Uber Drivers: Employees or Independent Contractors?
Uber is one of the hottest trends of the current time. Nearly anyone can sign up to be an Uber driver, and of course, everyone can commission a ride from the Uber service. It is one of the easiest ways to get from one point to another and is the most economical method in most areas. While Uber offers a level of convenience and freedom to users, the concept is fraught with problems.
There have been several instances in the media lately involving issues with Uber drivers. Misconduct by drivers is one of the top issues in the media right now. These issues have been handled differently depending upon the jurisdiction in which the incidents happened. There are some gray areas when it comes to Uber drivers and how to solve the issues posed by the Uber concept; the biggest question is whether Uber drivers are employees of the company or independent contractors. The rules and regulations that define the difference between employee and contractor vary from state to state, as this is a matter of state law. Likewise, the way each case is handled is up for interpretation depending upon where the incident took place. Several judges have ruled that Uber drivers are employees of the company while others have ruled that Uber drivers are independent contractors who are self-employed and not agents of Uber. There are several criteria to consider when determining whether an Uber driver is an employee or contractor.
Compensation of Employees vs. Contractors
One of the first things to look at when determining whether an Uber driver is an employee or independent contractor is pay. Employees typically work for the company. They provide the service or product to the company’s clients, the client pays the company, and then the company compensates the employees at the end of the pay period or at the completion of the work. Independent contractors typically work for themselves. They use their own equipment in most cases. They keep their own records of pay, time and attendance, and number of jobs completed. Then, the contractor invoices the client or clients for work completed, either once the work is done or on a set, regular schedule.
Unlike other taxi services, which allow passengers to pay via cash at the end of the trip, Uber takes care of payment virtually. Uber users order a driver online or via smartphone and enter their credit card information; then, the card is charged by Uber once the ride is complete. Uber keeps a 20 percent commission off the top. The company then pays drivers via direct deposit at the end of each pay period. This alone would lead one to believe that Uber drivers are employees of the company. However, while that is one factor to consider, it is not the only factor involved in making this determination.
Taxes are another major determining factor when deciding whether someone is an employee or an independent contractor. An employer keeps track of an employee’s taxes. The employer pays the federal, state and Social Security taxes each pay period out of an employee’s gross pay and then gives the employee what is left over. An independent contractor is required to keep detailed tax records throughout the year. Since no one takes taxes from contractors’ pay, they are required to send in quarterly tax payments to the state and federal government each quarter. Failure to do so results in hefty fines and penalties for the contractor.
Uber does not withhold taxes from payments to drivers. The only monies Uber keeps from a driver’s pay is the 20 percent commission the company receives for operating the service. Each Uber driver is required to keep his or her own detailed tax records. They are also required to make quarterly tax payments on this income. Based upon these criteria, Uber drivers are independent contractors.
Expenses and Equipment
Generally speaking, company employees are either allowed to use company equipment and vehicles in the performance of work duties or are reimbursed for the use of their own vehicles and equipment. Fuel costs, maintenance expenses and even license, registration and insurance costs may be reimbursed by the employer. Independent contractors typically use their own vehicles and equipment and factor the cost of maintenance, usage, upkeep, wear and tear, and replacement costs into the price they charge their clients for products or services rendered.
Uber drivers use their own vehicles to ferry clients from place to place. They are not reimbursed for wear and tear on said vehicles, maintenance or even fuel costs. Operational expenses are taken from the fares they receive from Uber. Based upon these criteria, Uber drivers are independent contractors.
Benefits and Insurance
The majority of employers offer benefits to employees, though these benefits may be offered based upon the number of hours an employee works for the company. For example, an employee may be required to work at least 30 hours per week to qualify for benefits. These benefits include paid sick time, paid vacation days, bonuses, and health and life insurance benefits. Independent contractors do not receive these benefits. If an independent contractor does not work, he or she does not get paid. There is no paid sick leave, no paid personal days, and no paid vacation time. Contractors must put money aside in a savings account to help them through times of little to no work. Health and life insurance expenses are not covered either partially or fully by any employer; the contractor must bear the burden of these expenses alone.
Uber drivers do not receive any type of benefits package. There is no paid sick time or vacation time offered. Uber also does not offer any type of health or life insurance plan to drivers. Based upon these criteria, an Uber driver is again an independent contractor.
Companies that require employees to drive to accomplish the duties required of their positions, either in a company vehicle or the employee’s own personal vehicle, will generally reimburse the employee for all or part of the expenses they incur for automobile insurance. An independent contractor handles all insurance expenses alone and builds the cost of the insurance into the fees charged to clients for products or services rendered.
