I interviewed Mark Tuchmann who discussed Effect of Independent Contractors Versus Employees in the Supply Chain.
It’s great to speak with you, Mark. I’m looking forward to discussing with you the topic of the effect of independent contractors versus employees in the supply chain. Can you start by providing a brief background of yourself?
Sure. I’m 48 years old and primarily have spent my whole career in the transportation space, specifically the last mile part of the business, where most of the day-to-day type expedited moves throughout the U.S. and international. I formerly own a company that’s called BeavEx, which I sold in private equity about three years ago. Currently, I consult with companies that have issues around the transportation space or so in their business. Our practice is to make them more profitable and more effective in delivering their product.
Today I suggested that we talk about the independent contractor versus employee status. That is probably one of the more accepted models in the transportation space in the U.S. You see it ranging from tractor trailers all the way down to small delivery vehicles, where an asset light model is the most effective way in the supply chain to deliver the product.
Can you explain a little bit about the problem?
Sure. This isn’t a new problem. I guess the best way to put it is: There’s a lack of this clarity by the government in states, more particularly in the way they view who is an independent contractor versus who should be an employee. That status has primarily two different tests that people use. The IRS uses a 20-item test to determine if you’re a contractor or another employee. The states, some of them use that same 20-item test, and some of the other states use what they call the ABC test.
There’s no uniform manner to determine the status of a contractor or of an employee; it’s very vague and it’s not clear for companies that want to use one or the other, which would be viewed depending on what that regulatory body would be coming to audit your operation and who is workman’s comp division to collect workman’s comp insurance. They might do it one way, where unemployment would be viewing it another way. You have class-action lawyers who like to do it a totally opposite way.
There’s really no clarity and what ends up happening is that it leads to mis-classification—some intentional, some not. Ultimately, you have companies out there that think they’re operating legally, and next thing you know, they have an audit and it’s determined that they’ve been operating illegally and are fined penalties and potential lawsuits and the like, which not only costs money but is also a big distraction in their businesses.
Do you have any recommendations on how this problem can be solved?
I mentioned you that primarily in my career, I’ve been in the transportation space and probably most of that 27 years, we’ve been trying to figure that out. Like I said, there’s a very little lack of guidance or clarity. It’s almost intentional, where they really don’t want to be clear and distinct because for example—the state of Massachusetts, there’s a law in place where the use of independent contractors is illegal, but if you looked at state vendors and contractors, they’re usually independent contractors who provide services such as snow plows and things like that that would actually bring commerce to a halt if they ever enforced the law to the effect that they should.
That lack of clarity is something that we’ve been trying with lobby efforts and lawsuits and things like that manner. In Massachusetts, our association sued the State of Massachusetts that the law was unconstitutional and it prohibited interstate commerce, and we actually got a favorable appeal of the law. Now it’s got to go to the Supreme Court to get signed.
Do you have any final comments regarding the effect of independent contractors versus employees?
Ultimately, if you look at the supply chain, you’re probably asking yourself why it’s so bad. The bottom line is the asset-light independent model should provide efficiencies and flexibility so that the cost to that shipper or person is lower. Part of the supply chain is transportation obviously/ If that cost in an efficient, asset light model, and then the state and federal government have their way and the cost would increase the state’s dollars, well then, the ultimate consumer now who’s buying that product is now paying a higher price for the mere reason that they’re prohibiting the use of an independent contractor, which is the better model. Really, in the event of that non clarity or the way that it is today will ultimately increase prices to consumers. If you look at our economy and the dollars driven through the transportation space, that can be a staggering hit to our economy.
Thanks, Mark, for sharing today.
About Mark Tuchmann
Strategic Advisor, Board Member at CXT Software