San Jose Business Lawyers Blog
Uber is almost an institution in many of our daily lives, much like Google, Amazon, or Apple. But even though many of us may simply think of Uber as the name that fulfills many of our transportation needs, it is still a company – it has offices, hires people, fights for its rights, and makes corporate policies and decisions. To this end, over the last several years Uber has been making headlines, and one reason for this is that the way in which Uber classifies its drivers has come under heavy scrutiny. In the past, Uber has been involved in heavy litigation in order to classify its drivers as “independent contractors” as opposed to employees (discussed further below), and a recently settled case involving this very issue will have a lasting effect on this classification.
Independent Contractors vs. Employees
The IRS treats independent contractors and employees very differently for tax purposes. According to the IRS, an independent contractor is a person who has a high degree of control over their work . Independent contractors are also typically not offered benefits.
The IRS classifies employees differently, and in several different ways, but in general an employee is someone who the employer manages more closely than they would an independent contractor.
Uber Case Settlement
In 2016, Uber agreed to settle a class-action lawsuit brought by two separate groups of plaintiffs (Uber drivers). The plaintiffs claimed that they should be classified as employees and not as independent contractors, because if they are classified as employees then they will be entitled to benefits. The case settled for roughly $100,000,000. Per the terms of the settlement, the parties agreed that Uber would continue to classify its drivers as independent contractors, and the roughly $100,000,000 would be split among the class members.
Other terms of the settlement include that Uber will be more transparent about how drivers are rated and that from now on drivers cannot be penalized for declining trips. Some might argue that this settlement was actually a win for Uber, even if it had to pay a hefty settlement fee – in the end, Uber is still allowed to classify its drivers as independent contractors and avoid offering employee benefits.
Despite this settlement, Uber continues to litigate the employee vs. independent contractor dispute in other jurisdictions, to sometimes different outcomes than the California case. For example, in the United Kingdom, Uber lost a similar case, the result being that Uber drivers in the UK will now be classified as employees.
Being an Uber Independent Contractor
Now that it is clear that California Uber drivers are independent contractors, at least for the time being, there are some special considerations that you should know if you plan to drive for Uber.
- Income taxes: Independent contractors are required to not only pay regular income taxes on their earned income, but must also pay what’s called a “Self-Employment Tax.”
- Deciding whether to be your own business: Depending on how many hours per week that you drive for Uber, you may want to consider “incorporating” yourself as a business. Incorporating yourself can result in various tax benefits and decreased risk of liability. Depending on your circumstances, there are different business entities that may be appropriate (e.g., sole-proprietorship, single-member LLC, S-Corp). Consult with a Bay Area business attorney to see if this is a good option for you.
- Retirement accounts: As an independent contractor you are self-employed, and thus you may have options for a self-employed retirement account to consider.
- Appropriate insurance: Not all auto insurance policies covers rideshare activities, so be sure to shop around and find a policy that fits your business and personal needs.
Contact a Bay Area Corporate Law Attorney to Represent your Self-Employment Needs
At the Structure Law Group, we know and understand small businesses. Even if you are a self-employed Uber driver, you need to make good business decisions based on your status as an independent contractor. Call us at 408-441-7500 or contact us online for more information.