Extra Territorial Classification Guidelines (refer to Scopes Manual under code 7228)
Three step approach. Assign trucker payroll to the state:
1. where base terminal is located. If no base terminal, then
2. of majority (greater than 50%) driving time. If not, then
3. of residence.
Ind. Code § 22-3-6-1(b)(8)
"An owner-operator that provides a motor vehicle and the services of a driver under a written contract that is subject to IC 8-2.1-24-23, 45 IAC 16-1-13, or 49 CFR 1057, to a motor carrier is not an employee of the motor carrier for purposes of IC 22-3-2 through IC 22-3-6. The owner-operator may elect to be covered and have the owner-operator's drivers covered under a worker's compensation insurance policy or authorized self-insurance that insures the motor carrier if the owner-operator pays the premiums as requested by the motor carrier. An election by an owner-operator under this subdivision does not terminate the independent contractor status of the owner-operator for any purpose other than the purpose of this subdivision."
Most independent truckers do not have their own authority to haul freight and must sign a lease agreement with a trucking company or fleet in order to haul. So, to that extent, a trucker is dependent upon the dispatch function of the fleet to get freight to haul. Because of this dependency, many insurance companies will still require a certificate of insurance from an independent trucker to not charge a premium for workers compensation coverage. This is a legal issue which the ICRB cannot make a decision. Usually one truck is leased to one fleet, however there are one time only "trip leases" between a trucker and a fleet.
Owner-operator Status Discussion
A trucking company is an over-the-road motor carrier that primarily utilizes the services of independent contractor owner-operators. Some question exists if these truckers meet the definition of owner-operator pursuant to I.C. § 22-3-6-1(b) (8), and therefore, should remuneration paid to these truckers be included in the calculation of workers compensation premium?
If an owner-operator has entered into an arms length Lease/Purchase Agreement with a leasing company like Ryder or Penske, or a truck dealer, or a trucking company, then that fact would help to support that he is not an employee under Indiana law. A careful review of this Agreement, as well as an Independent Contractor Agreement, statutory requirements, and the Federal Motor Carrier Safety Regulations ("FMCSR"), should demonstrate that there is no legal question with respect to the owner-operator's "ownership" of their motor vehicles. Rather, the only "question" is whether the owner-operator is subject to the written lease requirements of state and federal motor carrier law. The following discussion will lead to the answer that yes, the owner-operator is subject to the written lease requirements, and therefore, not an employee of the trucking company.
Pursuant to I.C. § 22-3-6-1(b) (8), to be exempt from the Act, a trucker needs to be "an owner-operator that provides a motor vehicle and the services of a driver to a motor carrier under a written contract that is subject to I.C. § 8-2.1-18-46 (now I.C. § 8-2.1-24-22), 45 I.A.C. 16-1-13, or 49 C.F.R. 1057." First, turning to the requirement that the owner-operator must provide his equipment and driver under a written contract subject to 49 C.F.R. 1057 (now 49 C.F.R. 376), and specifically the requirements of section 376.2 (d), an "owner" is defined as, among other things, "a person...or (2) who, without title, has the right to exclusive use of the equipment,..."
Thus, in order to be an owner of equipment subject to the written contract requirements of 49 C.F.R. 376, an individual is not required to "own" the vehicle, but merely have the right to exclusive use of the vehicle, which should be apparent in a typical Lease/Purchase Agreement and/or Independent Contractor Agreement.*
Moreover, 45 I.A.C. 16-1-13, to which the owner-operator written contract must also be subject under I.C. 22-3-6-1(b) (8) , contains a similar definition of an "owner." 45 I.A.C. 16-1-13(6) defines owner as "...a person: ... (2) who as lessee has right to exclusive use of equipment for a period longer than 30 days;..." (Emphasis supplied).
Indiana Administrative Code contemplates that an individual will be deemed an owner subject to the written lease requirements, if he/she obtains equipment through a lease purchase program, but also by leasing the equipment for more than 30 days instead of "owning" the same.
An owner-operator typically obtains equipment from the trucking company through a lease purchase program. Such a Lease/Purchase Agreement and the lease purchase program are conventional arrangements used in trucking commerce across the country.
A review of the Lease/Purchase Agreement should reveal a true arms-length transaction. The Lease/Purchase Agreement specifies that the term is for a period of 24 months, for instance, and sets forth a purchase option price for which the equipment may be purchased by the owner-operator at the end of the agreement should he/she so desire.
The Lease/Purchase Agreement should further specify that the owner-operator is responsible for all fees and taxes and insurance related to the operation of the equipment and also assumes liability related to the equipment as well as assuming all risk of loss. All of these provisions demonstrate that the owner-operator has a substantial investment in the equipment and, as required by 45 I.A.C. 16-1-13(6), the right to exclusive use of the equipment for a period longer than 30 days.
As such, the owner-operator is considered to "own" the vehicle for the purposes of state and federal motor carrier regulation and he/she can provide such to the trucking company only pursuant to a written contract that is subject to I.C. § 8-2.1-22-22, 45 I.A.C. 16-1-13 and 49 C.F.R. 376 as contemplated by I.C. § 22-3-6-1(b)(8).
As demonstrated above, by definitions contained in 45 I.A.C 16-1-13 and 49 C.F.R. 376, the owner-operator is an "owner" who, pursuant to the same code and regulation cites, as well as I.C. 9 8-2.1-24-22, must provide that equipment to the trucking company through a written lease.**
The owner-operator should provide the equipment and driver services to the trucking company via a written contract (independent contractor agreement). The agreement should state that it is executed pursuant to the "Federal Leasing Regulations under 49 C.F.R. Part 376." Thus, the pertinent question is not how the owner-operator is "providing" the trucks to the trucking company, but rather whether the owner-operator is required to provide his truck and driver services to the trucking company pursuant to a written contract that is subject to state and federal requirements. If so, then the owner-operator is not an employee of the trucking company and therefore not covered under the Act pursuant to I.C. § 22-3-6-1(b) (8).
