Independent Contractors Are a Ticking Liability Bomb
I recently visited a multi-billion dollar home-wares retailer, talking about their supply chain and how they deal with local delivery. I was surprised to hear they work directly with individual independent contractors (ICs) instead of local delivery companies, or having a dedicated fleet with employee drivers. It’s a tempting practice for any shipper (retailers, distributors, 3pls), since it removes some cost from the equation. In particular, shippers avoid workers’ compensation insurance and payroll taxes, since that burden falls to the individual drivers. Also, the retailer is dis-intermediating the local carrier, and the dollars that normally would go into the pockets of the local carrier end up as cost savings for the retailer. This direct to independent contractor model has been around for years but is increasingly visible, since it’s the model used by rideshare companies such as Lyft and Uber.
But going directly to independent contractors is in most cases illegal, as in the recent federal court ruling on FedEx’s Home Delivery operation. It’s a very fine line between having an employee and working with an independent contractor. Each state has different rules for qualifying workers as independent contracts vs. employees, which creates a blizzard of requirements to avoid stiff penalties and class-action lawsuits. One common thread is that the worker needs to get orders from multiple shippers to classify as an independent contractor. Does anyone truly believe that a local delivery driver running routes every day for the same retailer is an independent contractor? Across the country, state tax agencies and workers’ compensation boards are charging companies with mis-classification of workers, especially when it comes to transportation and delivery. Even worse, liabilities shift from the local carriers to the retailer when working with independent contractors, opening the door to even more lawsuits. Finally, recruiting, training, and managing independent contractors produces hidden costs that tend to be ignored.
All in all, I’ve seen this model explored by a good number of retailers who dismiss the strategy when the true costs and liabilities are uncovered. I’d expect the same for the this retailer once the legal counsel or risk officer get in the loop.