Where’s My Money? Understanding the Different Ways to Pay Your Drivers
There is a lot to love about being a carrier. It’s an escape from the typical 9-5 grind that offers a chance to see different places. However, one of the top things to consider when looking for jobs is the pay. Many factors influence pay, including experience, economic conditions, and company policy. The increase in technology has also changed driver payment structures in the past few years. Knowing how drivers are paid can help carriers get a clearer picture of whether the compensation makes each trip worthwhile.
This blog explores drivers’ various compensation options and upsides and downsides.
1. Pay per Hour
Hourly pay is what it sounds like – drivers are paid an hourly wage. This payment structure is typical in many industries and is frequently used by interstate companies with relatively small driving ranges (about 150 miles or less). Carriers who take hourly jobs usually have additional responsibilities such as loading and unloading and regular customer interaction. They can also expect work with frequent stops. Hourly positions often come with overtime, which increases the earning potential if you are willing to work extra hours.
The trouble with hourly pay is that you have to make every hour count. It is easy to become fatigued, especially if you drive as many hours as possible within your limits. Many drivers who get hourly jobs overwork themselves to earn a salary they deem acceptable. And if you arrive at a “driver unload facility,” you’re expected to unload all the cargo by yourself. Moreover, drivers don’t always start with a full truck (less than a truckload).
2. Pay per Mile
Pay per mile is one of the most popular payment structures in the trucking industry. Otherwise known as cents per mile (CPM), it compensates carriers for the miles they run. It offers multiple ways to calculate driver pay, including:
- Practical miles:This is the number of miles based on the most efficient distance between the pickup and drop-off locations. The distance is calculated by a satellite along a known route and is usually shown on the truck’s onboard ELD.
- Hub mileage: Also known as the actual mileage, this pay structure accounts for the mileage changes in the odometer. It considers all hours of service miles, such as truck stops and changes in routes.
- Household goods miles (HHG): These are also known as zip code miles and refer to the shortest distance between the post office zip code in the origin city and the post office zip code in the destination city.
- Sliding scales pay:Companies that want to allow carriers to earn higher pay often use the sliding scales payment structure. For instance, a company may pay $0.6 CPM for short hauls of 1-500 miles and $0.5 CPM for longer routes of more than 500 miles.
The obvious benefit of cents per mile is that every mile traveled will pay off. On the downside, idle time due to traffic congestion, roadwork, and accident cleanups can leave drivers on the job whilst not making any money. The good news is that trucking companies hate idle time and are always looking for ways to reduce it. That’s because it’s terrible for the environment, wastes fuel, and wears on the vehicle. For companies with large fleets, the costs add up.
3. Pay per Diem
Per diem means per day and is a form of reimbursement where the trucking company gives drivers a certain amount of money for incidental expenses like meals and overnight stays. It’s a daily allowance, and the IRS allows you to deduct it from your taxable income. Per diem is mostly a set amount but can sometimes be equated to the total number of miles traveled. Either way, it can lead to reduced taxes or bigger tax refunds.
4. Percentage of Load
This is a type of payment structure where trucking companies pay drivers a percentage of the amount that each load costs. For instance, if the load costs the shipper $3000 and your rate is 30%, then your payments would look like this:
$3000 x 30% = $900
The main benefit of the percentage of load method is that you never have to worry about disputing whether the miles and compensation are fair with your employers. Moreover, the percentage pay rate increases gradually as the tenure and experience with the company increases.
The trouble with percentage of load is that work isn’t always consistent. Even when work is consistent, you cannot count on the numbers sticking around all year. Percentage of load drivers are among the highest paid in the trucking industry. As such, it’s more suitable for ambitious, veteran, and business-minded drivers willing to accept a significant level of risk.
5. Stop Pay
Drivers making multiple stops along a route can opt for stop pay to offset downtime and fewer miles. Stop pay ensures that drivers are fairly compensated for their time by paying them for the additional time spent executing additional stops. This doesn’t include the original pickup or the final destination.
6. Detention Pay
Drivers need to stay within the hours of service requirements while adhering to the schedule to get the best of a haul. Unnecessary delays can cause challenges later in the route, and detention pay seeks to compensate for the lost time. Drivers get detention pay when they have to wait between loads for extended periods. The industry standard for truck loading time is 2 hours, and shippers are expected to pay an hourly or fixed rate if the load is held up as per the company policy. Trucking companies also provide breakdown pay when incidents occur on the road and prevent drivers from logging miles.
7. Accessorial Pay
Carriers can charge accessorial fees for services beyond the typical pickup and delivery requirements agreement at the time of purchase. The pay is added to the freight bill and may include charges like detention, re-consignment, stop-off charge, lumper fee, and truck order not used.
Learn More About Planning for Profitability
Whether you are an aspiring carrier or a seasoned driver, understanding the different methods of payments and how to drive profitability can make all the difference when growing your business.
Download our calculator to understand how variable costs affect your profits and how small adjustments can improve your outlook.
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