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To meet the various needs of a business, it may be beneficial to lease equipment and vehicles. A lease is required whenever a carrier performs transportation of property or equipment that it doesn’t own. Lease agreements convey certain rights and responsibilities, and they should not be entered into without a full understanding of all the terms of the lease.
To meet the various needs of a business, it may be beneficial to lease equipment and vehicles. A lease is required whenever a carrier performs transportation of property in equipment that it doesn’t own. Lease agreements convey certain rights and responsibilities, and they should not be entered into without a full understanding of all the terms of the lease.
In addition to company drivers, a company’s driver pool may expand to include owner-operators, drivers from employment agencies or leasing services, and/or occasional, seasonal, and intermittent drivers.
Owner-operators
Owner-operators are a commonly used addition to a company’s driver fleet, second only to the actual company employed drivers. Owner-operators can be a valuable resource if used correctly and applied to the current business model in a productive way.
A fundamental decision faced by carriers in their driver hiring policies is what the mix should be between owner-operators and company drivers. This decision is based on the motor carrier’s philosophy about managing the workforce and the financial concerns relative to each group. There are significant advantages and disadvantages associated with hiring all owner-operators, all company drivers, or a mix of both.
One advantage to having all owner-operators is that they create a level of flexibility for managers, not realized with having all employee-drivers. This is mainly seen as demand for freight fluctuates throughout the year. Owner-operators are only paid for the work that they do, with no continuing commitment to salaries or benefits, therefore minimizing on-going operational costs.
However, this flexibility does come at a price. Owner-operators make their own schedules so availability at the manager’s request is sometimes not feasible. Furthermore, the perception that owner-operators enjoy a certain level of independence, and that they can and do move freely between carriers, causes a certain level of uncertainty as to the on-going driver force. For this reason, some companies chose to not hire any owner-operators.
Carriers’ attempts to control the work of independent contractors may risk misclassification issues. Misclassification can occur when the control meets criteria that could get contractors classified as employees under the Department of Labor or the Internal Revenue Service (IRS). Various states such as California, have strict laws restricting the use of contractors. Among other criteria, California Assembly Bill 5 prohibits carriers from leasing on contractors who haul freight since that is the carrier’s core business.
Managers in these companies prefer to have greater control over the day-to-day actions of employee-drivers and can better address financial and business concerns with more consistent fleet numbers and productivity projections. However, this too comes at a price. The employee-driver will have benefits and insurance, as well as other on-going expenses that the company must commit to. An increase or decrease in capacity, based on economic variances, may not allow for the consistent revenue necessary to cover these expenses.
The decision to use owner-operators should be made by management based on sound financial evaluation of the company’s operations, goals, and projections for volume and productivity.
Employment and driver-leasing services
An easy solution to putting otherwise empty trucks on the road may be to use a driver-leasing or employment service. This may seem like a simple solution but again, there are certain business concerns that must be addressed.
A driver from one of these agencies may be “qualified” to drive, but they may not necessarily be trained to your company’s standards. A thorough evaluation as to the level of knowledge and experience of each driver, needs to be determined before putting them in a company vehicle. Furthermore, based on the type of freight a company hauls, additional training in freight handling may also be necessary.
An important thing to remember in using driver-leasing and employment services is that regardless of whether the driver receives his/her paycheck from the agency or directly from the company, the Department of Transportation (DOT) still considers them to be under the company’s control and responsibility pertaining to all operating, administrative, and regulatory guidelines. This means that the company must be sure that this is a favorable business decision, as the impact of these types of drivers on the financial and legal “bottom line” is very similar to that of an actual employee-driver.
Occasional, seasonal, and intermittent drivers
The occasional, seasonal, or intermittent driver is on the company’s payroll to drive during those times when extra help is needed. Examples could include drivers who fill in during busy seasons, vacations, or other absences. These drivers would be considered employees during the time that they worked.
These “temporary” drivers may also be licensed and trained to drive, but also works in another capacity at the same company. During times of increased freight volume and driver need, this person could fill in at a moment’s notice. These people may be managers, dispatchers, mechanics, warehouse workers, or anyone else on staff that’s authorized to drive.
Even though these people would not be permanent or full-time drivers, they would still need to be fully qualified under DOT regulations, including all pre-employment screening and qualifying, each time they drove. In addition, these “sometime” driver-employees would need to stay in the random drug testing pool for the company’s drivers and would be subject to all pertinent rules and regulations relative to the driver population.
This approach to the driver fleet can be a fairly profitable one, however, a company considering this approach must look at the associated costs of recurring qualification, training, and added maintenance/equipment issues, and how it relates to the revenue generated by the “sometime” driver.
As a motor carrier, you can lease an owner-operator or independent contractor to assist in your transportation services if not prohibited by state labor laws. For example, California’s Assembly Bill 5 (AB5) uses the “ABC Test” to determine if a contractor is an employee. The “B” prong of AB5 prohibits carriers from leasing on contractors who are in the same core business of hauling freight. Where not prohibited, it’s not uncommon for motor carriers to broaden their driver workforce by mixing leased independent contractors with company drivers.
However, a lease does not give you the authority to manage these independent contractors in the same manner you manage your employees.
Doing so could get state agencies and/or the federal government to determine that you are depriving these independent contractors of their rights to operate independently. They could soon become your “employees,” making you responsible for their overtime pay, health benefits, and many more employee rights.
Part 376 of the Federal Motor Carrier Safety Regulations addresses the requirements when two parties enter into a business agreement, in this case a “lease.” Within 376.12(c), the regulations clearly state that “the authorized carrier shall have exclusive possession, control, and use of the equipment for the duration of the lease.
The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.” The “exclusive possession, control, and use of the equipment” portion of this regulation does not entitle you to act as the owner of the independent contractor’s business.
When you, as the lessee, enter into a leasing agreement with another carrier, that carrier must run under your USDOT number. The FMCSRs require all leased vehicles/drivers to operate under the acquiring carrier’s operating authority as that party is responsible for the operation of the equipment.
Carrier steps to minimize the risk of misclassification
Electronic logging devices and leasing
It is the responsibility of the carrier who is leasing the driver/vehicle to make sure the vehicle has an ELD in it if the driver is required to use an ELD. There is no exception to this requirement for leased vehicles at this time, and it is not the responsibility of the lessor (the independent contractor or owner-operator) who is operating under the lessee’s (your company’s) USDOT number and operating authority to make sure there is an ELD in the vehicle if the driver needs one. This is different from the ELD exemption for drivers in vehicles rented for a contractual period of eight or less days. Drivers of any CMV operated in interstate commerce that is rented for more than 8 days must use an ELD if the driver is not otherwise exempt from using an ELD.
The key to dealing with owner-operators is to allow them to make their own purchasing decisions. This is normally accomplished by requiring the owner-operator to meet specific requirements through the lease agreement or its appendices, and then allowing the owner-operator to voluntarily use your ELD or make the purchase through a vendor/ supplier of their choosing.
The carrier can write a standard into the lease agreement such as “the vehicle must be equipped with an ELD compatible with …” Then it is up to the independent contractor to find and use a system that is compatible with the carrier’s system.
A carrier’s capacity to move freight is the greatest determinant of revenue. A primary source of drivers, leased independent contractors, was made illegal in California.
On June 30, 2022, the California Trucking Association (CTA) was denied its request to have the U.S. Supreme Court hear its case about the state’s Assembly Bill 5 law (commonly known as AB5). The result was that the injunction on AB5 was lifted. AB5 is enforceable back to at least January 1, 2020.
What is AB5?
Under AB5, a worker is an employee and not an independent contractor unless:
A. The person is free from the control and direction of the hiring entity in connection with the performance of work;
B. The person performs work that is outside the usual course of the hiring entity’s business; and
C. The person is customarily engaged in an independently established trade, occupation, or business.
These criteria are referred to as the “ABC” test. Point “B” is troublesome for motor carriers because leased contract drivers are in the same business as motor carriers.
If contractors are determined to be employees of a carrier and the drivers were misclassified, then they‘re eligible for benefits like minimum wage, overtime pay, unemployment, worker’s compensation, etc.
At least one other legal test, the Borello test, will be applied in misclassification, wage, or unemployment cases. It focuses on the independence of the owner-operator’s business and the ability to make decisions about the work they accept and for which customers.
Which carriers may be affected?
Independent contractors, also known as owner-operators, can haul freight in California under their own DOT number and authority, just not under a lease to a trucking company.
However, motor carriers are not allowed to use leased independent contractors to haul freight under the carrier’s DOT number in California under AB5.
Carriers that use non-California based contractors that haul into and out of CA may also be subject to AB5-related penalties and taxes. If work is performed in multiple states, California law will apply to all in-state work for many types of claims (including minimum wage and expense reimbursement, as well as, unemployment and worker’s compensation claims).
California law may also apply to out-of-state work if more than 50 percent of a driver’s work time is in California, or when a driver starts or ends a trip in California and there is more work time in California than in any other single state. The driver’s residence and motor carrier’s domicile are not considered in determining applicability of Labor Code requirements.
AB5 is California’s version of a misclassification law. The misclassification of drivers as contractors instead of employees can result in penalties in any state.
Carrier options
Some options to minimize the loss of driver capacity that carriers could consider but may not protect them from claims or penalties are:
Some carriers are legally segmenting their business to isolate California operations and selling that portion to remove risk. The purchaser of that segment still has to comply with AB5.
What’s next?
California has not provided clear guidance as to which carrier operating models will prevent being in violation of AB5. Cases related to wages and benefits that have been on hold due to the AB5 injunction can move forward. Carrier operating models will be tested as cases are settled.
AB5 is still being challenged in courts. Until further notice, all cases in front of the California Labor Commission will have both the ABC test from AB5 and the Borello test applied.
Motor carriers should consult a transportation attorney familiar with California labor law to determine the best path forward.
