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Comment by misterbishop | Hacker News Reader

Discussing a rideshare worker's take-home pay as "profit" really accepts the framing of the company. Yes it's technically true that each driver is an independent contractor ("Small Business Owner"), but this designation is a farce without the ability to set pricing. The take-home pay isn't profit in practice, it's wages less unreimbursed expenses.

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Let’s say I’m a dry wall contractor. A general contractor comes along and offers me $20k for a job. I say “$25k?” and he says, “No, $20k.”

If I take the job I am not magically transformed into an employee of his, simply because I lacked the bargaining power to negotiate the rate.

The reason I am still a contractor is that I have absolute control over whether to agree to do that job at that price.

There are obviously lots of factors that are considered in the employee/contractor analysis. I just don’t feel that “ability to negotiate rate” is a particularly important one when “absolute ability to refuse fare” is in the picture.

I don't know about the U.S. but in Australia there are strict rules about 'sham contracting'. To be treated as an independent contractor you can't get more than 80% of your income from any one source. If you 'contract' to just one employer you're an employee for both tax purposes and protections.

If you drive both for Lyft and Uber your income structure may satisfy that criterion.

I'm curious -- how does this work with, for example, a professional Youtuber? Are they considered Youtube employees?

This is a great question and a pretty common misconception.

No, because the revenue test is one of the criteria the judge/IRS looks at. There are other criteria like where and how the "contractor" wants the job done and the relationship between the parties.

Youtube does not tell these Youtubers how to present their videos

Youtube does not tell these Youtubers how long their videos should be

Youtube does not tell these Youtubers when they should release the video

Youtube does not tell these Youtubers what target audience they should be making videos for

Youtube does not tell these Youtubers what income they will get per video made regardless of how popular the video is (surge pricing anyone?)

Uber does.

This is a good overview in the US legal landscape, though it's worth pointing out that the IRS and DOL have differing standards on what does or does not constitute and employment relationship. But I'm actually interested in the European legal landscape here, where contracting relationships generally require the contractor to acquire a certain percentage of their revenue from a separate source. If someone was earning their entire living on Youtube, it would seem to me that these EU laws would consider that person an employee of Youtube. That's obviously not something Youtube would appreciate, and I'm not sure if it's actually the case -- hence the question.

> If you 'contract' to just one employer you're an employee for both tax purposes and protections.

That's not the case in the US. Our laws bar the contractor from having set hours, a set place of work, and a myriad of other rules. So if a contractor comes in 9 to 5 and has his own desk, he'll be classified as an employee. Honestly, I would prefer a similar % rule, that seems simpler and I think would accomplish the intent far better than what we have now.

US law doesn't ban any of those things. Those are simply factors in determining whether a person is an employee or contractor, which in the US is not a bright-line test but is more of a circumstances-based finding. The US also employs the % rule as a factor in that determination.

The problem with the percent rule is that people could easily fall in and out of it. If we imagine someone who is an Uber driver but also works part time as an employee at another business, depending on how many hours they get in a given week as a part time employee they could go above or below the 80% figure. From Uber's standpoint you could also have two people who each drive for 10 hours a week earning the same pay, one of whom that is the only source of income, the other it's only 20% of their income.

Exactly -- and companies would not want to hire contractors because it's impossible for them to know if someone is going to be treated as an employee all of a sudden (say they hired them part-time but their other p/t gig ended). I don't know how Australia deals with this.

Except Uber & Lyft will punish you if you turn down too many jobs. That doesn't sound like absolute control.

And you never got the opportunity to try and negotiate with either company to start with.

A subcontractor who consistently turned down construction work would also be deprioritized by a general contractor.

Because Uber, Lyft, and others periodically offer different incentives in the market, I could make a case that by deciding to sign up on a specific day or respond to a specific offer, you had a chance to accept or decline the company's offer. There's nothing stopping you from reaching out to Uber or Lyft corporate and trying to negotiate your rate. I predict you won't succeed, anymore than the drywall contractor example upthread.

Devil's advocate: Maybe it's not each fare that's a job, but each driving session. Uber offering you a particular job is them giving you the "start driving" button, and you are free to not click it.

In the same way that I'm "free" to not go into work, I suppose. But that's ignoring the reality that one is forced to work in order to survive.

