Back in 2020, several trucking acts passed, and some have been revoked or amended. The U.S. Department of Labor’s Employee or Independent Contractor Classification rule was scheduled to become effective on March 11, 2024. A final rule was issued requiring a six-factor test asking:
- Does the worker already have the skills to do the required work?
- How integrated is the worker in the client’s or employer’s business?
- How permanent is the work relationship?
- Is the work vital to the client’s or employee’s business?
- Is the worker able to profit and at risk of losing money?
- Who invests in the business expenses needed to do the work?
Under the new administration, the Independent Contractor Rule is on pause. Decisions haven’t been made as to whether it will go into effect. Court hearings have been postponed until the end of March. If this passes, it could change how freight factoring works for owner-operators.
California Already Passed and Recently Amended an Independent Contractor Rule
One rule of concern is California’s AB 5, which went into effect on January 1, 2020. Changes have been made that could become problematic for owner-operators who plan to use freight factoring.
California employers and freelancers must use the ABC Test to determine if a worker is truly a contractor or if they qualify as an employee. In most cases, owner-operators qualify as employees. The test requires:
- That the worker is free from control and direction of the client.
- That the worker does work that’s different to the client’s line of business.
- That the worker is engaged in a business, occupation, or trade that’s the same as the work being performed.
Owner-operators do the same type of work as their clients, and there are delivery dates and times that must be followed. It doesn’t matter if you’re truly independent, both owner-operators who are leased to a carrier and those who are under their own operating authority. You must meet all of the conditions from the ABC Test.
This law applies to California residents who drive within California. California Labor Laws don’t apply to workers in other states.
Starting on January 1, 2025, another layer to the independent contractor protections was added. The Freelance Worker Protection Act (FWPA) requires all freelance workers making at least $250 on a freelance job to have a signed contract in place. The contract must state:
- The names and addresses of both the client and the worker
- What the fee schedule for the required services is.
- How payment is made and when it must be paid.
If the contract is missing information regarding the payment deadline, payment must be received within 30 days of the completion of the work. This also impacts owner-operators when it comes to freight factoring. Your contract now dictates payment terms, which might be different than what the factoring company allows.
All of these laws were put in place to protect independent contractors and freelancers. They also create a hassle if you’re an owner-operator and want to use freight factoring to get paid the same day.
What Is Freight Factoring?
Freight factoring offers an owner-operator a chance to get paid right after delivering a load. The factor acts on your behalf and generates an invoice to send to your client. Meanwhile, you get paid that day rather than having to wait until your client pays. It’s convenient, takes the hassle of out invoicing and collections, and gets you back on the road.
If you’re suddenly classified as an employee, your factoring company will be unable to work with you. Instead, they’d go through your employer, if that employer wanted to factor invoices. You’d have to wait for wages to arrive, which might be weekly, but it could also be bi-weekly. You lose access to quick payments and a steady cash flow.
While this may not impact your company if you don’t live or drive in California, anyone in California is impacted. Plus, if the U.S. passes a federal law, you could face the same hurdles.
What Can You Do?
It’s important to differentiate your role as an owner-operator. You need to carefully look at the relationship you have with your clients. If you’re doing specialized work that is outside of their normal business, you’re okay.
If your brokerage or leasing firm uses a third party to find independent truckers, you’re not directly hiring an owner-operator, which again adds a layer of protection. You need to have an ironclad contract drawn up, however, to make sure that the contract meets the laws and doesn’t make it appear that you’re an employee. It’s worth working with an expert in AB 5 to guarantee that you’re meeting the laws and meeting the requirements of the ABC Test.
It’s too soon to tell if the spread of AB 5 and new Freelance Contract Law will reach the rest of the U.S. Three states have started to look at enacting their own laws and ABC Test variants. Drivers in Illinois, New Jersey, and New York may have to face this hurdle sooner than imagined. It’s time to prepare and get ready to comply with the new rules.
Choosing the Best Freight Factoring Company for Your Independent Trucking Business
It’s still too soon to tell what’s going to happen as the new administration continues to enact or slash pending acts from the books. How do you choose a freight factoring company that works well with your needs and can help you navigate these changing trucking acts? Ask these questions.
- How long have you worked in the transportation industry?
- What are your freight factoring fees?
- Do you charge additional fees for situations like not meeting a quota or running too many business credit checks?
- How easy is it to reach your customer service team?
- How and when are payments made? Is there a deadline for submitting bills of lading to qualify for same-day payments?
- Will your freight factoring company still work with my trucking company if independent contracting laws pass in my state?
- Will I be penalized if I end the contract earlier than expected?
Saint John Capital is keeping up-to-date with the changing laws. Our team is happy to answer your questions about how changes to these and other trucking acts will impact owner-operators. Reach us online or by phone.