* When discussing "exclusive use" of the equipment, it is important to note that 49 C.F.R § 376.12(c)(1), for reasons relating to public safety, mandates that a written lease shall provide that the motor carrier "shall have exclusive possession, control, and use of the equipment for the duration of the lease." An independent contractor agreement should contain this mandated language. It is important to also note that 49 C.F.R. § 376.12(c) (4) states that the "exclusive possession, control, and use" language is not intended to be used as a factor in determining whether an owner-operator is an independent contractor or an employee of the motor carrier. So, although the agreement allows the motor carrier the exclusive use of an owner-operator's equipment, it is not intended to indicate control or help support an employer/employee status.
** See, specifically, I.C. § 8-2.1-24-22 (b) (1) ; 45 I.A.C. 16-1- 13(d)(1)(B); and 49 C.F.R. 376.11(a)
Why do truckers and trucking companies go through all this legal agreement construction rather than have an employer/employee relationship? Here's a summary of the pros and cons from both the owner-operator and trucking company perspectives.
more money and control
more risk - has to make payments on equipment
||reduce insurance and taxes - payroll, unemployment, property; owner-operators take better care of trucks than employees
Occupational Accident Policy (OAP)
An Occupational Accident Policy (OAP) provides weekly disability payments in the event the insured suffers a serious injury. Such coverage is common for owner/operators in the trucking industry, specifically "over the road" long haul drivers. The policy terms generally exclude workers compensation benefit payments. Therefore, if an individual covered by an OAP is deemed an employee of the company for which he/she is working, then the OAP policy may likely not pay any benefits.
Short Haul vs Long Haul
The Scopes Manual references under Codes 7228 (short haul) and 7229 (long haul) indicate that "Both Codes 7228 and 7229 may be assigned to a single entity provided that the conditions of Basic Manual Rule 1.D.3 (old Rule IV.D.) are met."
Basic Manual Rule 1.D.3 (old Rule IV.D.1.) does indicate the purpose of the classification procedure is to assign the one basic classification that best describes the business of the employer within a state. Most of Rule 1.D.3. (old Rule IV.D.4.) does limit the assignment of Codes 7228 and 7229 to trucking entities engaged in both long haul and short haul trucking. One example of these limitations is the requirement that to qualify for an additional basic classification, an insured must have an operation that is ordinarily not within the scope of the insured's principal business. As some short haul truckers engage in long haul trucking and vice-versa, and some truckers exclusively engage in either long haul or short haul, it cannot be concluded with any degree of certainty that both long haul and short haul trucking operations are mutually exclusive businesses which should always be classified as separate undertakings or enterprises. Another limitation is that it is unlikely that there would be physical separation (i.e.: two separate terminals) - one for short haul trucking and one for long haul trucking - which would also preclude the assignment of both codes to a single entity engaged in both of these operations.
This takes us to Rule 1.D.3.c.(3). (old Rule VI.D.4.(c).) which addresses the issue of how to assign classifications if the conditions prior to (c) are not met. Due to the availability of various trucking classes, including Codes 7228 and 7229, we cannot merely say an insured for workers compensation classification purposes is in the trucking business. Assuming there is no exposure to the other trucking classifications, the trucker is either in the business of short-haul trucking or long-haul trucking or both. Based on this premise, even though an insured did not qualify for two codes prior to Rule 1.d.3.c.(3). (old Rule VI.D.4.(c).), rule (c) affords the opportunity to assign two classes based on which business is the principal business of the insured.
Per Rule 1.D.3.c.(3) (old Rule IV.D.4.(c).), if an insured is engaged in both long and short haul trucking then the insured is assigned to classes in the following manner: if the rates for Code 7229 are higher than the rates for Code 7228 (as is the case in Missouri for many years) and Code 7229 is the principal business then the entire payroll for the insured is assigned to Code 7229. If the rates for Code 7229 are lower than the rates for Code 7228 and Code 7229 is the principal business than the insured qualifies for both Codes 7228 and 7229 and employees wages are assigned accordingly. Principal business is defined as that business with the greatest amount of payroll per Basic Manual Rule 1.B.6. (old Rule IV.B.6.).
Loss and Rate Pattern
We compiled a Trucking Code Analysis of total losses and rates for the period 1993 to 2001. Observations: Trucking losses are consistent for the five year period 1993 - 1997. The trucking advisory rate shows a decreasing pattern for the nine year period 1993 - 2001. See attached spreadsheet for details.
A case in the Indiana Court of Appeals, O & I Transport v. Honeycutt, November 19, 2003 dealt with the issue of the employer-employee relationship between a trucking company and driver. O&I, a carrier, contracted with Tiell, who agreed to provide trucks and drivers. Honeycutt accepted an order from the O&I dispatcher. Honeycutt was injured while assisting in the loading of the truck. Full Board awarded benefits to Honeycutt and O&I appealed. The WC Act contemplates that one worker may simultaneously have two employers.
In 1992, ICC regulations were amended. "No longer are the Courts and Board bound by the determination that if a lease which is entered into meets the requirements of the leasing regulations as established by the Federal Motor Carrier Safety Administration that is conclusive proof that the injured driver was an employee of the common carrier."
Because of the new legal standard, the Court reversed and remanded the case back to the Board to enter new findings of fact.
Over 40 million trucks are registered in the United States. About 2.9 million drivers are employed by 362,228 motor carriers and log over 500 billion miles annually. The US Department of Transportation, Office of Motor Carriers took over many of the functions of the Interstate Commerce Commission when the ICC was terminated in late 1995.