A lease agreement is a contractual relationship in which the use of equipment is granted for compensation by the owner to an authorized carrier for use in regulated transportation of property for a specified period of time.
With few exceptions, the regulations require a lease whenever a carrier performs transportation of property in equipment it doesn’t own. A lease is simply another term for an agreement used when renting or using property that doesn’t belong to you.
As a holdover from the Interstate Commerce Commission (ICC), the leasing regulations are notoriously difficult to read.
Lease agreements should not be entered into without a full understanding of all of the terms. Verbiage like “it’s just a standard lease” should be avoided. The agreements convey certain rights, but certain items may work against either party as well. If not clear how a particular expense or compensation is handled, it can be added to the lease. A lease agreement that is not understood can open a “rabbit’s hole” when things do not go as planned. If unsure of what the terms and conditions entail, obtain professional legal assistance — in advance of signing.
Further compliance with the FMCSRs requires you, as the acquiring carrier, to:
Leasing vehicles is seen by some as an alternative to purchasing. Reasons for selecting leasing over purchasing include:
One of the main disadvantages to leasing is at the end of the lease the carrier has not gained an asset. Carriers typically have the option to purchase the vehicle at an adjusted price at the end of the lease, but they do not own it.
Many carriers do not lease because they desire to own the assets, while private carriers many times lease to avoid having assets that are not part of their core business. Private carriers may also not want to build the necessary structure to support the fleet as this may not be part of their core business. In this case it is easier to outsource all vehicle concerns through leasing.
“Why lease when you can own?” has long been the thought exhibited by commonsensical and prudent fleet managers when debating the truck lease versus buy decision. Based on current economic conditions, the opposite can now be argued. Rising fuel costs, increasing shortages of drivers and technicians, and excess capacity with for-hire carriers create increasing risks for fleet managers.
Truck leasing can often reduce these business risks. When considering a truck lease versus buy decision, consider the following questions:
Full service leasing programs, especially for smaller fleets, can become a workable option. This thought is shared by many fleet managers, regardless of their size, as the vehicle safety technology and demands for cleaner running trucks dictate the industry’s priorities. This will make managing the maintenance overhead even more difficult.
Your costs for all these services may be totally deductible at tax time. Check with your accountant for accuracy before making your decision.
Use your cash to your benefit. Rather than sinking more money into equipment whose value has now depreciated beyond the actual value of the original loan, use this cash instead to position the company for future needs that offer a better return on its investment. Allow the leasing companies to make their investments in new trucks and maintenance. If your business plan includes growth through expansion, most all leasing companies will assist you by offering their vehicles and maintenance facilities through their nationwide system and at a lower cost per unit.
Rules and regulations. Along with the training to repair the new engines which run on alternate fuels, electric only, or are hybrid diesel-electric trucks, the leasing companies have also invested to remain compliant with government mandates. Environmental changes, fuel tax reporting, federal, state, and local regulations have a tendency to get more complex every year. A full service leasing company takes on these additional costs and responsibilities.
Driver retention improvement. One of the main reasons drivers leave one motor carrier for another, oddly enough, is not for wages. Home time and quality of equipment are two top issues drivers quote when asked.
Leasing newer equipment could have significant effect on the quality-of-equipment complaint.
What if I don’t lease. Maybe financing is the best option. Financing the purchase will be a carrier by carrier decision. In some cases the carrier may get the best package directly from the manufacturer. In other cases the best financing option may be a financing company that specializes in financing carrier equipment. Finally, the carrier may receive the best financing package from the bank or financial company that is already financing other portions of the company.
Remember to consider all costs when reviewing financing packages. Interest, interest over time, payment fees, loan charges, and other fees all need to be considered.
Master lease agreement
A master lease agreement may be used for on-going, intermittent trip leases with the same lessor/owner. The master lease consists of three documents: The master lease agreement, and the master lease supplement and equipment receipt. Used together, the leasing requirements in Part 376 are satisfied. The master lease is drawn up to detail the overall terms of the agreement and lists the equipment that may be used for a trip lease between the same lessee and lessor. This allows an individual trip lease to take place without drawing an entirely new agreement for each trip. When a trip takes place, a master lease supplement and equipment receipt must be executed which sets forth the actual time and date of the beginning and end of the trip.
In a master lease situation, the lease begins when the lessee takes possession of the vehicle to be leased and issues a receipt to the lessor. The lease terminates when the lessee returns possession of the vehicle to the lessor, and the lessor issues a return receipt to the lessee. When the lease is in effect, the lessee has exclusive possession and use of the leased equipment and assumes complete responsibility for the operation of the equipment.
Standard trip lease agreement
A standard trip lease agreement is used for a single trip or a lease of short duration. This agreement is a pre-printed form on which the required information is entered; it also has provisions for designating the exact time the lessee took possession of the equipment, and the exact time the lessee released the equipment standard terms and conditions are printed on the back of the form, and, with the information on the face of the trip lease contract, meet the leasing requirements in Part 376.
In a trip lease situation, the lease begins when the lessee takes possession of the vehicle to be leased and issues a receipt to the lessor. The lease terminates when the lessee returns possession of the vehicle to the lessor, and the lessor issues a return receipt to the lessee. When the lease is in effect, the lessee has exclusive possession and use of the leased equipment and assumes complete responsibility for the operation of the equipment.
Permanent lease
A permanent lease is used when a carrier is leasing equipment that will be exclusively used by the lessee for the term of the lease. The lessee/carrier is the authorized carrier and is responsible for the legal operation of the vehicle for the duration of the lease. A long-term, or permanent, lease agreement is generally a detailed contract that includes individual company requirements and policies while meeting the requirements for written lease agreements in Part 376. Neither the standard trip lease, nor the master lease agreement is suitable for a long-term lease agreement.
Property interchange agreement
Interchange agreements allow carriers to extend their service into locations they normally do not, or cannot, serve. There are also times when a motor carrier has freight to deliver to a destination from which there is little chance of a return load. To avoid returning empty and underutilizing their equipment, carriers may arrange to “interchange” the load with another for-hire carrier for part, or all, of the trip.
Under an interchange arrangement, the carrier parties must have an interchange contract, lease agreement, or other contractual arrangement in writing. The agreement for the interchange service must describe the specific equipment involved, the points or locations of interchange, and how the equipment will be used. The contract should state whether there will be charges or fees for use of the equipment or delivery of the load and what those agreed upon rates are. Any charges between the carriers for the use of the interchanged equipment must be kept separate from the revenues paid by the shipper for transporting the freight. Other matters to clarify include deciding who will be responsible for damage to the equipment during use in an interchange movement, and how cargo loss or damage claims will be resolved. While the originating carrier is liable to the shipper for the claim, the interchanging carrier bears responsibility for the goods while they are in its custody. The written interchange agreement should outline how the carriers will resolve loss and damage claim issues.
Loads transported in an interchange service must move on a through bill of lading issued by the originating carrier. Because the freight is tendered to the originating carrier, the bill of lading is a contract between the originating carrier and the shipper. The rates charged and revenues collected from the shipper must be based on the originating carriers published or agreed rates and charges. In other words, the rates charged to the shipper must be the same as if there had been no interchange. Likewise, any rules or accessorial charges assessed against the shipper must be those of the originating carrier, regardless of any rules or charges the interlining carrier maintains. The originating carrier will be responsible, under the bill of lading, for any freight loss or damage claims submitted by the shipper.
The carrier partners in the interchange movement must have the necessary authority and permits to perform the transportation between the interchange point and the destination. If the interchange transaction involves a power unit, the “authorized” carrier receiving the load and equipment must display their US DOT number as required by 390.21. Before giving up possession of the equipment, the preceding carrier must remove all identification showing it as the operating carrier. In regulatory terms this is referred to as “interchange of equipment.”
The Federal Motor Carrier Safety Administration (FMCSA) regulates interchange agreements for motor carriers of property in 376.31.
A copy of the interchange agreement or a statement certifying the authorized interlining carrier’s operation of the equipment must be carried in the vehicle during the interchange service. The statement must identify the equipment by company or state registration number, indicate the specific points of interchange, the date and time the carrier assumed responsibility for the equipment, how the equipment will be used, and be signed by the parties to the agreement.
If only trailers or semitrailers are involved in the interchange service, a copy of the agreement or statement is not required to be carried with the vehicle.
Time-specific lease
A time-specific lease is a contract of set longer duration, usually 12 months. This lease usually automatically renews, unless either party notifies the other prior to the specified termination date. The lessee/carrier is the authorized carrier and is responsible for legal operation of the vehicle for the duration of the lease. A time-specific (or long-term) lease agreement is generally a detailed contract, drawn according to individual company requirements and policies (while meeting the requirements for written lease agreements in Part 376). Neither the Standard Trip Lease nor the Master Lease Agreement is suitable for a lease agreement of this type.
Interline agreements allow carriers to extend their service into locations they normally do not, or cannot, serve.
There are also times when a motor carrier has freight to deliver to a destination from which there is little chance of a return load. To avoid returning empty and under utilizing their equipment, carriers may arrange to “interline” the load with another for-hire carrier for part, or all, of the trip.
Bill of lading
Loads transported in an interline service must move on a through bill of lading issued by the originating carrier. Because the freight is tendered to the originating carrier, the bill of lading is a contract between the originating carrier and the shipper. The rates charged and revenues collected from the shipper must be based on the originating carriers published or agreed rates and charges. In other words, the rates charged to the shipper must be the same as if there had been no interline.
Likewise, any rules or accessorial charges assessed against the shipper must be those of the originating carrier, regardless of any rules or charges the interlining carrier maintains. The originating carrier will be responsible, under the bill of lading, for any freight loss or damage claims submitted by the shipper.
