W-2 drivers through a PEO
Many carriers keep company drivers on 1099 because W-2 sounds like a pile of new work: withholding, tax deposits, quarterly filings, an unemployment account, workers' compensation and benefits. A professional employer organization (PEO) can take much of that work on. This page explains how the work is usually divided, and what stays with the trucking company no matter what.
With a PEO, the trucking company and the PEO become co-employers of the drivers. A written contract, usually called a client service agreement, says which employer duties the PEO takes on and which stay with the carrier. The carrier still owns the company and runs it: who gets hired, which loads go where, and how drivers are paid.
The contract decides the details, so two PEOs can divide the work differently. The table below shows the usual division.
| Task | Who usually does it |
|---|---|
| Driver paychecks | The PEO runs payroll from the miles, hours or loads the carrier reports. |
| Federal payroll taxes and filings | The PEO withholds, deposits and files. If the PEO is certified by the IRS, the PEO alone is responsible for the federal employment taxes on the wages it pays. |
| State unemployment tax and claims | Depends on the state and the contract. Some states have the PEO report drivers under its own account; others use the carrier's. |
| Workers' compensation | Often through the PEO's policy, with the PEO doing the claims paperwork. Depends on the state and the contract. |
| Health and other benefits | The PEO sponsors the plans and runs enrollment. |
| Hiring, firing, dispatch and pay rates | The carrier. |
| FMCSA safety duties | The carrier: driver qualification files, hours of service, drug and alcohol testing, and the trucks. |
| Anything from before the contract | The carrier. A PEO starts on its start date. Claims about earlier years, including years when drivers were paid on 1099, stay with the carrier. |
Any PEO can run payroll. With an ordinary PEO, the carrier can still be held responsible if federal payroll taxes go unpaid. A PEO certified by the IRS is called a CPEO. It is treated as the employer for the federal employment taxes on the wages it pays, so that responsibility moves to the PEO. The IRS keeps a public list of certified PEOs.
Sources: IRS: information for customers of certified PEOs; NAPEO, what is co-employment?
| Certification | Are you certified by the IRS as a CPEO, and will our contract run through the certified company? |
|---|---|
| Unemployment | Whose state unemployment account will our drivers be on, and who answers a former driver's claim? |
| Workers' compensation | Whose policy covers our drivers, and what happens to coverage if the contract ends? |
| Division of work | Which tasks do you take on, and which stay with us? Can we see it in the contract? |
| Earlier years | Who answers a claim about a driver who worked for us before the contract started? |
This page describes how PEO arrangements usually work. It is not legal or tax advice, and the written contract governs any real arrangement.
Is 1099 worth the risk for a fleet your size? Classification cases, the odds by fleet size, and how former drivers can still cost money.
Is 1099 really cheaper? Our study of 5,712 truck-driver job ads and what 1099 drivers are paid compared with W-2 drivers.