What is an Owner-Operator Truck Driver?

The term “owner-operator” denotes an individual or business who both owns a business and carries out the business’s daily operations. In the context of truck driving, the term refers to individuals who own the trucks they drive and the businesses associated with them.

Unlike company truck drivers, owner-operators face a mountain of responsibilities and generally bring in high profits.

But is being an owner-operator all that it’s cracked up to be?

Let’s look at a detailed overview of owner-operator trucking to see. In this post, we will cover owner-operator salaries, expenses, and (for those interested) the steps to becoming an owner-operator. Understanding the information provided here is critical for any aspiring owner-operator.

Steps to Becoming an Owner-Operator Truck Driver

As you might expect, there are several steps to becoming an owner-operator. In general, owner-operators already possess years of experience as company drivers. It can take a while to muster the amount of capital required to start your own trucking practice.

That being said, let’s review a general overview of becoming an owner-operator.

 

• Make a Plan

 

The first step in any process is to make a plan. In the context of owner-operator trucking, this refers to establishing your desired route. Where is it that you want to go?

You must take into consideration that your route will largely determine your business. Are you staying inside the country? Will your route take you across the border?

Answering these questions should be your primary consideration. In establishing your route, you must consider what products you will generally carry. You should also take family time into account. More than likely, your family will prefer routes that don’t take you cross country.

Once you are confident in your plan, you can move on to the next step of the process.

 

• Obtain Your CDL

 

Don’t underestimate the difficulty of getting your CDL. Despite what you may have heard, the process is long and requires intense testing.

In order to obtain your CDL, you must pass a DOT physical examination, choose what type of license you want, take a knowledge test to determine mental fitness, obtain your initial permit, and then take the final CDL skills test.

If you have experience operating large vehicles, this may not be a problem for you. However, you will want to make sure you are prepared. Obtaining your CDL and learning proper road safety is the most important step of your trucking journey.

 

• Get Your Rig

 

Once this is complete, you can move to the “fun” part. While some may not think that shelling out big bucks for a rig is fun, there’s nothing that compares to having your own truck. During this stage, you must decide whether to buy your truck outright or lease. The decision will largely be up to your capital. Keep in mind, however, that leasing requires monthly payments on your truck. You will want to minimize lingering expenses as much as possible.

Remember: the type of truck you purchase will depend on the type of operation you want to run. If you are planning on hauling big loads, you should consider a larger truck. Sure, the upfront costs might be steeper, but it’s important to have the right equipment on hand to do the job.

 

• Find a Carrier

 

Unless you obtain your own authority, you will need to find a motor carrier that will help you find work. Though there is certainly temptation in working for yourself, most owner-operators find it cheaper and easier to work with quality carriers.

Don’t worry if you aren’t satisfied with your carrier at first. It’s common practice in the owner-operator trucking industry to switch carriers for higher profit margins. You will want to stay on top of the market to make sure you are getting your money’s worth.

That being said, you shouldn’t switch carriers too often. Drivers who do often find it harder to maintain long-lasting business relationships. It also throws your business into unnecessary volatility. Ultimately, the decision to switch (or even sign on with) a carrier is up to you.

 

• Buy Trucking Insurance

 

No matter what, you want to make sure you are covered in case of an accident. The type of trucking insurance you need will depend on if you are working under your own authority or with a carrier.

Most carriers will offer trucking insurance as part of their lease agreements. What you will generally find is Primary Liability. If you are at fault, Primary Liability provides coverage for any injured persons or damaged property.

Unfortunately, you will not find many carriers who are willing to pay for truck damage if you are involved in an accident. This means that you will be paying for any truck damages out of pocket.

And, yes, that could be expensive.

If you are operating under your own authority, you will be required to pay for all your insurance needs. This includes paying for Primary Liability.

This is why you won’t meet too many truckers operating under their own authority.

For the most part, you will want to pay careful attention to insurance agreements when choosing your future carriers.

Following the above five steps can help you smoothly through the process of becoming an owner-operator.

Owner Operator Trucking Expenses

With increased responsibility, owner-operators face hefty expenses that most company truckers never see. This results from the fact that owner-operators must not only handle the cost of travel, but they must also manage overall company expenses.

A report by indeed.com shows a staggering number: the average owner-operator pays up to 70% of his earnings each year in expenses. If that sounds like a lot, it’s because it is.

Let’s take a look at some of the most common expenses that owner-operators must pay (minus fuel):

 

• Truck Expenses

 

Unless you already own your rig, chances are you will have to rent one or buy one up front. A career as an owner-operator requires steady and reliable transportation. Depending on the size you need and what you are hauling, the cost of your vehicle may vary.

