Rev. Rul. 71-524

Advice has been requested whether a truck driver who performs services under the circumstances described below is an employee of the leasing company for which he performs the services for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 23, and 24 respectively, subtitle C, Internal Revenue Code of 1954).

The leasing company is in the business of furnishing one or more of its tractor-trailer rigs and a driver to another corporation qualified as a contract carrier. The carrier makes payment for this service on a weight-mileage basis. The carrier gives the driver daily instructions as to where and when to pick up and deliver merchandise.

The leasing company enters into an agreement with the driver providing that he will perform substantially all of the services personally, and that the gross payment from the carrier will be divided on a percentage basis. The driver is in control of and responsible for the vehicle at all times and is not subject to supervision or review. He pays the everyday driving and operational expenses of the vehicle, and the leasing company pays for all major repairs, tires, and license plates. The driver can refuse to accept a load if the circumstances appear to be unreasonable, and he can quit at any time. The leasing company can terminate the driver's services if his conduct jeopardizes its contract with the carrier.

Individuals 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, 31.3306(i)-1, and 31.3401(c)-1.

Generally, the relationship of employer and employee exists when the person for whom the 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 the result is accomplished. That is, the 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 and 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 the right is an employer.

In the instant case the leasing company owns the tractor-trailer rigs and leases them with driver; it furnishes major repairs, tires, and license plates for the rigs; it generates all the work or jobs; it bears the major expenses and financial risks of the business; and it hires the driver to perform personal services on a continuing basis. The driver is not engaged in an independent enterprise requiring capital outlays or the assumption of business risks, but rather his services are a necessary and integral part of the leasing company's business. The leasing company has the right to direct and control the driver to the extent necessary to protect its investment, and to discharge him if his conduct jeopardizes its contract with the carrier.

Accordingly, it is held that the driver engaged in performing services under the circumstances described above is an employee of the leasing company for purposes of the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and the Collection of Income Tax at Source on Wages.