Per Diem in the Trucking Industry

The question of per diem often occurs in the trucking industry.  These are companies that transport freight (short haul or long haul) and they own their own company trucks.  The alternative is to hire independent contractors that own their own trucks also known as, owner operators.  

Drivers & Owner Operators

In a more perfect scenario, company drivers (that operate company owned trucks) should be paid W-2 wages as they are common-law employees.  However, companies that hire drivers and pay wages are subject to employment taxes and if you are in a state such as California, the state also requires you to pay workers compensation insurance.  

Worker Compensation (W/C) Insurance 

This type of insurance covers injury claims by an employee, such as a truck driver.  The insurance allows wage replacement and medical benefits as a result of injury. The amount of insurance premium is computed as a percentage of gross wages paid per year.  

For example:  XYZ Freight LLC is projected to pay $225,000 in gross wages for the year 2017.  The W/C rate is 25%. Therefore, the annual premiums will be $56,250.  

YES VERY EXPENSIVE!!! PAYING PER DIEM ALLOWANCES CAN HELP – SEE BELOW

25% W/C insurance rate is a realistic rate that an insurance company may demand for a company hiring drivers for the first time.  Drivers are considered high risk; however other classifications of employees will be at a lower rate depending on the type of work they do e.g. clerical staff should fall in the 1%-5% range as the risks are a lot lower than a company driver who could suffer injuries and even death while driving a truck.

Treating common-law employees as independent contractors is illegal and can result in huge government fines.  W/C insurance rates may fall over time depending on the duration a company has had W/C insurance and the number of claims filed.  In our experience, a company with more than 3 years of W/C insurance history and no claims can receive discounts of by more than 50%.  So the sooner you start paying drivers on W-2 the better.

What is Per Diem?

Per Diem is a type of reimbursement arrangement where the employer reimburses you for expenses that you incur while being employed for example, meals and travel expenses.  Specific receipts and records are not required under a per diem allowance arrangement. Reimbursement arrangements can be under an accountable or non-accountable plan, however this article is focused on per diem allowances under an accountable plan.  

Reimbursements such as allowances paid under a Per Diem arrangement are not subject to employment taxes and not included in gross wage calculation for purposes of calculating W/C insurance premiums.  

As long as the company driver is likely to incur expenses in the course of employment, the trucking company (freight transportation company) can reimburse those expenses.  

In most cases, the trucking company uses the special federal per diem allowance specified for the transportation industry which currently is $66 per day for Meals and Incidental Expenses.  The rate does need to be prorated for days the driver leaves and arrives back home from the trip.  

Per diem may be a great tool to use for trucking companies to help reduce the cost of hiring employees by reducing the amount of W/C insurance premiums which can be very expensive.  

We help our clients structure the per diem allowance arrangement.  This type of arrangement helps motivate businesses such as trucking and freight transportation companies to hire company drivers and pay W-2 wages instead of paying them as independent contractors.