How do I pay my OTR drivers and owner-operators?

The trucking business provides unique challenges for business-owners when it comes time to paying employees who are rarely physically present at the office or main business location on payday. Truck drivers cannot be expected to try to make it back to the office so that they may pickup their weekly or bi-weekly paycheck, hence the challenge to small truck-business owners: How do you pay your over-the-road (OTR) drivers and owner-operators?

Book-Keeping Record System

The first challenge involves calculating the proper payroll numbers based on how you pay your drivers, i.e. by the mile, by number of hours worked, or on a load by load basis.

You should begin by setting up an accounting system that is appropriate for your type of business operation, and also easy to use. There are many good accounting software packages in the marketplace, but few make the grade when it comes to trucking operations.

TSC provides cutting edge accounting capabilities and book-keeping specifically designed for trucking operations. Using TSC, you should be able to run real-time reports that provide answers to such questions like:

  • How much is my paycheck this pay-period?
  • Can I get a summary of all miles ran in this pay-period?
  • Can you print the last 5 pay stubs for a specific driver or employee?
  • Can you print or provide a summary of all activity by certain equipment or drivers?

If your current system cannot answer questions like this in real-time, you should look into TSC -We can help.

Electronic Transfers and Payroll Cards

In my experience the easiest, safest and most cost-effective way to pay remote employees (workers who are not regularly based at the home office), is by payroll card. There are numerous vendors who provide payroll card services.

When selecting a payroll card vendor, choose one that has low transaction costs for both you and the employee. Some vendors charge you to load money on the cards, and also charge the employee for using the card -avoid those vendors. Choose one that has an upfront pricing strategy, and which also provides additional services like fuel and supply purchase management.

Check these tips for choosing a Payroll Card

In the past I have used T-Chek with great success, but there are others like Comdata and FlyingJ PDCA Money Card that work well, and are specific to the needs of the transportation industry.

W2 or 1099?

This is a frequently asked question for small business owners who use independent contractors in their business.

It is critical that you, the business owner, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. If you are an independent contractor and hire or subcontract work to others, you will want to check the IRS website to determine whether individuals you hire are independent contractors (subcontractors) or employees.

Is Your Freight Broker Legit?

Bogus Broker

First off -who, or what is a Broker or Agent, or Consignor?

A Freight Broker or Freight Broker Agent as they are sometimes called is the entity that arranges transportation services between shippers, receivers and your company. In almost all cases they are the ones whom you invoice to pay the freight bill. If your company acts as its own freight broker, that is good news because you are ahead of the competition. However, even trucking companies that find their own freight sometimes need a Freight Broker to secure a load.

For the purpose of this discussion, we will refer to as Freight Brokers all those known by various names but who we have identified as the entities that act as third parties to the actual Shippers, Consignors or Consignees.

Freight Brokers are regulated by the US Department of Transportation (www.fmcsa.dot.gov) . They are required to obtain and maintain a Property Brokers License, a Surety Bond (BMC-84) or Trust (BMC-85) that can be tapped to pay freight-bill claims, and be properly registered with the Uniform Carrier Registration (UCR) program that was introduced around 2007/2008.

Some Freight Brokers also carry contingent liability insurance that covers them in case of a claim that is not covered by a shipper's or trucking company's cargo liability insurance. -Yes! That's right -shippers also carry cargo liability that covers such things as cargo going bad, damage caused by their cargo to property, etc. Shippers rarely reveal that they carry any insurance on the cargo they tender for transport. -A 10 seconds thought process should reveal that when you have a size-able interest in your cargo, you'd want some peace of mind and not just entrust 100% that Joe Broker or Speedy Transport will have the necessary or adequate insurance to cover loss/damage.

So now that you know who a Freight Broker is, how do you check at the time you are about to take a load from them whether they are still legit from last week?

There are several ways that you can do this, and some processes that you should implement in your truck business model to ensure that your broker is not just legitimate, but is also financially sound enough to pay you for the load.

  • Maintain a database of ALL Freight Brokers that your company works with. This database should be easily accessible and should be viewed as a business tool to help in your decision-making. Some easy ways to maintain such a database would be to create a spreadsheet or filing system that you consult every time you deal with the broker. Using a simple spreadsheet or manual process can get out of hand very quickly, not to mention that it doesn't scale very well for use with other staff members in your business. I recommend a solid program like TSC (click here to learn more) which tracks and maintains Freight Broker data and has quick links to current information from the FMSCA database for each broker.

    Your Freight Broker database should contain as much data about the broker as possible, and include all contact information, payment history, transaction history, etc. Consult this database each time you work with the broker to verify information about the broker, and update any changed data.

