The IRS just reversed an assessment previously made against FedEx, claiming that they owed $319 million in back taxes for wrongfully classifying their drivers at its parcel division as independent contractors rather than employees. This is not only a strong victory for FedEx, but for the courier industry as a whole. This was announced by FedEx on October 30 in a filing with the Securities and Exchange Commission. It was said that the point of the FedEx Ground Division that all drivers are independent contractors, was supported by the carrier.
The idea of independent contractors is a central business model as it is the largest and most direct competitor to UPS which operates under a different model and unionizes all of its company drivers. This independent contractor model that FedEx has deployed for more than 20 years has been extremely successful for not only the company, but for customers and contractors alike. “We believe the IRS decision provides further vindication of the model,” said FedEx spokesman Maury Lane. It’s still to be determined as to the outcome of employment taxes from the calendar years 2004-2008 as FedEx still faces examination for this. Expressing little to no concern in the SEC filing, the company states that the audit “should reach the same conclusion on these issues for each of those years as well.” Slightly more than 20 percent of the revenue that FedEx generates is provided by the FedEx Ground unit; however the effects of the recent economy are not affecting the Ground unit as significantly as other units. In fact, the Ground division expanded its operating profit by 7 percent in the quarter that ended on August 31st bringing it to $209 million. Last year they faced a 2 percent drop in revenue when compared to the year previous and this contrasted sharply against the double digit dive for express and trucking operations. When the volume of express deliveries drops, it appears that the volume of Ground deliveries rises as there is a direct correlation of cost to service ratios; and who isn’t striving to save a little money these days? This
is common with many smaller courier companies as well and many members of the MCAA have expressed concern. Some delivery companies are national courier companies, while others provide their service to one geographic area. Courier companies are relying more and more on the internet to increase their revenue by hiring website development firms and deploying internet marketing tactics as deployed by an Internet Marketing agency. Source
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