Uber Could Lose Big if Forced to Treat Drivers as Employees

Photo (cc) by defaulterror

Independent contractor or employee? That’s the million-dollar question for ride-sharing service Uber after a California labor commission recently ruled that Uber drivers should be reclassified as employees, not contractors.

Not surprisingly, Uber is fighting any lawsuits to reclassify its drivers. If Uber is forced to reclassify its 160,000 drivers across the U.S., the company will likely be responsible for paying payroll taxes, and offering health insurance and other benefits to its drivers. Those extra expenses add up quickly.

In fact, according to a recent estimate by Internet news site Re/code, Uber would need to pony up an additional $208.7 million per year if it reclassified its California drivers as employees. According to Re/code:

It breaks down to about $89.1 million for payroll taxes for 45,000 drivers working 20 hours a week in the state, and roughly $119.6 million per year in workers’ compensation insurance. Altogether, it’s $4,637 per employee in California.

That doesn’t include the cost of gas or vehicle repair, which Uber would be legally required to cover under California Labor Code Section 2802.

Re/code reports that California likely has the largest number of Uber drivers in the nation.

The Department of Labor provides guidance to help employers determine whether to classify workers as employees or independent contractors. The DOL said it’s common for employers to misclassify workers as contractors.

When employers improperly classify employees as independent contractors, the employees may not receive important workplace protections such as the minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Misclassification also results in lower tax revenues for government and an uneven playing field for employers who properly classify their workers.

Uber maintains that its drivers are contractors and that the majority of them want to stay that way. In a statement to Re/code, Uber said:

As employees, drivers would lose the flexibility and control they value most; instead they would drive set shifts, earn a fixed hourly wage, and lose the ability to drive with other ride-sharing platforms.

Uber says 73 percent of its drivers say they would rather work independently as their own boss than to have a job that provides a salary and benefits.

San Francisco-based Uber was recently valued at $40 billion. The on-demand ride-sharing service has experienced explosive growth in recent years.

Do you think Uber drivers should be classified as employees or freelancers? Share your thoughts in our Forums. It’s a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.

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