MMmmmh, but you do not lose your job as a dry wall contractor. You lose your “uber driver” job if you do not accept uber’s fares.

What am I missing?

“Uber Driver” isn’t a job (in the USA; some other countries disagree); you’re a contractor, and you’re free to find customers via other means (e.g. via Lyft, paying their margins, via word-of-mouth, via your own web site, etc.)

Yes, that may be hard or effectively impossible, but a bad dry wall contractor will not be able to hold his business afloat, either.

> you’re free to find customers via other means

Except you aren't. In many cities it is illegal to just start taking passengers for fees.

Either Uber runs a legal business, in which case I would expect others can start similar businesses, or they don’t, in which case this is like complaining that you can’t start a local mob legally after the one you worked for kicked you out.

Yes, that may be difficult, but Uber has shown it to be possible; ‘just’ find some investor with a few billion to spare, and you can do it, too.

Returning to the original argument: even if Uber drivers were employees, the argument “Uber can’t kick me out because I can’t get a job as an Uber driver elsewhere” doesn’t hold water, and replacing “Uber driver” by “driver” doesn’t change that.

Some argue that it's illegal in many cities to just start taking Uber passengers as well.

Devil's advocate: Taking the drywall job is akin to clicking the "start driving" button. Once you do either of those things (which you are entirely free to not do on a particular day with no penalty), at that point there is an agreement to try and not skip a wall here and there.

As someone who hasn’t driven for Uber, I’m not sure what that looks like. What are the conditions under which you would lose you “uber driver” job?

Under the condition where the driver demands a higher amount of money. Or even their fair share.

"Dry wall contractor" is a pretty generic job title. "Uber driver" is very specific including the "location" where the driver is working. To make the analogy fair you'd have to do have a "Dry wall contractor for Boeing" or similar.

Unless there are non-competes in place, the analogy is fine. You have the freedom to use the platform or to not use it, and often you have the freedom to use other platforms simultaneously.

Where in the Uber app can drivers even attempt to negotiate their rates with Uber?

From the driver’s perspective, is there any difference?

Yes: self-employment tax.

Can’t this be avoided by being taxed as an S-corp?

Not to any extent that is relevant for an Uber driver

No. An individual who is the sole director, sole shareholder, and provides all of the services in an S-Corp will have any distributions classified as compensation subject to payroll taxes. There is a lot of established law on this subject.

This is false. Any income in an S-corp that isn't paid via wages is not subject to FICA and Medicare, regardless of number of shareholders. That's a big reason why so many LLCs choose to classify themselves as S-corps. There are (or were, at least, before the latest tax bill) significant tax benefits to doing so.

It doesn't matter how many shareholders there are, since an S-corp is not a disregarded entity, like a single-member LLC.

From https://en.wikipedia.org/wiki/S_corporation#FICA:

> As is the case for any other corporation, the FICA tax is imposed only with respect to employee wages and not on distributive shares of shareholders. Although FICA tax is not owed on distributive shares, the IRS and equivalent state revenue agencies may recategorize distributions paid to shareholder-employees as wages if shareholder-employees are not paid a reasonable wage for the services they perform in their positions within the company.

If you have data to support the contrary, please post your sources.

I don't know why you're getting downvoted. The single member S-Corp is a very common setup for individual freelancers/consultants precisely for this reason. FICA taxes aren't paid on distributions.

To do this, the single member has to pay themselves a "reasonable salary", but there aren't strict guidelines on this. It's a gray area, and some people push it (and lose), but it's a very common setup.

You are technically correct, the problem being that the IRS does not define what a "reasonable wage" is.

However, the intention of the law is that true income is taxed as income and not as distributions. When one individual provides 100% of the services of a business, is not reinvesting profits or paying employees, and is the sole full-time worker, they should be treated as an employee and taxed accordingly. Many people abuse the vagueness of this but that doesn't mean the IRS will agree if you choose to pay your Uber earnings as distributions not subject to employment taxes.

You can read a summary of some of the established case law on this topic here: https://www.thetaxadviser.com/issues/2011/aug/nitti-aug2011....

Yes. It's not "profit" because they aren't paying themselves a wage for working. I own a business that I work at, so personal profit only counts after expenses, including at less minimum wage for hours worked.

Yeah, that's a really clear way of putting it.

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