Uber and Lyft collectively are spending nearly $100 million on a November California ballot initiative to overturn a state law that would compel them to classify drivers as workers.
That amount looks less spacious, however, than the possible costs of complying with the present law, according to a Reuters investigation.
The two ride-hailing businesses would each face more than $392 million in annual payroll taxes and workers’ compensation costs even if they drastically cut the number of drivers on their platforms, a calculation by our partner news agency Reuters showed.
Using a recently published Cornell University driver pay study in Seattle as a basis, journalists calculated that each full-time driver would cost the company, on average, an additional $7,700. That includes roughly $4,560 in annual employer-based California and federal payroll taxes and some $3,140 in annual workers’ compensation insurance, that is mandated in California.
The companies say they would have to significantly hike prices to offset at least a few of those additional expenses, which then would probably bring about a decrease in consumer demand, but cushion the blow off the additional costs to the bottom line.
Uber and Lyft have also said they could abandon the California economy – a market that could rank fifth in the world if the country were a sovereign nation. Other American states have said they intend to follow California’s lead and pass similar legislation.
A “yes” vote on California’s Proposition 22 gives Uber and Lyft exactly what they search, which will be to overturn the nation’s gig-worker law, known as AB5, that took effect in January. Uber and Lyft have insisted the law does not apply to them, sparking a legal conflict.
The tussle over classification of workers highlights the political and business risks facing Uber, Lyft, DoorDash along with other businesses that have built businesses on employees that aren’t classified as employees eligible for health care, unemployment insurance or other benefits.
Under the company-sponsored ballot measure, so-called gig workers would receive some benefits, such as minimal cover, healthcare subsidies and injury insurance, but stay independent contractors not entitled to more substantial employee benefits.
The question of whether gig workers ought to be treated as employees has become a federal issue in US politics.
US Democratic presidential candidate Joe Biden and his running mate, Senator Kamala Harris, have voiced their strong support for California’s labour law and immediately called on Republicans to reject the companies’ ballot proposal that would weaken it.
US Labour Secretary Eugene Scalia criticized AB5 in an opinion piece published on September the 22nd.
California represents 9% – or roughly $1.63 billion in all of 2019 – of Uber’s global rides and food delivery gross bookings.
Lyft, which currently operates only in the US and Canada and does not have a food delivery business, in August said California makes up some 16% of the company’s total rides. Lyft does not break out ride-hailing revenue, but California contributed $576 million as a share of total 2019 revenue.
California sued Uber and Lyft in May for not complying with AB5. The ride-hailing companies said their workers are properly classified as independent contractors, because they can set their own schedules.
The companies say the majority of their drivers do not want to be employees, and work fewer than 25 hours a week. Many drivers use the service to supplement income from other jobs.
While no legal requirements would prevent the companies from classifying part-time drivers as employees, Uber said administrative fixed costs per employee would make it more expensive to allow part-time employment. Uber said it would therefore be forced to reduce its California driver base by 76% to 51,000 full-time driver employees.
Uber also said it could reduce cash wages to offset higher benefit costs, thereby lowering the potential tax burden.
Lyft executives in court filings have said the company would have to “substantially reduce” its California driver base to a smaller quantity of motorist employees, but has not provided a figure. The organization did not respond to detailed requests for comment.
The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Tina Bellon in New York. Editing by Joe White and Matthew Lewis.
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