Best Practices for Compensating Delivery Drivers and Independent Contractors
Sykes and Company, P.A. recommends delivery drivers be paid as W-2 employees and not as independent contractors. We base this recommendation on three factors per IRS regulations – Behavioral Control, Financial Control and Relationship of the Parties.
The Behavioral Control encompasses facts that demonstrate the business has the right to control what work is completed and how the work is completed, through instructions, training, or other means.
The Financial Control encompasses facts that demonstrate the business has the right to control financial and business aspects of the job. This includes:
- The extent to which the worker has unreimbursed business expenses.
- The extent of the worker’s investment in the facilities or tools used in performing services.
- The extent to which the worker makes his or her services available to the open market.
- How the business pays the worker.
- The extent to which the worker can realize a profit or incur a loss.
The Relationship of the Parties encompasses facts that demonstrate the type of relationship between the business and the worker. This includes:
- Written contacts describing the relationship the parties intended to create.
- Whether the business provides the worker with employee-type benefits, such as insurance,
- a pension plan, vacation pay, or sick pay.
- The permanency of the relationship.
- The extent to which services performed by the worker are a key aspect of the regular business of the company.
Pharmacies that provide delivery drivers with company vehicles demonstrate both Behavioral Control and Relationship of the Parties by controlling when the delivery driver works and providing the vehicle in which to work. Reimbursing delivery drivers for mileage on their personal vehicles also demonstrates Behavioral Control. Generally, unless a business hires a delivery service that provides services to other companies, the delivery driver is an employee, even if filling in for a driver on vacation or sick leave.
The IRS created Form SS-8 to assist businesses in determining whether their worker is an employee or an independent contractor. The SS-8 is a comprehensive, four-page form asking specific questions regarding the three factors listed above. The form may be accessed using the following link: https://www.irs.gov/pub/irs-pdf/fss8.pdf
If you own a start-up pharmacy or dream of buying a pharmacy, see our video series on start-up pharmacy cost considerations.