In our previous article we took a quick look at why truck drivers consider making a life altering transition to owner-operator, with the top three reasons typically being, in no particular order:
- Make More Money
- Have More Freedom (do my own thing, control my own destiny, make my own decisions, etc.)
- Own a truck and eventually add trucks and drivers to grow a trucking company.
For the sake of this article, we’ll make a few assumptions:
- You’re currently a company driver, and preferably, a company driver with at least of few years of experience.
- You have little or no experience as an owner-operator.
- Since you have little or no experience as an owner-operator you’re considering easing into the business by leasing on with a carrier knowing that you’ve got some learning to do before getting your own authority.
For now, it doesn’t really matter if you’re considering a lease purchase through the carrier or if you will secure a truck by your own means. We’ll cover details of those two options later, for now we just want to focus on some key expectations.
When considering the differences between being a company driver and an owner-operator, your first thoughts are hopefully in line with risk vs. reward thinking. In the overall picture, being a company driver is a relatively stable occupation with relatively little risk. Sure, there can be some market and economic related conditions that can impact your occupation, but in real simple terms, Professional Driving is your job, you’ll get paid to drive with virtually no risk related to asset investment and operating expenses. Risk to you is pretty low, however the rewards are pretty much limited by the miles you drive and the compensation rate for driving those miles.
Compare that to a general risk vs. reward view for an owner-operator—Professional Driving is a required element of running an owner-operator business, but there is much more to being a successful owner-operator than driving. You may be the greatest driver in the world, but that does not necessarily mean you’ll be successful at running a one truck business, nor does it mean you’ll even want to be a business owner. As an owner-operator, not only will you have to be a great driver, you’ll have to take on the investment and operating expenses of running the business. Consequently, you’ll be taking on risk. Are the rewards worth the risk? Maybe, maybe not, it depends on a lot of factors, including your ability to invest in planning, preparation and execution of running a business. Those owner-operator’s that have learned how to successfully operate a business can do very, very well financially.
Let’s take a look at some of the broad categories to compare company driver vs. owner-operator truck driver. While certainly not a full comparison, this should provide a good start of the major differences to consider…
PAY
Company Drivers
Driving is your job, you are compensated for driving, usually on a “per mile” basis with some additional income opportunities for things like detention, layover, stops, etc.
Owner-Operators
You are compensated per an agreement you have with a carrier. It could be a flat “per mile” rate, or it could be some sort of percentage based program. You’ll likely have some sort of compensation for fuel surcharge (FSC) and possibly some earnings for additional items like stops, detention, tarping, etc. Brought back to a “per mile” figure, the “per mile” rate paid to an owner-operator is usually much higher than what is paid to a company driver. Your total earnings
before any business related deductions is called Gross Revenue.
INCOME TAX RELATED WITHHOLDING
Company Drivers
As a company driver, you are an employee and your employer is required to make certain tax related deductions based on your taxable earnings and report those figures on the W-2 you receive each January. (If you’re a company driver by every definition yet paid on a 1099-Misc basis, well, that’s an uncomfortable conversation for another day.)
Owner-Operators
You are an independent business, meaning….you are on your own. You are not an employee, so there is no employer to make certain tax related deductions for you. At the end of the year, you’ll now receive form 1099-Misc showing the amount of Gross Revenue you earned during the previous year, and the information will also be shared with the IRS and any other applicable taxing authority, possibly your state of residence. Remember, the Gross Revenue is the amount earned before any business related deductions. It will be up to you to account for all expenses in order to arrive at a taxable income for tax preparation purposes. If you do not show your deductions, the IRS will assume your Gross Revenue indicated on the 1099 is your taxable income, and consequently, your tax liability will be much greater than what you would’ve been required to pay had you kept good records of your deductions.
THIS IS A TOPIC THAT SHOULD NOT BE CONSIDERED LIGHTLY.
BENEFITS
Company Drivers
Your employer will likely provide some additional benefits, either in part or in full. Some typical benefits might include health care insurance, life insurance, savings plans like a 401k, paid personal time off (PTO) for things like sickness & vacation, holiday pay and/or time off for holidays.
Owner-Operators
The company you lease to might be able to refer you to some group insurance plans designed for independent contractors, but you’ll most certainly bear the entire cost. Savings plan? You are on your own. PTO: Not only will you not be paid for personal time off, but you’ll continue to rack up expenses while you’re not working. PTO will most likely cost you money.
EQUIPMENT
Company Drivers
Your employer will provide your equipment at no cost to you. You might or might not have a choice in the tractor you drive and/or the trailer(s) you pull, but bottom line, you have no loans or leases to pay for equipment. Your employer bears that cost. And, you probably have very little input regarding specs, options, etc.
Owner-Operators
If you pay cash for equipment, great, you made the investment and it’s yours. Obtained equipment with a loan or lease arrangement? Great, it is your full responsibility to make the payments on time, every time. You likely picked out your own equipment, based on your choice and financial qualifications. Lease Purchase through a carrier? Great, the contract should clearly spell out all of your responsibilities, and most likely those responsibilities can be summarized by saying “you are responsible for everything, including making enough money to make the weekly payments via settlement deduction”, and you probably have no ability to take the truck elsewhere.
FUEL
Company Drivers
Fuel is paid by your employer. You might get some sort of bonus for hitting MPG targets, but bottom line, you should bear no cost of the fuel consumed. Your carrier will likely monitor your fuel costs and give you some friendly advice if it appears fuel costs are excessive, but you won’t be paying for the fuel.