Written contract
Under an interline arrangement, the carrier parties must have an interline contract, lease agreement, or other contractual arrangement in writing. The agreement for the interlining service must describe the specific equipment involved, the points or locations of interchange, and how the equipment will be used. The contract should state whether or not there will be charges or fees for use of the equipment or delivery of the load and what these agreed upon rates are.
Any charges between the carriers for the use of the interchanged equipment must be kept separate from the revenues paid by the shipper for transporting the freight. Other matters to clarify include who will be responsible for damage to the equipment during use in an interline movement, and how cargo loss or damage claims will be resolved. While the originating carrier is liable to the shipper for the claim, the interlining carrier bears responsibility for the goods while they are in its custody. The written interline agreement should outline how the carriers will resolve loss and damage claim issues.
Regulatory requirements
The carrier partners in the interline movement must have the necessary authority and permits to perform the transportation between the interline point and the destination. If the interline transaction involves a power unit, the “authorized” carrier receiving the load and equipment must display their US DOT number as required by 49 CFR 390.21.
Before giving up possession of the equipment, the carrier must remove all identification showing it as the operating carrier. In regulatory terms this is referred to as “interchange of equipment.” Documentation with vehicle. A copy of the interline agreement or a statement certifying the authorized interlining carrier’s operation of the equipment must be carried in the vehicle during the interline service.
The statement must identify the equipment by company or state registration number, indicate the specific points of interchange, the date and time the carrier assumed responsibility for the equipment, how the equipment will be used, and be signed by the parties to the agreement.
If only trailers or semitrailers are involved in the interline service, a copy of the agreement or statement is not required to be carried with the vehicle.
The contractual relationship between the lessee and the lessor is governed by 49 CFR 376, Lease and Interchange of Vehicles, and enforced by the Federal Motor Carrier Safety Administration (FMCSA).
There are specific requirements that must be part of the agreement, while other terms can be negotiated.
The following is a high level plain English list of the requirements.
The parties may negotiate certain items such as who will bear the expenses of fuel, fuel taxes, empty mileage, and other operating costs. The lease must also state who is responsible for deductions. This information must be clearly spelled out in the lease.
Some requirements of the leasing rules are not open to negotiation. The requirement of a 15-day settlement period is not negotiable. Nor is the lessor’s right to a copy of the rated freight bill when compensation is based on a percentage of the revenue. The lease must also specify the carrier’s (lessee’s) obligation to maintain insurance coverage for the protection of the public.
The lease may provide that, upon termination of the lease, the lessor must remove and return all identification to the lessee as a condition of payment.
The lessee/authorized carrier must furnish a written receipt recording the date and time it takes possession of the equipment from the owner. Upon termination of the lease, the lessee must provide a “release of equipment” stating the date when the lease agreement ends, and possession and control is transferred back to the lessor.
Every rule has its exception, the leasing rules are no different. Some situations do not fit well in a typical lease. In recognition of the unique situations, the Federal Motor Carrier Safety Administration (FMCSA) offers four nearly full exemptions:
Due to the unique relationships, the FMCSA offers a partial exemption for carrier-to-carrier leases. Specifically, for leases between:
Whenever these exemptions are used, an agreement of some type needs to be in place even if the agreement is not required to have all of the items of a traditional DOT equipment lease.
The Federal Motor Carrier Safety Administration (FMCSA) however, does not exempt the agreements from the requirements of 376.11(c), which include:
Movements on a train
When the vehicle is moving from one rail yard to another rail yard while on railroad billing and the equipment is used in substituted motor-for-rail transportation of railroad freight, the equipment is exempt from the leasing requirements other than the requirements of 376.11(c).
Commercial zone transportation
If the transportation is performed exclusively within any commercial zone as defined in 49 CFR 372 the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Commercial zones rules are carried over from the Interstate Commerce Commission (ICC). Travel that occurs exclusively in the zones are exempt from certain regulatory provisions – including the leasing regulations.
Rental companies
If the equipment is leased without a driver from a company that is principally engaged in the rental and leasing of equipment, the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Trailer-only leases
If the lease is of a trailer only and does not also involve the leasing of a truck or power unit from the lessor, the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Carriers cannot borrow equipment from one another and maintain an “arm’s length agreement,” without the benefit of a lease or similar agreement.
When services or assets are received at no cost or under their true value, there may be tax consequences. To determine if the services are undervalued, the Internal Revenue Service (IRS) uses the concept of an “arm’s length standard.”
Because of the unique nature of the transaction, the FMCSA allows a simplified lease agreement.
Leases that are conducted between two for-hire carriers or a private carrier leasing to a for-hire carrier have simplified requirements which include:
The company operating the vehicle is responsible for compliance. All roadside inspection violations, citations, vehicle inspections, accidents, belong to the carrier — not to the leasing company, staffing agency or 3rd party provider.
The responsible carrier’s name and USDOT number need to be on the vehicle or, if a short-term rental, the qualifiers of the marking exception of 390.21(e) met.
The Federal Motor Carrier Safety Administration issued a final rule that revised regulations governing the lease and interchange of commercial buses. The compliance date was January 1, 2021.
FMCSA’s final rule includes the following provisions:
Lease or agreement is required, so there must be in effect either:
Lease requirements
Subpart G of Part 390 contains the lease and interchange requirements for passenger carrying motor vehicles. However, Subpart G of Part 390 does not apply to:
For a motor carrier transporting passengers in a leased or interchanged commercial motor vehicle, a written lease or agreement containing the information as follows is required when the lessee does not have FMCSA-issued authority:
If the use of a passenger-carrying commercial motor vehicle is conferred on one motor carrier subject to Subpart G by another such motor carrier without a lease or interchange agreement, or pursuant to a lease or interchange agreement that fails to meet all applicable requirements of subpart G, both motor carriers shall be subject to a civil penalty.
A 48-hour exception is available when an event (e.g., crash, vehicle disablement, ill driver) requires a carrier to immediately obtain a replacement vehicle from another carrier. When an event occurs (e.g., a crash, the vehicle is disabled) that requires a motor carrier of passengers immediately to obtain a replacement vehicle from another motor carrier of passengers, the two carriers may postpone the writing of the lease or written agreement for the replacement vehicle for up to 48 hours after the time the lessee takes exclusive possession and control of the replacement vehicle.
However, during that 48-hour period, until the lease or agreement is written and provided to the driver, the driver must carry, and produce upon demand of an enforcement official, a document signed and dated by the lessee’s driver or available company official stating:
A copy of the lease must be on the passenger-carrying commercial motor vehicle during the period of the lease or interchange agreement, and both the lessee and lessor shall retain a copy of the lease or interchange agreement for 1 year after the expiration date.
The Federal Motor Carrier Safety Administration (FMCSA) does not use the same definition for an “employee” as the Internal Revenue Service (IRS) or the Department of Labor (DOL) does. The FMCSA’s definition of an “employee” is found in 390.5:
As far as contracted or leased drivers go, the FMCSA considers them employees and expects the carrier to ensure that they are compliant.
To satisfy IRS law, it is important to determine whether a worker is an independent contractor or an employee. This determination is complex but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time. The general rule is that an individual is an independent contractor if the person for whom the services are performed (lessee) has the right to control or direct only the result of the work, and not what will be done and how it will be done or the method of accomplishing the result.
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:
The IRS provides information to assist in determining employee vs. independent contractor status at the following links:
Topic 762 - Independent Contractor vs. Employee: https://www.irs.gov/taxtopics/tc762
IRS Tax Publications: Independent Contractor or Employee: https://www.irs.gov/pub/irs-pdf/p1779.pdf
Publication 15-A Employer’s Supplemental Tax Guide: https://www.irs.gov/pub/irs-pdf/p15a.pdf
With owner-operators, there are two potential situations that can be encountered:
The USDOT number is used by the Federal Motor Carrier Safety Administration (FMCSA) and the States to identify motor carriers and monitor their safety performance. Owner-operators leased to a carrier operate under the carrier’s authority and USDOT number. There is no need for the owner-operator to have a separate USDOT number unless the owner operator will also operate as a carrier under their own authority.
The FMCSA eliminated “registrant-only” USDOT numbers that were part of the Performance and Registration Information Systems Management (PRISM) program. The FMCSA developed the concept of a registrant only USDOT number to identify registered owners of commercial motor vehicles (CMVs) that are not motor carriers but lease their CMVs to entities that are motor carriers. The FMCSA discovered that those USDOT numbers were being used differently from what the agency intended.
The motor carrier is always responsible for compliance with the federal safety regulations. The real question is: who is the motor carrier? In order for the leased to be the responsible carrier, the entity hiring the driver would either need to be a shipper/private carrier or a broker.
The carrier must prepare and keep documents covering each trip for which the equipment is used in its service.
These documents need to contain:
The authorized carrier needs to carry documents with the leased equipment during the operation containing this information above a and clearly indicating that the transportation is under its responsibility.
These documents must be preserved by the authorized carrier as part of its transportation records. A lease that contains the above required information can be retained instead of the documents.
When using a master lease, the requirements are met by having a copy of a master lease in the unit and the balance of documentation included in the freight documents prepared for the specific movements.
Does a copy of the lease have to be in the vehicle?
Either a physical copy of the lease or a statement created by the carrier containing the following information needs to be carried in the vehicle:
How is a leased vehicle to be marked?
All commercial motor vehicles operated by a carrier must be legally marked with the company name as listed on the MCS-150 and the USDOT number. This must be done before the vehicle is put into service and operated on public roads. All rented and leased vehicles operated by the company are required to comply with the DOT marking rule.
A vehicle is rented for a short period of time, 30 days or less, may be marked with the rental company’s name and U.S. Department of Transportation (USDOT) number. To qualify for the exception:
In addition to company drivers, a company’s driver pool may expand to include owner-operators, drivers from employment agencies or leasing services, and/or occasional, seasonal, and intermittent drivers.