  • Check the Freight Broker's credentials online. This is an absolute must every time to make sure the broker's license has not been revoked, or their BMC-84 Surety Bond / BMC-85 Trust fund has been removed. Current Freight Broker licensing information can be obtained on the FMCSA official website: http://li-public.fmcsa.dot.gov/LIVIEW/pkg_carrquery.prc_carrlist free of charge. A regular check can quickly reveal whether the broker is in trouble, if for instance you notice that the bond has been cancelled, or the licence has been revoked and reinstated too many times.
  • Always make sure you have the Freight Brokers current phone numbers, fax numbers and written payment policy for each load.
  • Each load tendered to you must have a dated, signed Rate Confirmation spelling out the shipper(s), consignee(s), product, transportation equipment required, and more importantly: the payment rate for the load. The rate confirmation should also specify other things such as who is responsible for unloading, and who is responsible for which costs. It's the tiny details that become big problems later on if they are not properly addressed.
  • Check with the shipper to verify they know the broker, and that they have an ongoing relationship regarding the load tendered to you. This simple action can save you from picking up a load that has been double-brokered.
  • Check all references provided by the Freight Broker, and more if you can by checking some online services like Internet Truckstop or GetLoaded. You should also subscribe to reputable business credit reporting services that allow you to check the payment records or the Broker, and that also notify you if certain key indicators show financial problems with the broker.
  • Even after performing your due diligence to check out the broker, sometimes you encounter some smooth talking broker that fools you into believing he is legit. To help protect yourself even further, make sure you get a properly completed, legible, signed Bill of Lading from the shipper. Always make sure the consignee signs the Bill of Lading, or a receipt for the goods delivered. Always make and keep copies of all pages of any paperwork relating to the load.
  • If there are changes in instructions after the load is picked up, get the changes in writing - obtain a new rate confirmation, and a new Bill of Lading or amendment to the BOL faxed to you. You should have the updated documents before delivering the load. The Freight Broker or Shipper have very little incentive to provide accurate documentation once the delivery has been made, so be sure to make it a condition of delivery that you receive proper documentation.

To summarize, also learn to trust your gut feeling about a Broker when the deal sounds to good to be true. Build or join a peer network of people in the trucking business with whom you can network for insight and reference. If you do not know the broker well, do not act on rush orders or the promise of paperwork later -that is a sure sign of fraud; walk away from the deal.

Staying in Good Books with the DOT

Seal of the US Department of Transportation

In order to maintain good standing with state and federal regulations, Department of Transportation (DOT) Safety and Compliance investigators routinely audit carriers' safety practices within the first 18 months of operation. They ask questions, look at paperwork and inspect vehicles to verify compliance with the state and federal regulations that apply to the carrier's situation.

There are several regulations that are so important that violating them causes an order to park your equipment until everything is fixed. In a nutshell, these regulations are concerned with:
  • Alcohol and controlled substances testing and using impaired drivers
  • Commercial drivers' licenses and drivers' physical fitness to drive
  • Proof of insurance
  • Equipment repair and inspection

New Entrant Safety Audit Busters

Unofficially known as the 16 Deadly Sins, these violations cause automatic failure of a new entrant safety audit

  1. Failing to implement an alcohol and/or controlled substances testing program.
  2. Using a driver known to have an alcohol content of 0.04 or greater to perform a safety-sensitive function.
  3. Using a driver who has refused to submit to an alcohol or controlled substances test.
  4. Using a driver known to have tested positive for a controlled substance.
  5. Failing to implement a random controlled substances and/or alcohol testing program
  6. Knowingly using a driver who does not possess a valid commercial driver's license.
  7. Knowingly allowing, requiring, permitting or authorizing an employee with a CDL which is suspended, revoked, or canceled by a State or who is disqualified to operate a commercial motor vehicle.
  8. Knowingly allowing, requiring, permitting or authorizing a driver to drive who is disqualified to drive a commercial motor vehicle.
  9. Operating a motor vehicle without having in effect the required minimum levels of financial responsibility coverage.
  10. Operating a passenger carrying vehicle without having in effect the required minimum levels of financial responsibility.
  11. Knowingly using a disqualified driver.
  12. Knowingly using a physically disqualified driver.
  13. Failing to require a driver to make a record of duty status.*
  14. Requiring or permitting the operation of a commercial motor vehicle declared “out-of-service” before repairs are made.
  15. Failing to correct out-of-service defects listed by driver in a driver vehicle inspection report before the vehicle is operated again.
  16. Using a commercial motor vehicle not periodically inspected.*

* Requires a violation of 51 percent or more examined records to trigger an automatic failure.