Owner-Operators
There are some carriers that might provide some sort of fuel cost protection program, but those programs are not likely to last long if you start costing the company too much money due to poor fuel mileage. In most cases, you will bear the full cost of fuel whether that expense comes directly out of your pocket or through a carrier issued fuel card. You might even have to pay additional swipe fees for using a company issued fuel card. Outside of a huge repair costs, fuel will likely be your #1 expense, by far. And also the #1 expense you can control. Reduce your fuel expense and you’ll put more money in your pocket. Don’t manage your fuel expenses and you’ll likely struggle. Your carrier probably won’t really care about your fuel consumption because
the cost of fuel is your expense, not the carrier’s.
MAINTENANCE & REPAIRS
Company Drivers
The carrier will pay for all maintenance & repairs, including tires, washes, tows, etc. You might even be compensated for downtime due to repairs, and if a hotel and/or meals are required, your carrier will likely cover those cost for you as well. Transportation home if required is likely paid for by your employer.
Owner-Operators
Generally speaking, you are an independent contractor and responsible for your own maintenance and repair costs. A carrier might loan you money for repairs, but they’re going to want it back through settlement deductions over time. Repair downtime, is not likely to be paid. You’ll likely have to pay for any required lodging and meals out of your own pocket, and if you need to get home you’ll likely have to find a way home out of your own pocket.
EQUIPMENT AND BUSINESS RELATED INSURANCE
Company Drivers
Any insurance required for the equipment or required for operating the truck (cargo, liability, etc.) will likely be paid fully by the carrier.
Owner-Operators
As an independent business owner, you will typically be responsible for your own insurance costs. You’ll likely be required by your finance company to provide two types of insurance: 1. Physical Damage to cover fire, loss, damage, etc. to the truck. 2. Non-Trucking Liability (NTL, also sometimes called bobtail). Your carrier may require you to have NTL as well. Your carrier will likely have a program where they accommodate getting you the required coverages, but they’ll deduct the cost from your settlement. Or, you can elect to obtain the insurance on your own. Your carrier will provide Cargo and Primary Liability, but whether or not they charge back a portion to you will vary amongst carriers. Bottom line, you will have equipment & business related insurance costs.
PERMITS, REGISTRATION, IFTA, AND FHVUT 2290
Company Drivers
Your employer owns the truck and will be paying for all of these items.
Owner-Operators
Most carriers have a program in place to obtain registration & permits on your behalf, but they usually recover the costs by taking deductions from your settlements. There might even be some carriers that do not deduct the costs for registration and/or permits, but there’s a good chance they are likely making back that money in some other way, maybe in a reduced pay program. Most carriers do not get involved with FHVUT 2290 unless they have an interest in the truck. Get a truck on your own and you’ll likely have to pay the annual $550 fee to the IRS by submitting Form 2290.
MISC SUPPLIES
Company Drivers
You might have to pay out of pocket for certain things required for your role, like steel toe boots or other personal protection. You might even have to pay for your own office supplies like pens, pencils, notebooks, etc. But for the most part, your employer will be paying the bill for required supplies, like tire chains, load chains, binders, straps, etc.
Owner-Operators
Your carrier might have some programs in place to help with things like those items mentioned in the company drivers section, but more than likely you’ll eventually pay for everything.
TOLLS, SCALES, PARKING, AND MISC
Company Drivers
Your employer will likely pay for all tolls, scales, parking, on board electronic devices, etc.
Owner-Operators
Be sure to carefully read and understand your carrier’s policy regarding reimbursable expenses. Some carriers reimburse for documented tolls/scales/parking and other miscellaneous items. It’s up to you to make sure you understand all of the requirements.
That’s a lot to consider, isn’t it? And wait, there’s more!
Can an owner-operator make more money than a company driver?
Maybe….there a lot of factors to consider. An owner-operator starts out with a higher pay structure, but has to bear expenses, so the financial reward might be significantly higher but the risk is certainly higher as well.
Can an owner-operator have more freedom than a company driver?
Maybe, at least in terms of selecting loads, lanes, etc. But overall, an owner-operator will likely have to work harder (and smarter) to put more money to the bottom line because being a professional driver is one of many crucial elements of being a successful owner-operator. There are a lot of other things an owner-operator has to do as a business to be successful, and those things mean a bigger investment in time and resources.
The best thing you can do to help weigh the risk vs. reward is to do some serious planning and preparation. One example would be to continue running as a company driver, but create a form of record-keeping to track every penny of revenue and expense as if you were an owner-operator. Keep track of miles, pay, fuel, repairs and all other expenses and see what that looks like as an owner-operator. Then, run projections, including your personal expenses, to see how those numbers fit with your total and personal needs.
Those owner-operator’s that have learned how to successfully operate a business can do very, very well financially.
Sounds like a lot of work, doesn’t it? It is! And like any business, you should seek help from an experienced source that can guide you through all of the details, accurately and completely.
Want to learn more before taking the plunge? Ready to explore some facts instead of depending on the generalities and questionable advice you get from others? Over the next several weeks we’ll be covering topics that are essential to consider before making the transition to an owner-operator. You owe it to yourself and your family to gather as much factual information as possible to include in your decision making process.
Next up, we’ll explore some specific steps to take before taking the leap to become an owner-operator.
If you just can’t wait, please browse our website for more details on what you need to know before making a life changing commitment and call 720.360.1843 or use our contact form to schedule a free consultation.
Make sure you stay up-to-date and get the latest news and industry information as it’s released—Like us on Facebook and Follow us on Twitter.