Owner-operators
Owner-operators are a commonly used addition to a company’s driver fleet, second only to the actual company employed drivers. Owner-operators can be a valuable resource if used correctly and applied to the current business model in a productive way.
A fundamental decision faced by carriers in their driver hiring policies is what the mix should be between owner-operators and company drivers. This decision is based on the motor carrier’s philosophy about managing the workforce and the financial concerns relative to each group. There are significant advantages and disadvantages associated with hiring all owner-operators, all company drivers, or a mix of both.
One advantage to having all owner-operators is that they create a level of flexibility for managers, not realized with having all employee-drivers. This is mainly seen as demand for freight fluctuates throughout the year. Owner-operators are only paid for the work that they do, with no continuing commitment to salaries or benefits, therefore minimizing on-going operational costs.
However, this flexibility does come at a price. Owner-operators make their own schedules so availability at the manager’s request is sometimes not feasible. Furthermore, the perception that owner-operators enjoy a certain level of independence, and that they can and do move freely between carriers, causes a certain level of uncertainty as to the on-going driver force. For this reason, some companies chose to not hire any owner-operators.
Carriers’ attempts to control the work of independent contractors may risk misclassification issues. Misclassification can occur when the control meets criteria that could get contractors classified as employees under the Department of Labor or the Internal Revenue Service (IRS). Various states such as California, have strict laws restricting the use of contractors. Among other criteria, California Assembly Bill 5 prohibits carriers from leasing on contractors who haul freight since that is the carrier’s core business.
Managers in these companies prefer to have greater control over the day-to-day actions of employee-drivers and can better address financial and business concerns with more consistent fleet numbers and productivity projections. However, this too comes at a price. The employee-driver will have benefits and insurance, as well as other on-going expenses that the company must commit to. An increase or decrease in capacity, based on economic variances, may not allow for the consistent revenue necessary to cover these expenses.
The decision to use owner-operators should be made by management based on sound financial evaluation of the company’s operations, goals, and projections for volume and productivity.
Employment and driver-leasing services
An easy solution to putting otherwise empty trucks on the road may be to use a driver-leasing or employment service. This may seem like a simple solution but again, there are certain business concerns that must be addressed.
A driver from one of these agencies may be “qualified” to drive, but they may not necessarily be trained to your company’s standards. A thorough evaluation as to the level of knowledge and experience of each driver, needs to be determined before putting them in a company vehicle. Furthermore, based on the type of freight a company hauls, additional training in freight handling may also be necessary.
An important thing to remember in using driver-leasing and employment services is that regardless of whether the driver receives his/her paycheck from the agency or directly from the company, the Department of Transportation (DOT) still considers them to be under the company’s control and responsibility pertaining to all operating, administrative, and regulatory guidelines. This means that the company must be sure that this is a favorable business decision, as the impact of these types of drivers on the financial and legal “bottom line” is very similar to that of an actual employee-driver.
Occasional, seasonal, and intermittent drivers
The occasional, seasonal, or intermittent driver is on the company’s payroll to drive during those times when extra help is needed. Examples could include drivers who fill in during busy seasons, vacations, or other absences. These drivers would be considered employees during the time that they worked.
These “temporary” drivers may also be licensed and trained to drive, but also works in another capacity at the same company. During times of increased freight volume and driver need, this person could fill in at a moment’s notice. These people may be managers, dispatchers, mechanics, warehouse workers, or anyone else on staff that’s authorized to drive.
Even though these people would not be permanent or full-time drivers, they would still need to be fully qualified under DOT regulations, including all pre-employment screening and qualifying, each time they drove. In addition, these “sometime” driver-employees would need to stay in the random drug testing pool for the company’s drivers and would be subject to all pertinent rules and regulations relative to the driver population.
This approach to the driver fleet can be a fairly profitable one, however, a company considering this approach must look at the associated costs of recurring qualification, training, and added maintenance/equipment issues, and how it relates to the revenue generated by the “sometime” driver.
As a motor carrier, you can lease an owner-operator or independent contractor to assist in your transportation services if not prohibited by state labor laws. For example, California’s Assembly Bill 5 (AB5) uses the “ABC Test” to determine if a contractor is an employee. The “B” prong of AB5 prohibits carriers from leasing on contractors who are in the same core business of hauling freight. Where not prohibited, it’s not uncommon for motor carriers to broaden their driver workforce by mixing leased independent contractors with company drivers.
However, a lease does not give you the authority to manage these independent contractors in the same manner you manage your employees.
Doing so could get state agencies and/or the federal government to determine that you are depriving these independent contractors of their rights to operate independently. They could soon become your “employees,” making you responsible for their overtime pay, health benefits, and many more employee rights.
Part 376 of the Federal Motor Carrier Safety Regulations addresses the requirements when two parties enter into a business agreement, in this case a “lease.” Within 376.12(c), the regulations clearly state that “the authorized carrier shall have exclusive possession, control, and use of the equipment for the duration of the lease.
The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.” The “exclusive possession, control, and use of the equipment” portion of this regulation does not entitle you to act as the owner of the independent contractor’s business.
When you, as the lessee, enter into a leasing agreement with another carrier, that carrier must run under your USDOT number. The FMCSRs require all leased vehicles/drivers to operate under the acquiring carrier’s operating authority as that party is responsible for the operation of the equipment.
Carrier steps to minimize the risk of misclassification
Electronic logging devices and leasing
It is the responsibility of the carrier who is leasing the driver/vehicle to make sure the vehicle has an ELD in it if the driver is required to use an ELD. There is no exception to this requirement for leased vehicles at this time, and it is not the responsibility of the lessor (the independent contractor or owner-operator) who is operating under the lessee’s (your company’s) USDOT number and operating authority to make sure there is an ELD in the vehicle if the driver needs one. This is different from the ELD exemption for drivers in vehicles rented for a contractual period of eight or less days. Drivers of any CMV operated in interstate commerce that is rented for more than 8 days must use an ELD if the driver is not otherwise exempt from using an ELD.
The key to dealing with owner-operators is to allow them to make their own purchasing decisions. This is normally accomplished by requiring the owner-operator to meet specific requirements through the lease agreement or its appendices, and then allowing the owner-operator to voluntarily use your ELD or make the purchase through a vendor/ supplier of their choosing.
The carrier can write a standard into the lease agreement such as “the vehicle must be equipped with an ELD compatible with …” Then it is up to the independent contractor to find and use a system that is compatible with the carrier’s system.
A carrier’s capacity to move freight is the greatest determinant of revenue. A primary source of drivers, leased independent contractors, was made illegal in California.
On June 30, 2022, the California Trucking Association (CTA) was denied its request to have the U.S. Supreme Court hear its case about the state’s Assembly Bill 5 law (commonly known as AB5). The result was that the injunction on AB5 was lifted. AB5 is enforceable back to at least January 1, 2020.
What is AB5?
Under AB5, a worker is an employee and not an independent contractor unless:
A. The person is free from the control and direction of the hiring entity in connection with the performance of work;
B. The person performs work that is outside the usual course of the hiring entity’s business; and
C. The person is customarily engaged in an independently established trade, occupation, or business.
These criteria are referred to as the “ABC” test. Point “B” is troublesome for motor carriers because leased contract drivers are in the same business as motor carriers.
If contractors are determined to be employees of a carrier and the drivers were misclassified, then they‘re eligible for benefits like minimum wage, overtime pay, unemployment, worker’s compensation, etc.
At least one other legal test, the Borello test, will be applied in misclassification, wage, or unemployment cases. It focuses on the independence of the owner-operator’s business and the ability to make decisions about the work they accept and for which customers.
Which carriers may be affected?
Independent contractors, also known as owner-operators, can haul freight in California under their own DOT number and authority, just not under a lease to a trucking company.
However, motor carriers are not allowed to use leased independent contractors to haul freight under the carrier’s DOT number in California under AB5.
Carriers that use non-California based contractors that haul into and out of CA may also be subject to AB5-related penalties and taxes. If work is performed in multiple states, California law will apply to all in-state work for many types of claims (including minimum wage and expense reimbursement, as well as, unemployment and worker’s compensation claims).
California law may also apply to out-of-state work if more than 50 percent of a driver’s work time is in California, or when a driver starts or ends a trip in California and there is more work time in California than in any other single state. The driver’s residence and motor carrier’s domicile are not considered in determining applicability of Labor Code requirements.
AB5 is California’s version of a misclassification law. The misclassification of drivers as contractors instead of employees can result in penalties in any state.
Carrier options
Some options to minimize the loss of driver capacity that carriers could consider but may not protect them from claims or penalties are:
Some carriers are legally segmenting their business to isolate California operations and selling that portion to remove risk. The purchaser of that segment still has to comply with AB5.
What’s next?
California has not provided clear guidance as to which carrier operating models will prevent being in violation of AB5. Cases related to wages and benefits that have been on hold due to the AB5 injunction can move forward. Carrier operating models will be tested as cases are settled.
AB5 is still being challenged in courts. Until further notice, all cases in front of the California Labor Commission will have both the ABC test from AB5 and the Borello test applied.
Motor carriers should consult a transportation attorney familiar with California labor law to determine the best path forward.
As a motor carrier, you can lease an owner-operator or independent contractor to assist in your transportation services if not prohibited by state labor laws. For example, California’s Assembly Bill 5 (AB5) uses the “ABC Test” to determine if a contractor is an employee. The “B” prong of AB5 prohibits carriers from leasing on contractors who are in the same core business of hauling freight. Where not prohibited, it’s not uncommon for motor carriers to broaden their driver workforce by mixing leased independent contractors with company drivers.
However, a lease does not give you the authority to manage these independent contractors in the same manner you manage your employees.
Doing so could get state agencies and/or the federal government to determine that you are depriving these independent contractors of their rights to operate independently. They could soon become your “employees,” making you responsible for their overtime pay, health benefits, and many more employee rights.
