In February 2016, David Broyles assumed a new role as Head of Driving Services for Averitt Express while attending an Omnitracs user conference in Nashville. He was intrigued by a service he discussed with an exhibitor, Atlantic HR Solutions, for managing driver per diems.
When Broyles mentioned the benefits of the overnight allowance to Averitt’s CFO, the answer was, “We’re not getting into this mess. It won’t help anyone, ”he said.
Shortly after this exchange, Averitt got a new CFO. Boyles discussed the daily allowance again and arranged a meeting between Atlantic HR and the Averitt executive team. After evaluating the data with auditors and lawyers, the new CFO was on board.
Averitt Express (CCJ Top 250, No. 28), based in Cookeville, Tennessee, has been paying drivers a daily rate since January 1, 2017.
“It made such a big difference in pay,” Broyles said. “Luckily we did it when we did.”
The truck industry was in a downturn in 2017. Averitt was unable to raise the salaries of the drivers but allowed them to make more money. Broyles credits Averitt’s daily allowance for a four percent reduction in driver turnover in 2017. Today practically all drivers are in the program.
“Daily allowances made sense for everyone down the line,” he said.
Averitt’s driver turnover rate has been falling every year since 2017. Last year it was 39% in the over-the-road segment. This year, amid a severe driver shortage, the annualized turnover rate is 47%, he noted.
The tax benefits
Many fleets offer day programs because drivers ask for them, but owners and executives may not understand the tax benefits, said Kehl Carter, CEO and founder of Atlantic HR Solutions.
The Tax Cuts and Jobs Act, enacted by President Trump in December 2017, increased the standard IRS tax deduction for individuals, but removed the ability for company employees to deduct travel expenses. The change makes it easier for more people to file a short federal tax form, Carter said.
Owner-operators don’t get the same tax breaks as corporate drivers, but they can set off the per diem by filing a List C with their federal taxes.
The daily allowance programs promoted by the company were not affected by the new tax law. Auto transportation companies can still allocate $ 66 per day, which equates to between $ 300 and $ 400 weekly income that moves to the tax-free column.
Using the daily allowance to secure your income saves around 30% in taxes. This adds roughly $ 100 a week to drivers’ take-home salaries, Carter explains. In a typical year of 50 work weeks, drivers will see an increase in net wages of approximately $ 5,000.
Without a daily allowance program, motor companies would have to increase driver salaries by more than $ 8,500 a year to put the same $ 5,000 in their pockets, he said. Drivers using their corporate daily allowance programs can continue to use the standard deduction and file a brief federal tax return.
Because the per diem reduces drivers’ wage tax withholding, it also saves motorists huge amounts of money by reducing their corresponding amount of state and federal payroll taxes. That way, airlines in most states also pay less employee bonuses, Carter said.
For drivers who fear paying lower taxes will negatively impact future social security benefits, Carter said the math shows they need nothing to worry.
To calculate pension benefits, the Social Security Administration uses the highest income years of a taxpayer for a period of 35 years. The income is averaged and linked to a monthly index. The first $ 800 of index income is paid out at 90%. The second tier of income of $ 800-5,000 is paid out at a rate of 32%.
To illustrate how the daily allowance would affect the social security calculation for drivers, Kehl uses an example of $ 1,900 per week in taxable income. Whether or not a driver uses a subsistence allowance, their Social Security benefits will be no different for the first $ 800. The per diem would only affect his benefits for incomes between $ 800 and $ 1,900 paid at the lower rate of 32%.
The math shows that drivers with an additional salary of $ 100 per week and saving some of it, e.g. B. $ 20, are better off in an IRA. For example, if a driver retired at the age of 67, the extra salary they would receive would far exceed a minimal cut in social security benefits, he explains.
“It’s much better to take $ 100 a week home to work off debt or invest in a third-party investment vehicle,” he said.
Payroll automation
Data collected by electronic logging devices (ELDs) can be used to check when and where drivers are entitled to daily allowance.
About eight years ago, Omnitracs developed a program called Per Diem Manager, which integrates with Atlantic HR Solutions’ software to automate the daily flat rate calculation and verification process required by the IRS to keep records.
Fleets with overnight allowance programs can cover $ 66 of a driver’s income from payroll taxes for every day a driver spends away from home.Drivers and drivers do not need receipts for meals. What they need is a record of the date, time, and location to show each day where they could or should have stopped for dinner along the way, Carter said.
Omnitracs’ Per Diem Manager gathers all of this information to back it up. The data set includes both the distance a driver has traveled from home and whether or not he has spent a night away from home.
Atlantic HR also integrates with other ELD providers and back office software systems to automatically move the appropriate income amount from taxable to non-taxable columns based on the daily rate of $ 66.
The Omnitracs and Atlantic HR programs have a small fee per driver that is only charged if drivers receive daily allowance in a given week. Most freight forwarders cover these costs for their drivers, Carter said.
Atlantic HR has a call center that answers drivers’ daily questions. The company is doing this so that the payroll departments of motor companies don’t have to be tax professionals, he said.