Questions Employees Ask When Considering Freight Agency Ownership

Many freight agents begin their careers at large brokerages that provide access to on-the-job training and the stability of salaried pay. With gained experience, self-starting, entrepreneurial employees start to see the allure of branching out and running a business. If you are considering making the leap from employee to freight agency owner, it helps to have access to reliable resources to better inform your decision. After all, there is risk in starting a new business -- most notably, leaving behind a guaranteed paycheck. 

As a Top 25 freight brokerage operating in the US and Canada, we have frequent interactions with employees weighing the opportunity costs of agency ownership. This post will cover frequently asked questions and provide you with additional resources as you consider a potential change.

The Essentials: Income, Taxes, and Benefits

What do freight agents get paid? 

Most brokerage employees are paid a salary or draw with a commission component. Freight agent programs differ; they offer a straight commission package at a much higher rate - typically ranging from 40 - 80% of gross margin. The tradeoff for these high commissions is a lack of income security. 

If your agency loses a large customer or experiences a loss due to claims, your income source may be drastically reduced.

How frequently will I get paid? 

Agent-based models like Armstrong pay independent contractors weekly, based on being able to invoice the customer. In some cases, the pay is based on the load being delivered. In these examples, the agent receives a commission before the customer has paid the brokerage.   

How will becoming a freight agent impact my taxes? 

When you partner with an agent program, you are no longer considered an employee. Instead, you become an independent contractor. This income designation means that your agent program partner will not collect or pay taxes for you. Armstrong advises our agent partners to consult an accountant or tax professional who can help explain the tax implications for independent contractors. They may suggest setting funds aside periodically throughout the year to provide adequate financial security once income taxes are due. 

Do 1099 contractors have access to medical/dental/vision benefits?

Yes, Armstrong and many agent programs are beginning to offer health benefits options for independent contractors. Historically, independent contractors have not been able to secure health benefits through their agent partners. However, the rise of the ‘gig’ worker economy encourages many organizations to reconsider how they can better support and retain talent. Click here to learn more about which health insurance options are available for freight agents. 

Health benefit options vary from company to company and may not be ACA compliant. However, being able to offer benefits to contractors is something that we are excited to do. Armstrong is currently partnered with The American Worker to offer an indemnity health plan, dental, and vision to agents and their staff. The premium is collected out of their weekly payroll. 

Opening a Freight Agency

As a freight agent, do I need to secure a bond, authority, and insurance?

No, as an agency owner, your business will operate under your agent partner’s bond, insurance, and financial backing. 

How much control will I have over my own business? 

As an agency owner, you can expect to assume full control over your business’s day-to-day operations. No one will manage how you get the job done. Most agents work out of a home office and focus primarily on securing customers and booking loads. Because you have entered into a brokerage partnership, you can expect baseline customer management rules and brokerage requirements related to monthly gross margins. 

Owning an agency is similar to owning a franchise. For example, agent owners who partner with Armstrong Transport Group are tasked with developing their book of business and selling to those customers. To maximize success, agents leverage Armstrong’s buying power and extensive network of carriers. Additionally, Armstrong provides back-office support to help agents optimize their business processes, allowing agents to focus on revenue-generating tasks. 

As your freight agency grows, you might also choose to sub-contract or hire employees to help scale your business. 

Can I open a business under my name and social security number? Or should I obtain a corporate tax ID number and bank account?

As an independent contractor, nothing prevents you from opening an agency in your name as a sole proprietor using your social security number. However, Armstrong advises prospective agents to discuss your business and pay structure with a tax advisor or attorney to receive sound guidance. At Armstrong, an increasing number of agent partners join as a business entity or change to a business entity throughout our partnership. Owning your own business has its advantages, including write-offs when income taxes are due! 

What about customer clearance and ownership? I’m an employee now, and if I don’t move freight or talk to my customer in 30 days, anyone in the company can work with them. 

In the 1099 agent model, a customer is yours if you enter them into the system and regularly work with them. At Armstrong, our Transportation Management System (TMS) is siloed, so agents cannot see other agency customers. If you do not move a load for your customer in 6 months, the credit department may approach you about letting someone else work with them. This is typically a conversation and negotiation. 

Contingency Planning

At my current company, I had to sign and sit out a non-compete. Will I need to do that as an agent? 

Unlike employees, agent owners are typically not required to sign non-compete agreements. At Armstrong, we respect that your customers belong to you and that you are free to take your business wherever you choose.  

What if I decide to leave my agent partner? Can I take my customers with me?

Since agent owners are contractors and typically do not sign non-compete agreements, Armstrong considers your customer base portable. Although Armstrong is proud to have some of the industry’s highest agent retention rates, things do change from time-to-time. In the event an agent transitions elsewhere, they can take their customers with them. 

Want to Learn More? 

Watch this video to see Armstrong CEO, Brian Mann, discuss the differences between employee and agent logistics models.  

Ready to Take the Next Step?

If you have experience in transportation and logistics and have always wanted to manage and run your own business, agency ownership could be the path for you. There is a low barrier to entry – all you need is a home office, computer, phone, and some loyal customers. You also have the security of being backed by a larger organization. Your agent partner will have some basic guidelines – from conduct to performance minimums – but beyond that, you are your own boss who can set your own schedule and work one hundred percent remotely. At Armstrong, you can work 5 hours or 50 hours a week, as long as you meet your required monthly minimum of $6000 in gross margin. 

As you consider your next agency partnership, Armstrong would welcome the opportunity to connect and provide an overview of what makes us stand out from the crowd. Click here to learn more about our agent program!