Part 376 of the Federal Motor Carrier Safety Regulations addresses the requirements when two parties enter into a business agreement, in this case a “lease.” Within 376.12(c), the regulations clearly state that “the authorized carrier shall have exclusive possession, control, and use of the equipment for the duration of the lease.
The lease shall further provide that the authorized carrier lessee shall assume complete responsibility for the operation of the equipment for the duration of the lease.” The “exclusive possession, control, and use of the equipment” portion of this regulation does not entitle you to act as the owner of the independent contractor’s business.
When you, as the lessee, enter into a leasing agreement with another carrier, that carrier must run under your USDOT number. The FMCSRs require all leased vehicles/drivers to operate under the acquiring carrier’s operating authority as that party is responsible for the operation of the equipment.
Carrier steps to minimize the risk of misclassification
Electronic logging devices and leasing
It is the responsibility of the carrier who is leasing the driver/vehicle to make sure the vehicle has an ELD in it if the driver is required to use an ELD. There is no exception to this requirement for leased vehicles at this time, and it is not the responsibility of the lessor (the independent contractor or owner-operator) who is operating under the lessee’s (your company’s) USDOT number and operating authority to make sure there is an ELD in the vehicle if the driver needs one. This is different from the ELD exemption for drivers in vehicles rented for a contractual period of eight or less days. Drivers of any CMV operated in interstate commerce that is rented for more than 8 days must use an ELD if the driver is not otherwise exempt from using an ELD.
The key to dealing with owner-operators is to allow them to make their own purchasing decisions. This is normally accomplished by requiring the owner-operator to meet specific requirements through the lease agreement or its appendices, and then allowing the owner-operator to voluntarily use your ELD or make the purchase through a vendor/ supplier of their choosing.
The carrier can write a standard into the lease agreement such as “the vehicle must be equipped with an ELD compatible with …” Then it is up to the independent contractor to find and use a system that is compatible with the carrier’s system.
A carrier’s capacity to move freight is the greatest determinant of revenue. A primary source of drivers, leased independent contractors, was made illegal in California.
On June 30, 2022, the California Trucking Association (CTA) was denied its request to have the U.S. Supreme Court hear its case about the state’s Assembly Bill 5 law (commonly known as AB5). The result was that the injunction on AB5 was lifted. AB5 is enforceable back to at least January 1, 2020.
What is AB5?
Under AB5, a worker is an employee and not an independent contractor unless:
A. The person is free from the control and direction of the hiring entity in connection with the performance of work;
B. The person performs work that is outside the usual course of the hiring entity’s business; and
C. The person is customarily engaged in an independently established trade, occupation, or business.
These criteria are referred to as the “ABC” test. Point “B” is troublesome for motor carriers because leased contract drivers are in the same business as motor carriers.
If contractors are determined to be employees of a carrier and the drivers were misclassified, then they‘re eligible for benefits like minimum wage, overtime pay, unemployment, worker’s compensation, etc.
At least one other legal test, the Borello test, will be applied in misclassification, wage, or unemployment cases. It focuses on the independence of the owner-operator’s business and the ability to make decisions about the work they accept and for which customers.
Which carriers may be affected?
Independent contractors, also known as owner-operators, can haul freight in California under their own DOT number and authority, just not under a lease to a trucking company.
However, motor carriers are not allowed to use leased independent contractors to haul freight under the carrier’s DOT number in California under AB5.
Carriers that use non-California based contractors that haul into and out of CA may also be subject to AB5-related penalties and taxes. If work is performed in multiple states, California law will apply to all in-state work for many types of claims (including minimum wage and expense reimbursement, as well as, unemployment and worker’s compensation claims).
California law may also apply to out-of-state work if more than 50 percent of a driver’s work time is in California, or when a driver starts or ends a trip in California and there is more work time in California than in any other single state. The driver’s residence and motor carrier’s domicile are not considered in determining applicability of Labor Code requirements.
AB5 is California’s version of a misclassification law. The misclassification of drivers as contractors instead of employees can result in penalties in any state.
Carrier options
Some options to minimize the loss of driver capacity that carriers could consider but may not protect them from claims or penalties are:
Some carriers are legally segmenting their business to isolate California operations and selling that portion to remove risk. The purchaser of that segment still has to comply with AB5.
What’s next?
California has not provided clear guidance as to which carrier operating models will prevent being in violation of AB5. Cases related to wages and benefits that have been on hold due to the AB5 injunction can move forward. Carrier operating models will be tested as cases are settled.
AB5 is still being challenged in courts. Until further notice, all cases in front of the California Labor Commission will have both the ABC test from AB5 and the Borello test applied.
Motor carriers should consult a transportation attorney familiar with California labor law to determine the best path forward.
A carrier’s capacity to move freight is the greatest determinant of revenue. A primary source of drivers, leased independent contractors, was made illegal in California.
On June 30, 2022, the California Trucking Association (CTA) was denied its request to have the U.S. Supreme Court hear its case about the state’s Assembly Bill 5 law (commonly known as AB5). The result was that the injunction on AB5 was lifted. AB5 is enforceable back to at least January 1, 2020.
What is AB5?
Under AB5, a worker is an employee and not an independent contractor unless:
A. The person is free from the control and direction of the hiring entity in connection with the performance of work;
B. The person performs work that is outside the usual course of the hiring entity’s business; and
C. The person is customarily engaged in an independently established trade, occupation, or business.
These criteria are referred to as the “ABC” test. Point “B” is troublesome for motor carriers because leased contract drivers are in the same business as motor carriers.
If contractors are determined to be employees of a carrier and the drivers were misclassified, then they‘re eligible for benefits like minimum wage, overtime pay, unemployment, worker’s compensation, etc.
At least one other legal test, the Borello test, will be applied in misclassification, wage, or unemployment cases. It focuses on the independence of the owner-operator’s business and the ability to make decisions about the work they accept and for which customers.
Which carriers may be affected?
Independent contractors, also known as owner-operators, can haul freight in California under their own DOT number and authority, just not under a lease to a trucking company.
However, motor carriers are not allowed to use leased independent contractors to haul freight under the carrier’s DOT number in California under AB5.
Carriers that use non-California based contractors that haul into and out of CA may also be subject to AB5-related penalties and taxes. If work is performed in multiple states, California law will apply to all in-state work for many types of claims (including minimum wage and expense reimbursement, as well as, unemployment and worker’s compensation claims).
California law may also apply to out-of-state work if more than 50 percent of a driver’s work time is in California, or when a driver starts or ends a trip in California and there is more work time in California than in any other single state. The driver’s residence and motor carrier’s domicile are not considered in determining applicability of Labor Code requirements.
AB5 is California’s version of a misclassification law. The misclassification of drivers as contractors instead of employees can result in penalties in any state.
Carrier options
Some options to minimize the loss of driver capacity that carriers could consider but may not protect them from claims or penalties are:
Some carriers are legally segmenting their business to isolate California operations and selling that portion to remove risk. The purchaser of that segment still has to comply with AB5.
What’s next?
California has not provided clear guidance as to which carrier operating models will prevent being in violation of AB5. Cases related to wages and benefits that have been on hold due to the AB5 injunction can move forward. Carrier operating models will be tested as cases are settled.
AB5 is still being challenged in courts. Until further notice, all cases in front of the California Labor Commission will have both the ABC test from AB5 and the Borello test applied.
Motor carriers should consult a transportation attorney familiar with California labor law to determine the best path forward.
A lease agreement is a contractual relationship in which the use of equipment is granted for compensation by the owner to an authorized carrier for use in regulated transportation of property for a specified period of time.
With few exceptions, the regulations require a lease whenever a carrier performs transportation of property in equipment it doesn’t own. A lease is simply another term for an agreement used when renting or using property that doesn’t belong to you.
As a holdover from the Interstate Commerce Commission (ICC), the leasing regulations are notoriously difficult to read.
Lease agreements should not be entered into without a full understanding of all of the terms. Verbiage like “it’s just a standard lease” should be avoided. The agreements convey certain rights, but certain items may work against either party as well. If not clear how a particular expense or compensation is handled, it can be added to the lease. A lease agreement that is not understood can open a “rabbit’s hole” when things do not go as planned. If unsure of what the terms and conditions entail, obtain professional legal assistance — in advance of signing.
Further compliance with the FMCSRs requires you, as the acquiring carrier, to:
Leasing vehicles is seen by some as an alternative to purchasing. Reasons for selecting leasing over purchasing include:
One of the main disadvantages to leasing is at the end of the lease the carrier has not gained an asset. Carriers typically have the option to purchase the vehicle at an adjusted price at the end of the lease, but they do not own it.
Many carriers do not lease because they desire to own the assets, while private carriers many times lease to avoid having assets that are not part of their core business. Private carriers may also not want to build the necessary structure to support the fleet as this may not be part of their core business. In this case it is easier to outsource all vehicle concerns through leasing.
“Why lease when you can own?” has long been the thought exhibited by commonsensical and prudent fleet managers when debating the truck lease versus buy decision. Based on current economic conditions, the opposite can now be argued. Rising fuel costs, increasing shortages of drivers and technicians, and excess capacity with for-hire carriers create increasing risks for fleet managers.
Truck leasing can often reduce these business risks. When considering a truck lease versus buy decision, consider the following questions:
Full service leasing programs, especially for smaller fleets, can become a workable option. This thought is shared by many fleet managers, regardless of their size, as the vehicle safety technology and demands for cleaner running trucks dictate the industry’s priorities. This will make managing the maintenance overhead even more difficult.
Your costs for all these services may be totally deductible at tax time. Check with your accountant for accuracy before making your decision.
