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Uber and Lyft get out of more than just paying benefits by classifying their workers as independent contractors. They also avoid paying their portion of the payroll taxes, liability for workman's comp, protective laws (minimum wage, unemployment coverage, for example).

Edit: For those downvoting...you really think these exact things weren't discussed when Uber & Lyft were deciding how they would comp drivers? Heh.

Portion of payroll taxes is ~7.5%, plus an extra 2.5-10% for workers comp/etc depending on your rates.

If they had to reclass as employees, they would just raise prices to end consumer 10-20% to compensate (or fund it via other's money like they're doing now to price out rest of market).

They'd also put a cap on hours per week so drivers couldn't drive more than 30 hours per week. Companies aren't legally required to give benefits to part-time workers (up to 30 hours).

The big draw of independent contractors is that you've just converted labor from a fixed cost to a variable cost. There are tons of Uber/Lyft drivers (namely, anyone not doing it full-time, which is the majority of drivers) who prefer this since they can drive as much or as little as they want.

> If they had to reclass as employees, they would just raise prices to end consumer 10-20% to compensate (or fund it via other's money like they're doing now to price out rest of market).

I think saying that they would "just" raise prices 10-20% is trivializing the problem. One of the reasons that Uber took off was because it was so much cheaper than regular taxis. Would Uber look the same now if it had had 20% higher prices from the beginning? Almost surely not.

I take Uber almost daily from the train to my office because it's about 30% cheaper than a cab. If it wasn't I'd just grab a cab at the cab line. It's so much easier.

Of course if uber has to raise rates because their employee costs go up, you'd have to expect cab companies to do the same because all their employees aren't getting benefits either.

They are, however, paying their portion of the payroll taxes, disability, unemployment, etc. And perhaps softer benefits that still have costs, like paid time off.

I am nearly certain that's not true in the majority of circumstances. Cab drivers are generally self employed and issued 1099s not W2s.

You're correct - taxi drivers have been suing for decades to get employee status. You don't hear about it because Uber is the first major national player that everyone recognizes.

I think what happens in the media is small outfit bias.

Über is big, so what they do must be judged in that light, yellow cab is small, so they get a pass even though they engage in similar practices.

I listen to NPR and they had a bit about über and them being "unfair" to drivers, but never was that compared to how drivers are treated at yellow cab for example. So, because they are big they are looked at more suspiciously, plus they are "tech" so there must be a bad angle there somewhere. People have a thing for underdogs, I do too, but not so much in this case because cabs can often be worse for the drivers, at this time. No telling in the future when automation takes over. The point will be irrelevant then.

If their costs had been 20% higher, they still would have priced others out of the market by using VC money to subsidize (as they still do now). Technically their prices were higher than cabs, since they were only black cars for the first two years.

I personally never take cabs anymore even if they're cheaper, the Uber experience is 10x better IMO. The only time I'll consider it is when I use Flywheel on NYE to avoid surge pricing.

For payroll taxes they could also just pay 7.5% less and net take-home pay would be similar for drivers.

The real draw of independent contractors is the reduction in capital expenditures. They don't need to buy and service cars or pay for mileage. Paying for standby time is also probably prohibitively expensive.

>They also avoid paying their portion of the payroll taxes,

No, they don't. They might avoid being assessed the payroll tax, but the economic incidence (the reduction in purchasing power after prices have adjusted in light of the taxes) is, per a well known result, independent of who assess the tax on, and completely dependent on the shape of the supply/demand curves.[1]

"Making" employers "contribute" half of FICA is just a shell game. If (on normal employees) you made employers pay all of it, they would (likewise) just cut wages by the exact same amount, as everyone's after-tax income would remain the same and no one would have reason to deviate.

[1] https://en.wikipedia.org/wiki/Tax_incidence

>>The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.

> One thing I'd like to know is whether people doing lyft or über full time do on average better or worse than their yellowcab counterpart.

