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Comment by tyingq | Hacker News Reader

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.

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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.

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