Use your cash to your benefit. Rather than sinking more money into equipment whose value has now depreciated beyond the actual value of the original loan, use this cash instead to position the company for future needs that offer a better return on its investment. Allow the leasing companies to make their investments in new trucks and maintenance. If your business plan includes growth through expansion, most all leasing companies will assist you by offering their vehicles and maintenance facilities through their nationwide system and at a lower cost per unit.
Rules and regulations. Along with the training to repair the new engines which run on alternate fuels, electric only, or are hybrid diesel-electric trucks, the leasing companies have also invested to remain compliant with government mandates. Environmental changes, fuel tax reporting, federal, state, and local regulations have a tendency to get more complex every year. A full service leasing company takes on these additional costs and responsibilities.
Driver retention improvement. One of the main reasons drivers leave one motor carrier for another, oddly enough, is not for wages. Home time and quality of equipment are two top issues drivers quote when asked.
Leasing newer equipment could have significant effect on the quality-of-equipment complaint.
What if I don’t lease. Maybe financing is the best option. Financing the purchase will be a carrier by carrier decision. In some cases the carrier may get the best package directly from the manufacturer. In other cases the best financing option may be a financing company that specializes in financing carrier equipment. Finally, the carrier may receive the best financing package from the bank or financial company that is already financing other portions of the company.
Remember to consider all costs when reviewing financing packages. Interest, interest over time, payment fees, loan charges, and other fees all need to be considered.
Leasing vehicles is seen by some as an alternative to purchasing. Reasons for selecting leasing over purchasing include:
One of the main disadvantages to leasing is at the end of the lease the carrier has not gained an asset. Carriers typically have the option to purchase the vehicle at an adjusted price at the end of the lease, but they do not own it.
Many carriers do not lease because they desire to own the assets, while private carriers many times lease to avoid having assets that are not part of their core business. Private carriers may also not want to build the necessary structure to support the fleet as this may not be part of their core business. In this case it is easier to outsource all vehicle concerns through leasing.
“Why lease when you can own?” has long been the thought exhibited by commonsensical and prudent fleet managers when debating the truck lease versus buy decision. Based on current economic conditions, the opposite can now be argued. Rising fuel costs, increasing shortages of drivers and technicians, and excess capacity with for-hire carriers create increasing risks for fleet managers.
Truck leasing can often reduce these business risks. When considering a truck lease versus buy decision, consider the following questions:
Full service leasing programs, especially for smaller fleets, can become a workable option. This thought is shared by many fleet managers, regardless of their size, as the vehicle safety technology and demands for cleaner running trucks dictate the industry’s priorities. This will make managing the maintenance overhead even more difficult.
Your costs for all these services may be totally deductible at tax time. Check with your accountant for accuracy before making your decision.
Use your cash to your benefit. Rather than sinking more money into equipment whose value has now depreciated beyond the actual value of the original loan, use this cash instead to position the company for future needs that offer a better return on its investment. Allow the leasing companies to make their investments in new trucks and maintenance. If your business plan includes growth through expansion, most all leasing companies will assist you by offering their vehicles and maintenance facilities through their nationwide system and at a lower cost per unit.
Rules and regulations. Along with the training to repair the new engines which run on alternate fuels, electric only, or are hybrid diesel-electric trucks, the leasing companies have also invested to remain compliant with government mandates. Environmental changes, fuel tax reporting, federal, state, and local regulations have a tendency to get more complex every year. A full service leasing company takes on these additional costs and responsibilities.
Driver retention improvement. One of the main reasons drivers leave one motor carrier for another, oddly enough, is not for wages. Home time and quality of equipment are two top issues drivers quote when asked.
Leasing newer equipment could have significant effect on the quality-of-equipment complaint.
What if I don’t lease. Maybe financing is the best option. Financing the purchase will be a carrier by carrier decision. In some cases the carrier may get the best package directly from the manufacturer. In other cases the best financing option may be a financing company that specializes in financing carrier equipment. Finally, the carrier may receive the best financing package from the bank or financial company that is already financing other portions of the company.
Remember to consider all costs when reviewing financing packages. Interest, interest over time, payment fees, loan charges, and other fees all need to be considered.
Master lease agreement
A master lease agreement may be used for on-going, intermittent trip leases with the same lessor/owner. The master lease consists of three documents: The master lease agreement, and the master lease supplement and equipment receipt. Used together, the leasing requirements in Part 376 are satisfied. The master lease is drawn up to detail the overall terms of the agreement and lists the equipment that may be used for a trip lease between the same lessee and lessor. This allows an individual trip lease to take place without drawing an entirely new agreement for each trip. When a trip takes place, a master lease supplement and equipment receipt must be executed which sets forth the actual time and date of the beginning and end of the trip.
In a master lease situation, the lease begins when the lessee takes possession of the vehicle to be leased and issues a receipt to the lessor. The lease terminates when the lessee returns possession of the vehicle to the lessor, and the lessor issues a return receipt to the lessee. When the lease is in effect, the lessee has exclusive possession and use of the leased equipment and assumes complete responsibility for the operation of the equipment.
Standard trip lease agreement
A standard trip lease agreement is used for a single trip or a lease of short duration. This agreement is a pre-printed form on which the required information is entered; it also has provisions for designating the exact time the lessee took possession of the equipment, and the exact time the lessee released the equipment standard terms and conditions are printed on the back of the form, and, with the information on the face of the trip lease contract, meet the leasing requirements in Part 376.
In a trip lease situation, the lease begins when the lessee takes possession of the vehicle to be leased and issues a receipt to the lessor. The lease terminates when the lessee returns possession of the vehicle to the lessor, and the lessor issues a return receipt to the lessee. When the lease is in effect, the lessee has exclusive possession and use of the leased equipment and assumes complete responsibility for the operation of the equipment.
Permanent lease
A permanent lease is used when a carrier is leasing equipment that will be exclusively used by the lessee for the term of the lease. The lessee/carrier is the authorized carrier and is responsible for the legal operation of the vehicle for the duration of the lease. A long-term, or permanent, lease agreement is generally a detailed contract that includes individual company requirements and policies while meeting the requirements for written lease agreements in Part 376. Neither the standard trip lease, nor the master lease agreement is suitable for a long-term lease agreement.
Property interchange agreement
Interchange agreements allow carriers to extend their service into locations they normally do not, or cannot, serve. There are also times when a motor carrier has freight to deliver to a destination from which there is little chance of a return load. To avoid returning empty and underutilizing their equipment, carriers may arrange to “interchange” the load with another for-hire carrier for part, or all, of the trip.
Under an interchange arrangement, the carrier parties must have an interchange contract, lease agreement, or other contractual arrangement in writing. The agreement for the interchange service must describe the specific equipment involved, the points or locations of interchange, and how the equipment will be used. The contract should state whether there will be charges or fees for use of the equipment or delivery of the load and what those agreed upon rates are. Any charges between the carriers for the use of the interchanged equipment must be kept separate from the revenues paid by the shipper for transporting the freight. Other matters to clarify include deciding who will be responsible for damage to the equipment during use in an interchange movement, and how cargo loss or damage claims will be resolved. While the originating carrier is liable to the shipper for the claim, the interchanging carrier bears responsibility for the goods while they are in its custody. The written interchange agreement should outline how the carriers will resolve loss and damage claim issues.
Loads transported in an interchange service must move on a through bill of lading issued by the originating carrier. Because the freight is tendered to the originating carrier, the bill of lading is a contract between the originating carrier and the shipper. The rates charged and revenues collected from the shipper must be based on the originating carriers published or agreed rates and charges. In other words, the rates charged to the shipper must be the same as if there had been no interchange. Likewise, any rules or accessorial charges assessed against the shipper must be those of the originating carrier, regardless of any rules or charges the interlining carrier maintains. The originating carrier will be responsible, under the bill of lading, for any freight loss or damage claims submitted by the shipper.
The carrier partners in the interchange movement must have the necessary authority and permits to perform the transportation between the interchange point and the destination. If the interchange transaction involves a power unit, the “authorized” carrier receiving the load and equipment must display their US DOT number as required by 390.21. Before giving up possession of the equipment, the preceding carrier must remove all identification showing it as the operating carrier. In regulatory terms this is referred to as “interchange of equipment.”
The Federal Motor Carrier Safety Administration (FMCSA) regulates interchange agreements for motor carriers of property in 376.31.
A copy of the interchange agreement or a statement certifying the authorized interlining carrier’s operation of the equipment must be carried in the vehicle during the interchange service. The statement must identify the equipment by company or state registration number, indicate the specific points of interchange, the date and time the carrier assumed responsibility for the equipment, how the equipment will be used, and be signed by the parties to the agreement.
If only trailers or semitrailers are involved in the interchange service, a copy of the agreement or statement is not required to be carried with the vehicle.
Time-specific lease
A time-specific lease is a contract of set longer duration, usually 12 months. This lease usually automatically renews, unless either party notifies the other prior to the specified termination date. The lessee/carrier is the authorized carrier and is responsible for legal operation of the vehicle for the duration of the lease. A time-specific (or long-term) lease agreement is generally a detailed contract, drawn according to individual company requirements and policies (while meeting the requirements for written lease agreements in Part 376). Neither the Standard Trip Lease nor the Master Lease Agreement is suitable for a lease agreement of this type.
Interline agreements allow carriers to extend their service into locations they normally do not, or cannot, serve.
There are also times when a motor carrier has freight to deliver to a destination from which there is little chance of a return load. To avoid returning empty and under utilizing their equipment, carriers may arrange to “interline” the load with another for-hire carrier for part, or all, of the trip.
Bill of lading
Loads transported in an interline service must move on a through bill of lading issued by the originating carrier. Because the freight is tendered to the originating carrier, the bill of lading is a contract between the originating carrier and the shipper. The rates charged and revenues collected from the shipper must be based on the originating carriers published or agreed rates and charges. In other words, the rates charged to the shipper must be the same as if there had been no interline.
