Rev. Rul. 66-381

The Internal Revenue Service has been asked to determine whether individuals employed by a car rental agency to shuttle cars from one location to another under the circumstances described below are employees of the agency for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chs. 21, 23, and 24, respectively, subtitle C, Internal Revenue Code of 1954).

The agency is in the business of renting cars without drivers. The availability of cars at locations where needed is a prime factor in developing and keeping customers. This requires a constant re-distribution of cars to meet reservations and maintain a ready reserve. Normally this is accomplished by regular full-time employees of the agency who also perform other duties, such as washing cars, changing tires, and making minor repairs.

In certain metropolitan ares where during peak rental periods the movement of cars cannot be handled exclusively by the agency's regular employees, the agency engages individuals, who are known in the industry as `car shuttlers,' to meet this emergency re-distribution problem.

A separate contract is negotiated for delivery of each car. The contract requires that the shuttler deliver the car personally at the time and place specified, and for a designated fee, in the same condition as received, ordinary wear and tear excepted. The agency pays all expneses incurred in connection with the delivery of the car. The shuttler agrees to use the car only for delivery to the location specified and not to transport any person or property therein. The contract designates the shuttler as an independent contractor.

The shuttler is paid on a job basis. A photocopy of the shuttler's driver's license is made and retained by the agency for the purpose of having evidence he is a licensed driver and for identification purposes in case of an accident. The agency is interested in the safe delivery of the car and if the shuttler has an accident due to negligence or is stopped by the police for drinking or speeding, the agency will not enter into another contract with that shuttler. Most of the shuttlers have regular employment elsewhere and only perform shuttling services in their spare time for short periods of time.

The shuttlers are employees for Federal employment tax purposes if they have the status of employees under the usual common law rules applicable in determining the employer-employee relationship. Guides for determining that status are found in three substantially similar sections of the Employment Tax Regulations, namely, sections 31.3121(d)-1(c), 31.3306(i)-1, and 31.3401(c)-1.

Section 31.3121(d)-1(c) of the regulations provides, in part, that generally the relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished, that is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer.

The test of control must be viewed in the context of the particular job to be done. In the instant case the agency maintains a degree of control over the shuttlers which is parallel to that maintained over its regular employees who perform the same task. Both the nature and economy of transporting a single car to a specific location preclude the placing of another employee of the agency in the automobile to maintain direct control over the driver. Under the terms of the contract the agency retains the right of control over when the car leaves and arrives and control over what is done with the car en route. The requirement that the shuttler personally perform the service indicates that the agency is concerned with the method of performance, which it can control through its power of selection, as well as the result of that performance. Related to this is the agency's right to discharge the shuttler by simply not giving him any future contracts. See Ringling Bros.-Barnum & Bailey Com. Shows v. Higgins , 189 F.2d 865 (1951).

Payment by an employer of a worker's business expenses is a factor indicating control over the worker. Conversely, a lack of control is indicated by the worker having to take care of incidental expenses. The `car shuttler' incurs no expenses in the delivery of the car; the agency pays all expenses, such as insurance, gas, and oil.

A significant investment in facilities tends to show an independent status. In the case of the `car shuttler' no investment is made. Similarly, a person who is in a position to realize a profit or suffer a loss is generally an independent contractor while an individual who is an employee is not in such a position. The `car shuttler' is paid a flat fee and is not engaged in an independent enterprise requiring the outlay of capital or the assumption of business risks.

The degree of skill required by an individual is a factor to be considered in determining whether the individual is an employee or an independent contractor. See United States v. Albert Silk, et al. , 331 U.S. 704 (1947), Ct. D. 1688, C.B. 1947-2, 167, holding unloaders to be employees.

Upon the basis of the stated facts, the agency exercises, or has the right to exercise, such direction and control over the `car shuttlers' in the performance of their services as is necessary to establish the relationship of employer an employee under the usual common law rules. If the relationship of employer and employee exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. See section 31.3121(d)-1(a)(3) of the regulations. Accordingly, the shuttlers performing services for the agency under the circumstances described above are employees of the agency for Federal employment tax purposes.