DELIVERY FIRMS HIRING FORMER CONTRACTORS

By Denise Smith Amos
St. Louis Post-Dispatch, July 29, 1995
 

Package couriers are independent sorts.

More often than not, they are pioneering self-starters who prefer thefreedom of being on the road to sitting behind a desk. Whether speedingthrough congested downtown streets on bikes or cruising open highways incars, couriers never know what their workday will be like. And, best ofall, there is no boss breathing over their shoulder; there is just a pagerand maybe a car phone.

Most are self-employed and earn a commission. But that may all changeif recent pressures continue forcing courier companies to treat driverslike employees. The trend has gone so far that a few companies, like twoin St. Louis, are even offering benefits, such as health coverage and paidvacations, to drivers. In an industry still dominated by independent contractors,these are major changes, company executives say.

American Delivery Service Inc. in St. Louis will begin signing its 90employees into a medical plan Tuesday, said Dale Oestreich, ADS president.Health coverage helps because demand for able drivers has outstripped thesupply, he said.

"In this business, the better employees you have, the better you' llbe able to service your customers, and the more growth you'll experience," he said.

Under ADS' health plan, workers pay a $78-a-month premium for healthmaintenance organization coverage. If it proves popular, Oestreich said,ADS will help pay the premiums. The company is one of only a handful ofcourier companies offering that perk, he added.

ADS also throws monthly worker appreciation dinners, where at least20 or so employees get free door prizes or awards for superior customerservice.

Access Courier, another St. Louis company, does not offer health carebut has begun to give drivers paid vacations based on length of service,said Sam McFarland, manager of quality control. Access employs 300.

"But the true bottom line is keeping those workers busy," he added,explaining that his couriers still make most of their salary from commissionson each delivery.

Companies like Access and ADS are at a financial disadvantage in thecompetition for workers.
According to the Messenger Carrier Association of the Americas, 60percent of courier companies still use independent contractors, payingthem a commission. This saves companies on payroll costs, benefits, insuranceand pensions, while promoting a lifestyle many couriers love.

"There's an attraction to being out there by yourself," McFarland said."You really do have a sense of being on your own, being your own boss.We encourage our drivers to be on time and such . . . but we'll leave themalone."

In the past two years, however, the Internal Revenue Service has challengedcourier companies and other service entities, alleging that their independentcontractors are really workers and not self- employed delivery people.As employers, therefore, courier companies should be collecting and accountingfor their payroll taxes, Social Security and other withholding, the IRScontends.

ADS, in anticipation of this, converted its drivers to employees in1989, almost going out of business in the process. The fast-growing company'sdrivers pool shrank from 92 to 21, Oestreich said.

Drivers perceived the tax withholding as a cut in pay and left to workfor other companies still employing contractors, he said. As contractors,drivers got about a 50 percent commission on their companies' deliveryfees, so drivers' earnings depended on how much they worked, and they weresolely responsible for paying taxes.

After ADS switched, its annual revenue was chopped in half to less than$1 million, Oestreich said.
"I couldn't process the orders in time, so I referred them to my competitors,"he said. "It hurt, but I had to save face in the industry."

Nevertheless, the change almost put ADS out of business, he said. Overthe next six years ADS has recouped some of the lost business and employs90 drivers, largely because of the perks added to the job.
Now several other large competitors, like Access, have reluctantlyswitched to employing their drivers.
"It's tough," McFarland said. "It adds to our costs."