Likewise, any rules or accessorial charges assessed against the shipper must be those of the originating carrier, regardless of any rules or charges the interlining carrier maintains. The originating carrier will be responsible, under the bill of lading, for any freight loss or damage claims submitted by the shipper.
Written contract
Under an interline arrangement, the carrier parties must have an interline contract, lease agreement, or other contractual arrangement in writing. The agreement for the interlining service must describe the specific equipment involved, the points or locations of interchange, and how the equipment will be used. The contract should state whether or not there will be charges or fees for use of the equipment or delivery of the load and what these agreed upon rates are.
Any charges between the carriers for the use of the interchanged equipment must be kept separate from the revenues paid by the shipper for transporting the freight. Other matters to clarify include who will be responsible for damage to the equipment during use in an interline movement, and how cargo loss or damage claims will be resolved. While the originating carrier is liable to the shipper for the claim, the interlining carrier bears responsibility for the goods while they are in its custody. The written interline agreement should outline how the carriers will resolve loss and damage claim issues.
Regulatory requirements
The carrier partners in the interline movement must have the necessary authority and permits to perform the transportation between the interline point and the destination. If the interline transaction involves a power unit, the “authorized” carrier receiving the load and equipment must display their US DOT number as required by 49 CFR 390.21.
Before giving up possession of the equipment, the carrier must remove all identification showing it as the operating carrier. In regulatory terms this is referred to as “interchange of equipment.” Documentation with vehicle. A copy of the interline agreement or a statement certifying the authorized interlining carrier’s operation of the equipment must be carried in the vehicle during the interline service.
The statement must identify the equipment by company or state registration number, indicate the specific points of interchange, the date and time the carrier assumed responsibility for the equipment, how the equipment will be used, and be signed by the parties to the agreement.
If only trailers or semitrailers are involved in the interline service, a copy of the agreement or statement is not required to be carried with the vehicle.
Interline agreements allow carriers to extend their service into locations they normally do not, or cannot, serve.
There are also times when a motor carrier has freight to deliver to a destination from which there is little chance of a return load. To avoid returning empty and under utilizing their equipment, carriers may arrange to “interline” the load with another for-hire carrier for part, or all, of the trip.
Bill of lading
Loads transported in an interline service must move on a through bill of lading issued by the originating carrier. Because the freight is tendered to the originating carrier, the bill of lading is a contract between the originating carrier and the shipper. The rates charged and revenues collected from the shipper must be based on the originating carriers published or agreed rates and charges. In other words, the rates charged to the shipper must be the same as if there had been no interline.
Likewise, any rules or accessorial charges assessed against the shipper must be those of the originating carrier, regardless of any rules or charges the interlining carrier maintains. The originating carrier will be responsible, under the bill of lading, for any freight loss or damage claims submitted by the shipper.
Written contract
Under an interline arrangement, the carrier parties must have an interline contract, lease agreement, or other contractual arrangement in writing. The agreement for the interlining service must describe the specific equipment involved, the points or locations of interchange, and how the equipment will be used. The contract should state whether or not there will be charges or fees for use of the equipment or delivery of the load and what these agreed upon rates are.
Any charges between the carriers for the use of the interchanged equipment must be kept separate from the revenues paid by the shipper for transporting the freight. Other matters to clarify include who will be responsible for damage to the equipment during use in an interline movement, and how cargo loss or damage claims will be resolved. While the originating carrier is liable to the shipper for the claim, the interlining carrier bears responsibility for the goods while they are in its custody. The written interline agreement should outline how the carriers will resolve loss and damage claim issues.
Regulatory requirements
The carrier partners in the interline movement must have the necessary authority and permits to perform the transportation between the interline point and the destination. If the interline transaction involves a power unit, the “authorized” carrier receiving the load and equipment must display their US DOT number as required by 49 CFR 390.21.
Before giving up possession of the equipment, the carrier must remove all identification showing it as the operating carrier. In regulatory terms this is referred to as “interchange of equipment.” Documentation with vehicle. A copy of the interline agreement or a statement certifying the authorized interlining carrier’s operation of the equipment must be carried in the vehicle during the interline service.
The statement must identify the equipment by company or state registration number, indicate the specific points of interchange, the date and time the carrier assumed responsibility for the equipment, how the equipment will be used, and be signed by the parties to the agreement.
If only trailers or semitrailers are involved in the interline service, a copy of the agreement or statement is not required to be carried with the vehicle.
The contractual relationship between the lessee and the lessor is governed by 49 CFR 376, Lease and Interchange of Vehicles, and enforced by the Federal Motor Carrier Safety Administration (FMCSA).
There are specific requirements that must be part of the agreement, while other terms can be negotiated.
The following is a high level plain English list of the requirements.
The parties may negotiate certain items such as who will bear the expenses of fuel, fuel taxes, empty mileage, and other operating costs. The lease must also state who is responsible for deductions. This information must be clearly spelled out in the lease.
Some requirements of the leasing rules are not open to negotiation. The requirement of a 15-day settlement period is not negotiable. Nor is the lessor’s right to a copy of the rated freight bill when compensation is based on a percentage of the revenue. The lease must also specify the carrier’s (lessee’s) obligation to maintain insurance coverage for the protection of the public.
The lease may provide that, upon termination of the lease, the lessor must remove and return all identification to the lessee as a condition of payment.
The lessee/authorized carrier must furnish a written receipt recording the date and time it takes possession of the equipment from the owner. Upon termination of the lease, the lessee must provide a “release of equipment” stating the date when the lease agreement ends, and possession and control is transferred back to the lessor.
Every rule has its exception, the leasing rules are no different. Some situations do not fit well in a typical lease. In recognition of the unique situations, the Federal Motor Carrier Safety Administration (FMCSA) offers four nearly full exemptions:
Due to the unique relationships, the FMCSA offers a partial exemption for carrier-to-carrier leases. Specifically, for leases between:
Whenever these exemptions are used, an agreement of some type needs to be in place even if the agreement is not required to have all of the items of a traditional DOT equipment lease.
The Federal Motor Carrier Safety Administration (FMCSA) however, does not exempt the agreements from the requirements of 376.11(c), which include:
Movements on a train
When the vehicle is moving from one rail yard to another rail yard while on railroad billing and the equipment is used in substituted motor-for-rail transportation of railroad freight, the equipment is exempt from the leasing requirements other than the requirements of 376.11(c).
Commercial zone transportation
If the transportation is performed exclusively within any commercial zone as defined in 49 CFR 372 the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Commercial zones rules are carried over from the Interstate Commerce Commission (ICC). Travel that occurs exclusively in the zones are exempt from certain regulatory provisions – including the leasing regulations.
Rental companies
If the equipment is leased without a driver from a company that is principally engaged in the rental and leasing of equipment, the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Trailer-only leases
If the lease is of a trailer only and does not also involve the leasing of a truck or power unit from the lessor, the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Carriers cannot borrow equipment from one another and maintain an “arm’s length agreement,” without the benefit of a lease or similar agreement.
When services or assets are received at no cost or under their true value, there may be tax consequences. To determine if the services are undervalued, the Internal Revenue Service (IRS) uses the concept of an “arm’s length standard.”
Because of the unique nature of the transaction, the FMCSA allows a simplified lease agreement.
Leases that are conducted between two for-hire carriers or a private carrier leasing to a for-hire carrier have simplified requirements which include:
The company operating the vehicle is responsible for compliance. All roadside inspection violations, citations, vehicle inspections, accidents, belong to the carrier — not to the leasing company, staffing agency or 3rd party provider.
The responsible carrier’s name and USDOT number need to be on the vehicle or, if a short-term rental, the qualifiers of the marking exception of 390.21(e) met.
The Federal Motor Carrier Safety Administration issued a final rule that revised regulations governing the lease and interchange of commercial buses. The compliance date was January 1, 2021.
FMCSA’s final rule includes the following provisions:
Lease or agreement is required, so there must be in effect either:
Lease requirements
Subpart G of Part 390 contains the lease and interchange requirements for passenger carrying motor vehicles. However, Subpart G of Part 390 does not apply to:
For a motor carrier transporting passengers in a leased or interchanged commercial motor vehicle, a written lease or agreement containing the information as follows is required when the lessee does not have FMCSA-issued authority:
If the use of a passenger-carrying commercial motor vehicle is conferred on one motor carrier subject to Subpart G by another such motor carrier without a lease or interchange agreement, or pursuant to a lease or interchange agreement that fails to meet all applicable requirements of subpart G, both motor carriers shall be subject to a civil penalty.
A 48-hour exception is available when an event (e.g., crash, vehicle disablement, ill driver) requires a carrier to immediately obtain a replacement vehicle from another carrier. When an event occurs (e.g., a crash, the vehicle is disabled) that requires a motor carrier of passengers immediately to obtain a replacement vehicle from another motor carrier of passengers, the two carriers may postpone the writing of the lease or written agreement for the replacement vehicle for up to 48 hours after the time the lessee takes exclusive possession and control of the replacement vehicle.
However, during that 48-hour period, until the lease or agreement is written and provided to the driver, the driver must carry, and produce upon demand of an enforcement official, a document signed and dated by the lessee’s driver or available company official stating:
A copy of the lease must be on the passenger-carrying commercial motor vehicle during the period of the lease or interchange agreement, and both the lessee and lessor shall retain a copy of the lease or interchange agreement for 1 year after the expiration date.
The Federal Motor Carrier Safety Administration (FMCSA) does not use the same definition for an “employee” as the Internal Revenue Service (IRS) or the Department of Labor (DOL) does. The FMCSA’s definition of an “employee” is found in 390.5:
As far as contracted or leased drivers go, the FMCSA considers them employees and expects the carrier to ensure that they are compliant.
