Why Uber Doesn’t Want Its Drivers To Be Employees

Are Uber drivers employees of Uber? Or are they independent contractors?

That’s the debate that sparked a California case, which caused the Labor Commissioner of California to rule that specific driver to be an employee. While it’s unsure how that case will impact other drivers across the country, it certainly changed the tone of conversation about what defines an employee for rapidly growing companies like Uber.

This was the subject of a Forbes article last week (June 18) that delved into just what makes an employee an employee — citing reasons why Uber would want to find any loophole possible to ensure its drivers are viewed as independent contractors instead of Uber employees.

So how will it hit Uber the most if the company eventually has to claim all of its drivers under “employee” status? To start, Uber would have to fork out Social Security taxes, Medicare, and a variety of other taxes (depending on the state).

“For Uber, it would definitely hit them on the social security part but it is also going to hit them on the unemployment insurance that they will have to pay for and workers’ compensation,” Amar Mann, a regional economist at the Western office of the Bureau of Labor Statistics, told Forbes. “Those are three really big areas where Uber is not paying anything and that could potentially change.”

Depending on individual state laws, Uber would also have to take on basic workers’ compensation benefits, such as health care. Because Uber is currently working under a contract employment model with its drivers, it allows for the company to shift the burden of insurance onto its drivers. Although most state laws, like California, require that companies like Uber has auto insurance for its drivers and the passengers up to a certain amount. Uber requires that its drivers pick up the extra insurance necessary to ensure full coverage is met.

“In many states, an individual who is an independent contractor and if that firm, in other words that individual, has just one employee — meaning him or herself — they are not even required to purchase workers comp coverage to insure themselves. That is very common in many if not most states,” Bob Hartwig, the president of the Insurance Information Institute, told Forbes.

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