Driver Inc. Model is finally being shut down.

The Canadian Government is taking a closer look at trucking operations to see if they are using a Driver Inc. business model. The previous year saw officials focusing on education and awareness, but now officials have moved forward with passing out penalties for those using the Driver Inc model.

What is the Driver Inc. Model?

The Driver Inc. model occurs when employers don’t hire a driver on as an employee of their company. Instead, they encourage the driver to incorporate themselves (hence the name Driver Inc.) into a business like 123456 Ontario Inc., and then they hire them as an incorporated entity. On the surface that seems like a great idea, but in reality, it greatly disadvantages the driver and allows companies to avoid paying employee benefits.

                         “Driver Inc allows the employer reaps the benefits of hiring a driver, without having to pay benefits, vacation pay, sick leave and avoid other obligations as cited by the Canada Labour Code.”

Some drivers are attracted to the model as they receive their pay without source deductions ie. CPP, EI, etc. But this hurts legitimate enterprises who base their service rates to include these considerations. It also means that corporations are not paying into Canada’s social insurance system by chipping in the employer share of Employment Insurance and can be used to lower workers’ compensation costs (this covers lost wages for workers injured while on the job) and truck insurance premiums as per the  Canadian Trucking Alliance.

Accident statistics show that drivers who participate in the Driver Inc. business model are being further disadvantaged. While accidents are happening, a lack of corresponding injury claims to the Workplace Safety and Insurance board indicate that drivers who are involved in accidents are not receiving the injury coverage that they should be entitled to.

Other drawbacks of not being classified as an employee- potential wage theft. There have been a number of cases profiled by The Star where incorporated drivers are now in the courts fighting for wages that were never paid out. Many are fighting for overtime wages, or holiday pay never given.

If you’re an employee, you’ll have better footing to get your paycheck and have the Canada Labour laws backing you up in case of dismissal.

How to tell if a company is using the Driver Inc. Model

How do you tell if a company is using the Driver Inc model? Well, it’s relatively simple. A four-check system will determine if they are using this.

First, who owns the truck/vehicle. Does the driver own or lease the vehicle they are operating (ownership of tools)? If the driver does not own the vehicle, then they should be hired as an employee. When determining driver classification, the government doesn’t just look at who owns the truck, but also looks at who has the operating authorities to run it, such as Ontario Commercial Vehicle Operators Registration (CVOR), and who insures the vehicle.

If the fleet is licensing and insuring the vehicle and not the driver, then it is also viewed as an employer-employee classification.

Second, does the driver have control over the work (can they refuse loads)? Can they accept work from others, or does the drier work exclusively for the company? If they are exclusive, then again, they should be classified as an employee and not a small business.

Third, who profits from the work? Does the company keep the profits from the loads delivered (and then pay the driver a wage), or does the driver keep the profits? If the company gets the profits and then pays the driver a separate wage then the driver should be treated as an employee.

And forth, who does the loss fall on- the driver or the business? If the business takes the loss, the driver should, again, be classified as an employee.

Additional signs of a Driver Inc. business model: driver needs to wear a company uniform, has the company’s decal on the tractor, and has to follow the company’s policies and procedures. Basically, if the driver must act like an employee to the fleet, then they should be classified as an employee.

As the old saying goes, “If it looks like a duck and quacks like a duck, then it probably should be considered a duck”!

Another red flag? When looking at a company, if they are running 50 trucks, but only have a handful of employees on the books, then it is likely they are misclassifying drivers.

What about Personal Service Business classification?

Being an incorporated driver is not illegal providing you do it right and make sure the government gets their piece of the pie. In other words, drivers can incorporate and become what is known as a Personal Service Business (PSB). In this instance, the only thing preventing the driver from being an employee of the main fleet is their incorporation. They still perform all the same services as if they were an employee, but then bill the fleet for their services.

The catch? As an incorporated PSB the driver must then file a T2 for tax time. This means the driver would then be paying their own CPP, EI, GST/HST filing and remitting, etc.

Personal Business Services are not taxed at a discounted rate like small businesses. Rather they are taxed at the standard rate, plus an additional 5%. PSB’s are also not eligible for the same tax deductions and expenses that are available to other corporations and small businesses.

                        “Personal Service Business are taxed at the standard rate plus 5%”

So really in the end, becoming incorporated as a Personal Service Business does not put you ahead of the game. Not only are you taxed at a higher rate but incorporating allows the company hiring your business to get out of providing sick days, benefits, vacation pay, and other employee benefits.

If you decide to go this route you should definitely discuss the pros and cons with an accountant.

A new pilot project by the Government of Canada has recently been set up, focusing on educating drivers and carriers about PSB’s and misclassified PSBs.

This campaign will be reaching out to ensure that those who hire and work as PSBs understand what their tax obligations are and help each make informed decisions on their working relationship.

Not sure if you should be classified as employee?

You don’t have to sweat it. You can contact the CRA’s Voluntary Disclosure Program and they can help you sort out where you fall on the spectrum and help you fix your tax returns if necessary.

You can also check out this government document that has a very exhaustive list of what indicators are used to determine if a driver should be considered an employee or self-employed.

Here is a quick rundown of a few examples from the government’s list to determine if an employee or self-employed:

Indicators that the driver is an employee:

The payer:

• Requires the driver to accept all loads and follow specific routes
• Driver has to report daily
• Determines pay rate
• Provides benefits such as paid vacation, sick days, short/long term disability, pension plan
• Requires driver to ask permission to be absent from work
• Provides all tools including truck, communication device at no charge to the driver
• Pays operating expenses (fuel, maintenance, insurance)

The driver:

• May not accept cargo from other shippers
• Does not have a business presence

Indicators that the driver is self-employed:

• Negotiates own rate of pay
• Picks their own loads and routes
• Do not have to report to payer during trip
• Driver is sole owner of truck, and is responsible for fuel, maintenance, insurance, etc.
• Can accept work from multiple payers
• Has a business presence
  • This means the driver enters into contracts under own business name
  • Maintains an office/staff
  • Advertises own services
  • Registered name and with GST/HST
  • Keeps books and records

Driver Inc. is being shut down

The Employment and Social Development (ESDC), Canada Revenue Agency (CRA), Finance Canada and Ontario’s Workplace Safety and Insurance Board (WSIB) have all begun to use their manpower to analyse trucking fleets to make sure they are not using the Driver Inc. business model.

These agencies will be doing on site audits to determine if an operation is using the Driver Inc. business model. It is up to the employer to provide the “burden of proof” that the drivers that they are employing are not being misclassified.

Over the last year of 2021 a great deal of time was spent educating driver and fleets to not use this business model. And for the most part, if it was done in error and the error is corrected then the fleets were given leniency.

The time for leniency has now come to a close. Those found to be continually, or purposefully misclassifying drivers have started to receive fines and penalties. Companies found to be in gross violation are being published, so drivers can avoid working for companies that push this business model.

While this was a pilot program developed in Ontario, it will now be used nationwide to crack down on businesses using the Driver Inc. model to avoid paying taxes and employee benefits.

Driver Inc. does not benefit the driver!

When making your business decisions, remember you do not want to be disadvantaged, which is exactly what the Driver Inc. model does. It prevents drivers from receiving all the benefits they are due, while allowing the business to pocket that saved cash.

Let’s keep the playing field fair and play by the rules. Everybody gets to go home happier at the end of the day.

Want to become your own boss? Find out more: How to become an owner-operator.