(NewsNation) — Truck owner-operators in California’s transport industry are in limbo as state-level labor rules start applying to them may create another blockage in stressed U.S. supply chains.
California’s Assembly Bill 5 requires workers satisfy a three-part test to be considered independent contractors, or else be seen as employees entitled to job benefits. The trucking industry relies on contractors who until now have had flexibility to operate on their own terms, and has fought to be exempt from state regulations for years.
One of the sticking points in that law involves how companies can classify employees, and that can come down to something as simple as a tax form.
The latest Internal Revenue Service (IRS) data from 2019 shows that more than 100 million 1099 forms were sent out to taxpayers. While it’s a lot, it’s still less than half of the traditional W-2 forms that go out each year.
So what’s the difference between the two forms, and why was California fighting so hard to regulate 1099 employees?
Unlike a traditional W-2, no taxes are taken out of a 1099, which puts all of the tax burdens on a worker. This means federal income tax, state income tax, Social Security, and Medicare must be paid by them. Not only that, 1099 workers can also be subject to an additional self-employment tax.
So, why was the trucking industry fighting to get an exemption to the California law? Nearly 70,000 truckers in the Golden State are owner-operators. That means they have their own trucks that they lease or own and can accept any job they want.
Taking them off 1099 status means they would have to be a company driver, and while they would get company benefits, they would lose the ability to act as their own boss.