A good indicator is that most cab drivers (at least in SF) have switched over to Uber. The only ones who aren't doing Uber either (a) got low reviews on Uber and kicked off the platform or (b) have some odd loyalty to cab companies (e.g. maybe they're a part owner in a medallion).

Most taxi cab drivers are treated more poorly than Uber/Lyft drivers. They have to drive to a centralized location to pick up / drop off the car, don't have their own car to take care of, have to pay a per day fee that they don't always pay back if they don't get enough business, etc.

It's less than perfect. People could be migrating more because lyft and über are siphoning away fares. So they go where there is money, even if it's less than historically.

Which makes me want to clarify things. Are über lyft drivers better off than yellow cabs where these platforms have not yet disrupted? In other words, are they better off on über now or yellow cab historically? The answer, I suspect, will remain the same, but its far from cut and dried, I think.

This ultimately comes down to the debate between capitalism vs socialism - if people are still driving at lower rates, then we weren't at a market equilibrium. But should they have basic coverages?

I expect the ODE to become a huge topic for the 2016 election, since (at a high level) it's a manifestation of the Republican vs Democratic platforms.

I think it's more difficult to get to the truth.

This article seems credible: https://pando.com/2015/01/09/the-hidden-cost-of-being-an-ube...

But, what it shows as the "income after op cost" isn't the real truth. That figure ($12.62/hr in Chicago, $34.04/hr in NYC) would be basically 1099 income. You would have to pay self employment tax (not trivial), and forgo whatever benefits a cab company might provide their employees.

If you look for average salary for cab drivers, and compare to the above, you would gather that cab drivers do better than Uber drivers in Chicago, but worse in NYC.

I can't find any credible sources where it seems 100% clear that the comparison is thorough, and apples to apples.

I'm a former CPA and founder of Zen99, which built tax tools for independent contractors like Uber drivers. So this is my forte :)

You're right that it's not cut and dry, and can't be. There are too many specifics to take into account. For example, if you're a part time worker at Whole Foods, you don't get to write off your commute to and from work. But as an Uber driver, there are ways you can do this so you pay less in taxes, which can make your take home more than the WF worker. Neither of them get benefits bc part time employees don't have to be given benefits (note: not sure on what WF policies are, but that's a true statement for part time employees in general).

"These lawsuits expose a couple of things, one there needs to be more kinds of work classifications than employee and contractor."

Why?

Because it forces classifying workers as either employee or contractor when a case could be made for another classification of flex-employee. So, for example a good number of über drivers are part timers, which is fine, but if this becomes a normal aspect of the economy, we need to be able to make it automatic for this class of people to get some kind of benefits. Not as much as employees, and more than [$0] as in contractors who need to do their own taxes, benefits, healthcare, etc.

I guess I'm not seeing a reason for a third kind. It's pretty clear that drivers are employees. The only reason to introduce anything else would be because Uber/Lyft have lobbied to try and prevent full employee status. This "flex-employee" doesn't seem like something that needs to exist, and would only be used to justify not giving benefits.

Sometimes people just want some part time work and don't want to be tied in to one company --allowing them to choose different things on different days, seasons, etc.

Long term über and lyft etc won't need drivers, so it's more for the more high touch industries.

There are lots and lots of people that have 2 concurrent part time jobs, right now. Not trying to be coy, just trying to understand why we need a new classification.

So they're employees, just part time. Problem solved, without needing yet another classification that will end up doing nothing for workers.

Solved with traditional pt jobs, not so much when you join at will. I may work today but because exams, vacation, etc, might not get back in till weeks from now. Maybe I want to just try out a job.

Thjs kind of dipping in and out does not work for a restaurant whose work demand is inelastic. It works for the übers because its elastic. One gal or guy not coming in doesn't cause mayhem in the shift. Surge pricing also helps. You're not going to tolerate surge pricing at restaurants, for example.

So the work demand is different, it's much more flexible and you need a classification which allows for dabblers, people who might work for five or ten different outfits one week, none the next and one the third.