To satisfy IRS law, it is important to determine whether a worker is an independent contractor or an employee. This determination is complex but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time. The general rule is that an individual is an independent contractor if the person for whom the services are performed (lessee) has the right to control or direct only the result of the work, and not what will be done and how it will be done or the method of accomplishing the result.
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:
The IRS provides information to assist in determining employee vs. independent contractor status at the following links:
Topic 762 - Independent Contractor vs. Employee: https://www.irs.gov/taxtopics/tc762
IRS Tax Publications: Independent Contractor or Employee: https://www.irs.gov/pub/irs-pdf/p1779.pdf
Publication 15-A Employer’s Supplemental Tax Guide: https://www.irs.gov/pub/irs-pdf/p15a.pdf
With owner-operators, there are two potential situations that can be encountered:
The USDOT number is used by the Federal Motor Carrier Safety Administration (FMCSA) and the States to identify motor carriers and monitor their safety performance. Owner-operators leased to a carrier operate under the carrier’s authority and USDOT number. There is no need for the owner-operator to have a separate USDOT number unless the owner operator will also operate as a carrier under their own authority.
The FMCSA eliminated “registrant-only” USDOT numbers that were part of the Performance and Registration Information Systems Management (PRISM) program. The FMCSA developed the concept of a registrant only USDOT number to identify registered owners of commercial motor vehicles (CMVs) that are not motor carriers but lease their CMVs to entities that are motor carriers. The FMCSA discovered that those USDOT numbers were being used differently from what the agency intended.
The motor carrier is always responsible for compliance with the federal safety regulations. The real question is: who is the motor carrier? In order for the leased to be the responsible carrier, the entity hiring the driver would either need to be a shipper/private carrier or a broker.
Movements on a train
When the vehicle is moving from one rail yard to another rail yard while on railroad billing and the equipment is used in substituted motor-for-rail transportation of railroad freight, the equipment is exempt from the leasing requirements other than the requirements of 376.11(c).
Commercial zone transportation
If the transportation is performed exclusively within any commercial zone as defined in 49 CFR 372 the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Commercial zones rules are carried over from the Interstate Commerce Commission (ICC). Travel that occurs exclusively in the zones are exempt from certain regulatory provisions – including the leasing regulations.
Rental companies
If the equipment is leased without a driver from a company that is principally engaged in the rental and leasing of equipment, the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Trailer-only leases
If the lease is of a trailer only and does not also involve the leasing of a truck or power unit from the lessor, the vehicle is exempt from the leasing requirements other than the requirements of 376.11(c).
Carriers cannot borrow equipment from one another and maintain an “arm’s length agreement,” without the benefit of a lease or similar agreement.
When services or assets are received at no cost or under their true value, there may be tax consequences. To determine if the services are undervalued, the Internal Revenue Service (IRS) uses the concept of an “arm’s length standard.”
Because of the unique nature of the transaction, the FMCSA allows a simplified lease agreement.
Leases that are conducted between two for-hire carriers or a private carrier leasing to a for-hire carrier have simplified requirements which include:
The company operating the vehicle is responsible for compliance. All roadside inspection violations, citations, vehicle inspections, accidents, belong to the carrier — not to the leasing company, staffing agency or 3rd party provider.
The responsible carrier’s name and USDOT number need to be on the vehicle or, if a short-term rental, the qualifiers of the marking exception of 390.21(e) met.
The Federal Motor Carrier Safety Administration issued a final rule that revised regulations governing the lease and interchange of commercial buses. The compliance date was January 1, 2021.
FMCSA’s final rule includes the following provisions:
Lease or agreement is required, so there must be in effect either:
Lease requirements
Subpart G of Part 390 contains the lease and interchange requirements for passenger carrying motor vehicles. However, Subpart G of Part 390 does not apply to:
For a motor carrier transporting passengers in a leased or interchanged commercial motor vehicle, a written lease or agreement containing the information as follows is required when the lessee does not have FMCSA-issued authority:
If the use of a passenger-carrying commercial motor vehicle is conferred on one motor carrier subject to Subpart G by another such motor carrier without a lease or interchange agreement, or pursuant to a lease or interchange agreement that fails to meet all applicable requirements of subpart G, both motor carriers shall be subject to a civil penalty.
A 48-hour exception is available when an event (e.g., crash, vehicle disablement, ill driver) requires a carrier to immediately obtain a replacement vehicle from another carrier. When an event occurs (e.g., a crash, the vehicle is disabled) that requires a motor carrier of passengers immediately to obtain a replacement vehicle from another motor carrier of passengers, the two carriers may postpone the writing of the lease or written agreement for the replacement vehicle for up to 48 hours after the time the lessee takes exclusive possession and control of the replacement vehicle.
However, during that 48-hour period, until the lease or agreement is written and provided to the driver, the driver must carry, and produce upon demand of an enforcement official, a document signed and dated by the lessee’s driver or available company official stating:
A copy of the lease must be on the passenger-carrying commercial motor vehicle during the period of the lease or interchange agreement, and both the lessee and lessor shall retain a copy of the lease or interchange agreement for 1 year after the expiration date.
The Federal Motor Carrier Safety Administration issued a final rule that revised regulations governing the lease and interchange of commercial buses. The compliance date was January 1, 2021.
FMCSA’s final rule includes the following provisions:
Lease or agreement is required, so there must be in effect either:
Lease requirements
Subpart G of Part 390 contains the lease and interchange requirements for passenger carrying motor vehicles. However, Subpart G of Part 390 does not apply to:
For a motor carrier transporting passengers in a leased or interchanged commercial motor vehicle, a written lease or agreement containing the information as follows is required when the lessee does not have FMCSA-issued authority:
If the use of a passenger-carrying commercial motor vehicle is conferred on one motor carrier subject to Subpart G by another such motor carrier without a lease or interchange agreement, or pursuant to a lease or interchange agreement that fails to meet all applicable requirements of subpart G, both motor carriers shall be subject to a civil penalty.
A 48-hour exception is available when an event (e.g., crash, vehicle disablement, ill driver) requires a carrier to immediately obtain a replacement vehicle from another carrier. When an event occurs (e.g., a crash, the vehicle is disabled) that requires a motor carrier of passengers immediately to obtain a replacement vehicle from another motor carrier of passengers, the two carriers may postpone the writing of the lease or written agreement for the replacement vehicle for up to 48 hours after the time the lessee takes exclusive possession and control of the replacement vehicle.
However, during that 48-hour period, until the lease or agreement is written and provided to the driver, the driver must carry, and produce upon demand of an enforcement official, a document signed and dated by the lessee’s driver or available company official stating:
A copy of the lease must be on the passenger-carrying commercial motor vehicle during the period of the lease or interchange agreement, and both the lessee and lessor shall retain a copy of the lease or interchange agreement for 1 year after the expiration date.
The Federal Motor Carrier Safety Administration (FMCSA) does not use the same definition for an “employee” as the Internal Revenue Service (IRS) or the Department of Labor (DOL) does. The FMCSA’s definition of an “employee” is found in 390.5:
As far as contracted or leased drivers go, the FMCSA considers them employees and expects the carrier to ensure that they are compliant.
To satisfy IRS law, it is important to determine whether a worker is an independent contractor or an employee. This determination is complex but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time. The general rule is that an individual is an independent contractor if the person for whom the services are performed (lessee) has the right to control or direct only the result of the work, and not what will be done and how it will be done or the method of accomplishing the result.
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:
The IRS provides information to assist in determining employee vs. independent contractor status at the following links:
Topic 762 - Independent Contractor vs. Employee: https://www.irs.gov/taxtopics/tc762
IRS Tax Publications: Independent Contractor or Employee: https://www.irs.gov/pub/irs-pdf/p1779.pdf
Publication 15-A Employer’s Supplemental Tax Guide: https://www.irs.gov/pub/irs-pdf/p15a.pdf
With owner-operators, there are two potential situations that can be encountered:
The USDOT number is used by the Federal Motor Carrier Safety Administration (FMCSA) and the States to identify motor carriers and monitor their safety performance. Owner-operators leased to a carrier operate under the carrier’s authority and USDOT number. There is no need for the owner-operator to have a separate USDOT number unless the owner operator will also operate as a carrier under their own authority.
The FMCSA eliminated “registrant-only” USDOT numbers that were part of the Performance and Registration Information Systems Management (PRISM) program. The FMCSA developed the concept of a registrant only USDOT number to identify registered owners of commercial motor vehicles (CMVs) that are not motor carriers but lease their CMVs to entities that are motor carriers. The FMCSA discovered that those USDOT numbers were being used differently from what the agency intended.
The motor carrier is always responsible for compliance with the federal safety regulations. The real question is: who is the motor carrier? In order for the leased to be the responsible carrier, the entity hiring the driver would either need to be a shipper/private carrier or a broker.
The carrier must prepare and keep documents covering each trip for which the equipment is used in its service.
These documents need to contain:
The authorized carrier needs to carry documents with the leased equipment during the operation containing this information above a and clearly indicating that the transportation is under its responsibility.
These documents must be preserved by the authorized carrier as part of its transportation records. A lease that contains the above required information can be retained instead of the documents.
When using a master lease, the requirements are met by having a copy of a master lease in the unit and the balance of documentation included in the freight documents prepared for the specific movements.
Does a copy of the lease have to be in the vehicle?
Either a physical copy of the lease or a statement created by the carrier containing the following information needs to be carried in the vehicle:
How is a leased vehicle to be marked?
All commercial motor vehicles operated by a carrier must be legally marked with the company name as listed on the MCS-150 and the USDOT number. This must be done before the vehicle is put into service and operated on public roads. All rented and leased vehicles operated by the company are required to comply with the DOT marking rule.
A vehicle is rented for a short period of time, 30 days or less, may be marked with the rental company’s name and U.S. Department of Transportation (USDOT) number. To qualify for the exception: