through it to make the right choice. If you are an employer and not sure of how to classify your drivers, please consult an HR expert and an attorney. If you are an employee and have doubts about your classification, contact the Department of Labor.