04 / 23 / 15

Are Uber Drivers being Scammed?

uber germany injunctionThe creation of smart phones has brought incredible innovations to our daily lives. For example, when was the last time you stopped at a gas station to ask for directions? Google Maps has ensured we all know the location and approximate mileage of the nearest Raising Canes.

One such innovation that has recently affected Lafayette is the advent of Uber. For those who aren't aware, Uber is a smart phone application that allows you to arrange transportation with the touch of a button. The app informs you of the driver's name, his/her approximate distance from you, and the total cost of the fare. The cost of the ride is paid for up-front by the user via a debit/credit card; the allure of this feature is that money never has to exchange hands (always the awkward part of cab rides). Thus, when your chariot arrives, you simply step in and are transported to your destination (Pro Tip: They will take you through the Raising Canes drive-thru. No, I definitely haven't tried; why do you ask?).

Assuming you can pass a background check and have a favorable driving record, you can likely become a driver for Uber. However, one stipulation is that you must have your own mode of conveyance i.e. you will be transporting Uber users in your own vehicle (no scooters please). Consequently, if you're concerned with tax implications, it's important to ascertain if you're considered an employee or independent contractor.

Recent class action lawsuits have been filed by Uber drivers in California pertaining to their classification: are they employees or independent contractors? This question holds much significance as employees would be compensated for ½ of their self-employment tax (Social Security & Medicare) as well as reimbursed for gas and vehicle maintenance. Currently, Uber drivers are treated as independent contractors, and thus are responsible for all expenses and the entire portion of their self-employment tax (15.3% of income).

So far, Uber has failed to persuade U.S. District Court judges that the drivers are independent contractors. The crux of the employee/independent contractor test is control. This means the courts will evaluate how much control Uber has over their drivers throughout their course of work. For example, does Uber dictate when, where, and how the work is done? To what extent does Uber train their drivers? Questions like these are important in evaluating employee/independent contractor status.

Since this classification requires an in-depth analysis of a variety of factors, the determination will most likely be made by a jury. As it is much more costly for Uber to treat the drivers as employees, changes to Uber's day-to-day operation as well as prices could change drastically in the next several months. Keep an eye on the development of these lawsuits as they could affect you in the near future.