Money Makeover: Time for trucker to focus on his family’s needs
Like many workers, Julio Cervantes has a job but isn’t an employee.
Cervantes, 46, drives a semi-truck around Southern California, picking up cargo at the local ports and delivering it to warehouses and rail yards.
Since 2002, he has worked for a series of trucking companies as an independent contractor, which means he lacks many of the benefits and workplace protections of a full-fledged employee.
Cervantes was satisfied with that arrangement at first, and he made a nice living. Then changes in the economy and the port trucking business squeezed the Long Beach resident and many of the other estimated 12,000 short-haul drivers at the local ports.
With union backing, Cervantes and other drivers have staged short-lived strikes against several Southland trucking firms and filed lawsuits and complaints with state and federal officials contending that the companies were unfairly denying them employee status.
But his fight over the last two years has wrecked Cervantes’ finances. Every hour spent walking a picket line or testifying before a public agency was a lost opportunity to earn money.
Fee-only financial planner Delia Fernandez reviewed Cervantes’ situation and advised that he has done his share of campaigning; now it’s time to focus on the immediate needs of his wife, Silvia, and three teenage daughters by taking a different job, getting out of debt and rebuilding his savings.
“A lot of crusaders have to be single,” Fernandez said, “because they can’t afford to support a family.” Independent contractors became more plentiful in the last several years as employers sought to increase flexibility and cut costs — including employee medical benefits and unemployment insurance taxes — by contracting for services rather than hiring employees.
Also more common: employers who incorrectly designate workers as independent contractors whether because of confusion over complex rules or an effort to evade taxes. The Internal Revenue Service has estimated that millions of workers are misclassified as independent contractors, with significant loss of employment taxes.
At the ports of Los Angeles and Long Beach, the nation’s busiest cargo complex, the question of whether short-haul truckers should be treated as employees has become hot, even requiring Los Angeles Mayor Eric Garcetti’s intervention last year to get some drivers back to work. Only about 10% of the local port truckers are direct employees of trucking companies, experts estimate.
At age 12, Cervantes came to America from Mexico to join his mother who had already become a U.S. citizen. He studied auto mechanics at Long Beach City College, learning to do smog inspections, brake service and air-conditioning maintenance and repairs. Later, he took his skills to an auto dismantler, buying, repairing and selling used cars.
Cervantes eventually saw an opportunity at the ports, where blue-collar work could still deliver a middle-class lifestyle. He earned enough that Silvia Cervantes could stay home to care for their daughters.
“It was a good way to make a living at first, but it became harder and harder,” he said.
Everything changed in 2008. A clean-air program at the ports required truckers to use newer, less polluting trucks that many couldn’t afford. Drivers turned to expensive lease arrangements with trucking companies. A global recession reduced cargo traffic at the ports. Drivers’ incomes suffered.
Cervantes had to get rid of his old Freightliner because it didn’t meet the strict pollution standards. He began leasing a 2009 Volvo semi from the trucking company that assigned him work, but he was responsible for fuel, maintenance, repairs and other costs.
Cervantes thought the truck would be his in a few years, but it didn’t work out that way. The lease payments and other costs were so high, Cervantes said, that he slowly spent about $30,000 in savings he had accumulated. He also owes money on his credit cards and fell behind on federal and state taxes, which contractors must handle themselves, leaving him with about $24,500 in debt.
To save money, the family moved to a small, two-bedroom apartment. Cervantes sold his pickup truck. Silvia Cervantes took on baby-sitting jobs, bringing in about $100 a week.
Starting in 2013, Cervantes and dozens of other port drivers began contesting their independent contractor status, targeting certain Southern California trucking companies with short-term strikes.
Drivers also filed hundreds of claims with the state labor commissioner’s office alleging they were improperly classified as contractors, costing them overtime and other benefits. The state has awarded drivers more than $4 million in back pay and penalties. Cervantes also filed a claim and is hoping for more than $70,000 in a settlement.
The trucking companies say they have done nothing wrong and are appealing many of the rulings. The strikes, they say, are a product of unions pushing for members.
The last flurry of walkouts came in November, and since then his trucking company hasn’t sent any work his way, Cervantes said. Sitting in the family’s cramped $700-a-month apartment, Cervantes acknowledged that “it was a very tough year” capped by a recent bout with shingles brought on by stress.
“I’ve got to get better, get back to work, and prepare my family for the future,” he said.
The planner said that the Cervantes family has already taken some positive steps.
Julio and Silvia have “pared their expenses down to the very bone,” Fernandez said.
In addition, he has negotiated with the IRS to begin paying off his tax debts when he starts his next job.
There is an offer on the table from another trucking company that would pay more than $20 an hour, plus benefits, as an employee, not a contractor. If that doesn’t work out, Fernandez suggested that Cervantes explore applying his driving skills away from the ports, such as with United Parcel Service.
“His next task should be to pay off his debts and his taxes,” Fernandez said. Cervantes should contact the nonprofit National Foundation for Credit Counseling for help negotiating with the credit card companies, she said.
Silvia should look to earn more money, perhaps with a hospital day care job, once her daughters require less attention, the planner said.
Savings should also begin immediately, but in small bites of only $1,000 a year at first as Cervantes gets rid of his tax and credit card debts.
By the fifth year of the plan, however, two important things should have happened, Fernandez said. The debts should be gone and the daughters should be less of a financial burden and getting out on their own, if not contributing with income of their own.
Fernandez wants the Cervanteses to save $18,000 or more a year and build up an emergency fund, starting that year.
“It’s going to take some doing,” Fernandez said. “We’re hoping for steady employment and approximately 20 more years of income.”
Cervantes should also encourage his daughters — aged 17, 16 and 13 — to maintain the best grades possible because they should be eligible for considerable financial aid for college given their parents’ relatively low income.
Cervantes is still hoping for a large wage settlement that would allow him to move to Fresno, where he would be able to afford a home and live near other members of his extended family. He would also use part of the money for his girls’ educations and to open a small food stand, he said.
“I will keep it to tacos and burritos,” Cervantes said, sounding as though the settlement money had already been granted.
Fernandez thinks it’s best to not base any plans on a potential windfall.
“I respect his entrepreneurial interests and desires,” Fernandez said, “but he has three children and a wife and it’s time to focus on the steady, predictable job with the benefits.”
Still, Fernandez said, Cervantes doesn’t need to abandon his taco-stand vision.
To find out what he would be getting into, she said, Cervantes should meet with counselors from SCORE, a nonprofit group that provides free mentoring for entrepreneurs.
“He could take on a partner,” Fernandez said. “He could also be eligible for loans. The point is, you don’t need to have a windfall in order to fulfill that dream.”
If Cervantes’ income remains steady enough, the couple should then be able to rely on as much as $30,000 a year in Social Security retirement benefits when he reaches age 67, and enjoy a decent retirement.
The couple are optimistic in spite of their rough financial ride.
“I want to start fresh,” Cervantes said. “I know something good is going to happen to me this year.”
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