Start working on these issues early to avoid problems "down the road" in your trucking operations. A good rule of thumb is to educate drivers, dispatchers and the book-keeping people in your business to maintain good records, follow standard operating procedures and guidelines, as well as staying informed about current FMCSA and DOT changes in regulations.

If possible, us a good book-keeping system like Trip Sheet Central (Learn more) or similar product.

Did you know this about Trip Reports?

  • State laws require truck-operators to keep a record of distance driven and the fuel (including type of fuel) purchased in each state.
  • Each trip report must cover all distances travelled including dead-head miles.
  • Properly completed trip reports will help you avoid fines and assessments against your company.
  • If your vehicle or unit breaks-down and you get a replacement or re-power unit, you must complete a separate trip report for each vehicle to cover the distance travelled for each unit, including fuel purchased.

Frequently Asked Questions about IFTA

What is IFTA?

IFTA is the International Fuel Tax Agreement. Through the IFTA, member jurisdictions act cooperatively to administer and collect motor fuel use taxes.

Which jurisdictions are members of IFTA?

The 48 contiguous States of the United States and the 10 Canadian Provinces are members of IFTA.

Should I apply for an IFTA license?

If you are based in a member jurisdiction and operate a qualified motor vehicle in 2 or more member jurisdictions, yes. If you usually operate your vehicles only in one jurisdiction, but make occasional trips outside the base jurisdiction, you may elect to purchase trip permits for that occasional travel. Permitting services can usually be contacted from any major truckstop. Contact a permitting service for rates.

What is a qualified motor vehicle?

A Qualified Motor Vehicle is a motor vehicle used, designed, or maintained for transportation of persons or property and:

  • has two axles and a gross vehicle weight or registered gross vehicle weight exceeding 26,000 pounds or 11,797 kilograms; or
  • has three or more axles regardless of weight; or
  • is used in combination, when the weight of such combination exceeds 26,000 pounds or 11,797 kilograms gross vehicle or registered gross vehicle weight.

Where should I go to apply for an IFTA license?

You should contact the jurisdiction where you are based. Your base jurisdiction is the jurisdiction where you have your qualified motor vehicles registered, where you have some travel, and where the operational control and operational records are maintained or can be made available.

What if I have qualified motor vehicles registered in more than one jurisdiction?

It is important that you contact one of those jurisdictions. You may be able to consolidate your operations under one license. The jurisdiction you contact will assist you and give you information on how that can be accomplished.

How do you ask a Shipper to start paying a Fuel Surcharge?

This is a difficult subject to discuss with the shipper because it means raising rates -you could lose the business you've been getting from that shipper. So how do you go about get the fuel surcharge to cushion the high cost of fuel hitting your business?

If you have had this shipper/customer for a while, the task is somewhat easier and could be discussed over the telephone and followed up with a letter spelling out the details. Of-course any time you are about to raise, check to see what the market is doing and then tread carefully. Here is a sample letter that you can use when notifying your shipper about the pending increase:

Your Company
Address Here
City, State Zip


Date

Mr. Shipper
123 Main Street
Your Town, USA 12345

Dear Sirs:

I am sure that you are aware that fuel prices have spiraled upward over the past several months, and presently are higher than they have ever been in our history. We have acted in good faith in our attempt to resist seeking relief, but this has placed an undue burden on us. We had hoped that this would be a short term inconvenience, but now it looks as if it will last longer than expected. Due to the critical nature of the current situation, we can no longer continue to absorb these increased costs.

Therefore, we must implement a temporary fuel surcharge on all shipments. This fuel surcharge will remain independent from our base rates and will be shown as a separate entry on our freight bills. We will compute the fuel surcharge on a mileage basis, and it will reflect the extra cost of the fuel used in the specific trip.

Our computations will be based on the U.S. National Average Diesel Fuel Index. (You may view the charts provided by the Department of Energy by visiting their website at http://tonto.eia.doe.gov/oog/info/wohdp/diesel_detail_report.asp . We will review this data and calculate our actual costs on a weekly basis. The figure used for cost per gallon is also region specific, established by the average cost of fuel per gallon, on the date and in the load's origination point.

We regret that this action is necessary and deeply appreciate your understanding and partnership with us in helping to share the burden of these fuel cost increases. Together, we will keep our nation strong during this time of crisis. We hope that this solution will keep the goods and services that power our great nation’s economy moving.

Respectfully,

Name

Company

I am sure there are other ways that this subject can be approached. Any thoughts out there?