 

• Insurance

 

In addition to regular trucking costs, owner-operators must also pay for insurance. Usually, this refers to truck insurance for vehicles. Many owner-operators, however, also pay insurance for the goods they haul. Doing this can make your business more reliable, but it will also run you a pretty penny. Any other forms of insurance (such as medical insurance) will only increase these expenses. Studies show that owner-operator truckers pay up to three times as much for medical insurance as company drivers.

 

• Maintenance

 

If you are a company driver, your company will pay for any damages your vehicle may incur. Owner-operators, however, must make up these costs themselves. This means that every problem—no matter how minor—must be paid for out of pocket.

Flat tire? Busted headlight?

You can count on paying a fair amount to fix these as an owner-operator. Annual maintenance costs can be steep—especially for those drivers going long distances. If you are considering a career as an owner-operator, you must take this into consideration.

 

• Taxes

 

Unfortunately, owner-operators cannot escape the heavy burden of both corporate and individual taxes. In fact, you may be surprised at just how many taxes owner-operators are asked to pay.

For starters, owner-operators are asked to pay a self-employment tax. The government levies this tax at individuals who run their own business. You can expect a federal heavy vehicle use tax to be slapped onto this.

In addition to these taxes, you will also be forced to pay fuel taxes, ad valorem taxes, and your state income tax.

That’s certainly not cheap.

If you are considering a career as owner-operator, you should keep these tax-related expenses in mind.

 

• Paperwork  

 

Depending on the volume of business, owner-operators often find it hard to manage both owning and operating their businesses. As such, the more “professional” side of the business can sometimes be left out.

Being an owner-operator demands that you spend significant time with paperwork. Unlike company drivers, owner-operators oversee the sending of their own invoices. They must also deal with all emails and finance-related paperwork.

This time-consuming work can be too much for busy drivers. Failing to keep up with paperwork is costly. Taking time away from driving to finish all paperwork will also run you high costs.

Many owner-operators employ secretaries for just this reason. Note that if you do this, however, you will be giving away a substantial cut of your personal profits. Whether or not to go this route is often determined by the size and volume of an owner-operator’s business.

Of these expenses, owner-operators can expect to pay a few every month. Insurance, for instance, must be paid on a monthly basis. Any leased trucks or equipment will also be paid by the month. When combined with daily costs such as fuel, these costs add up—even in the short term.

How Much Do Owner-Operators Make per Mile?

The amount an owner-operator makes per mile is largely up to several factors. Before examining these factors, it’s worth stating that not all owner-operators are paid by the mile (more on that later).

For those who are, the overall business plan, size of the rig, and amount of time spent at home largely determine mileage pay. In general, the bigger the rig, the more pay required. Additionally, more time spent at home with the family also necessitates higher mileage pay.

Let’s look at a few numbers. While company drivers are typically paid in the range of $0.28 to $0.45 per mile, most owner-operators require payment between $0.8 to $2.00 to earn a profit. This is largely because owner-operators must charge more to make up for hefty expenses.

Indeed.com lists the average salary for owner-operators at roughly $183,000 a year. That’s a whopping $150,000 more than starting company drivers.

While this may seem like a lot, most owner-operators net only about $50,000-$60,000 of this profit. The rest is used to cover expenses.

That’s why it’s important for owner-operators to find a steady mileage rate that works and minimizes loss. For bigger rigs, rates close to one dollar per mile are often not enough to make up for expenses.

This is perhaps why a whopping 87% of owner-operators who lease their trucks end up failing. It’s critical for owner-operators to find a working mileage rate in order to survive.

Unless, of course, they choose another method of payment. Take a look below to find out about more payment options for owner-operators.

How is Salary Calculated?

Owner-operators possess a variety of options when it comes to pay. Though many believe that these truckers are paid only by the mile, this is only half of the equation. Let’s look at the two most common forms of payment: “percent of load” and mileage.

Percent of load payment dictates that owner-operators are paid by the size of their haul. For instance, a driver may receive anywhere from 25% to 85% of the gross load revenue of the content on his truck.

This form of payment is a double-edged sword. Many truckers love percent of load payment, simply because they receive hefty payouts from large loads. You must keep in mind, however, that small loads bring small profits.

This means that percent of load payment is volatile and largely unpredictable. Unless an owner-operator signs with a carrier that brings consistent work, there’s no way to predict a regular salary. This option is good for single truckers who know how to save, but it can be tough for truckers with families.

That’s why roughly half of owner-operators choose to get paid by the mile. Under this system, you are paid a consistent (or “fixed”) rate for every mile you cover. This means that the size of your load is irrelevant. For owner-operators who carry smaller loads, this payment system is ideal.

The consistency of the mileage payment system is ideal for many truckers who require a regular paycheck. Considering the fact that owner-operators who choose mileage payment are also likely to have deadhead covered, it’s a smart choice for beginning or smaller-sized trucking operations.

So which payment system is better?

That’s up to each individual. It’s worth noting, however, that truckers who receive percent of load payment report higher job satisfaction.