Uber drivers are not reimbursed for their vehicle insurance costs. They must ensure that they have proper insurance coverage and pay for this out of their pockets. They receive no extra compensation from the company for this expense. Based upon these criteria, Uber drivers are independent contractors.
There are also several other factors to consider when determining whether an Uber driver is a contractor or an employee of Uber. These administrative issues are normally handled for employees of a company by the human resources office or the executive office staff. Independent contractors must deal with these administrative issues themselves and provide proof of compliance to their clients or the governing boards in their states or municipalities.
Background checks are another gray area. Many independent contractors are licensed and bonded by the state in which they operate. This allows them to do their jobs with less liability. It also gives clients and vendors added peace of mind when dealing with an independent contractor. This process is not free, and the independent contractor must take care of all costs out of his or her own pocket. Employees are generally licensed and bonded by their employer, and the employer covers the cost. Likewise, when a background check is required for any reason, the employer will handle this expense.
In the case of Uber drivers, this is one area in which they operate as employees. Uber is committed to the safety of its clients, so it does a cursory background check on each driver. This background check is not as in-depth as the background checks done by many employers. However, it does keep sexual offenders and violent criminals out of the driver’s seat and away from Uber passengers.
Similar to the issues previously discussed, liability for accidents or incidents incurred during the performance of an employee’s duties falls upon the employer for which he or she works. This means that the employer or its insurance company is liable for any damages or expenses, and it can choose to require the employee to reimburse these costs later. Independent contractors are liable for any incidents or accidents that occur during the performance of their duties. There is no employer to pass this liability onto.
Again, Uber drivers are responsible for any accidents or incidents that occur during the performance of their duties as Uber drivers. They are required to obtain their own insurance, pay the premiums out of their own pockets, and handle any claim filings on their own after an accident or incident. Based upon these criteria, Uber drivers are clearly independent contractors.
Most states are right-to-work states. An employee does not have to sign a contract and is allowed to quit at any time for any reason. Likewise, the employer is allowed to let an employee go at any time, for any reason, or for no reason at all. However, there are still some career fields that require a contract. Many companies require employees to sign a noncompete agreement or other type of agreement as a condition of employment. In addition, many companies may not allow an employee to turn down an assignment, or the employee can be terminated immediately. Independent contractors work for themselves and take only the assignments they wish to take. They can stop working at any time and start again when they are ready.
Uber drivers are never required to take an assignment. They can choose only the assignments they want and take a day (or 10) off whenever they want. There is no requirement to work, no set schedule and no minimum work requirements to remain on the Uber driver roster. In this instance, the Uber driver fits the criteria for an independent contractor.
Oversight and Involvement
This area is one area that caused a court in California to determine that Uber drivers are employees of the company and not independent contractors. Independent contractors are at the helm of their own businesses. They handle day-to-day operations, accept work from clients, carry out the work, and handle issues that arise. They handle invoicing and billing, collect payments and deal with late accounts. The independent contractor is also tasked with handling marketing efforts, attracting new clients and keeping old clients from turning to someone else for the same goods or services. Employees don’t handle many of these issues, if any. The company handles operations, billing and marketing. The employee shows up, carries out orders and collects a paycheck.
According to the ruling in California, Uber has much oversight of drivers. Uber handles all marketing efforts. Uber maintains the smartphone app and software that allow clients to place orders for rides. Uber collects credit card information of users, processes the charges and makes the payments to drivers. Uber collects orders for rides and passes out the assignments to drivers. They handle some administrative tasks, such as background checks and other issues. Uber has control and involvement in the majority of each driver’s activities, if not all. For this reason, at least one judge has deemed Uber drivers to be employees of the company.
When determining whether a person is an employee of a company or an independent contractor, several factors must be considered. Likewise, the status of an Uber driver, as with any other provider of services, cannot be determined based upon one criterion. When looking at the big picture and the list of issues presented here, the Uber driver meets more criteria of an independent contractor than of an employee of the company. For this reason, the logical answer to this question is that an Uber driver is not an employee of Uber and serves solely as an independent contractor. Since the Uber concept is still fairly new in the United States, more developments will come as issues arise and are dealt with in the legal system.
As an Uber driver you do have rights. John J. Zidziunas & Associates can provide you with expert help when it comes to your labor law issues in New Jersey and New York, offering advice and representation through every step of the process. Contact us today by email or by calling 973-509-8500 for a free 30-minute consultation.