In the United States alone, Uber has over 600,000 drivers, some of whom over the course of the last two years have been entangled in numerous lawsuits surrounding their rights as workers. It’s a growing problem as the gig economy continues to grow and flourish. Workers in a number of gig-related arenas—from freelance work to moonlighting jobs—have begun questioning their status as independent contractors with the companies that pay them.
The discussion may have sparked to life when the government began aggressively pursuing the Affordable Care Act’s (ACA) employer mandate—where applicable large employers with 50 or more full-time and full-time equivalent employees were required to offer healthcare coverage to at least 95% of their full-time employees.
Spurred by an initial lawsuit in California, a domino effect followed, as state-by-state new cases surfaced in which Uber drivers challenged the mobile app giant on their rights as workers. This not only included healthcare, but also expenses and rest times. In July, a federal court in North Carolina issued a conditional certification to a class action lawsuit filed by Uber drivers. This recent ruling may allow those bringing the lawsuit against Uber to contact the 18,000 drivers who opted out of arbitration to settle their issues with Uber. If these drivers are ultimately classified as employees, Uber has a problem, particularly when it comes to the ACA.
If these drivers are found to be employees, Uber most likely would need to pay penalties to the IRS for every driver who worked the requisite hours to become eligible for healthcare coverage in 2015 and 2016 but were not offered coverage by Uber, as mandated by the ACA. Going forward, those newly deemed full-time employees would need to be offered healthcare, adding another expense for Uber.
Of course, the ACA is not the only issue for Uber. A decision that Uber drivers are employees would affect 401(k) packages, expenses accrued while on the job, and vacation time. Another big payout for the IRS? Payroll taxes. Uber would possibly be responsible post-classification to pay the previous taxes the company didn’t withhold this whole time, not including “employee” contributions, penalties, and interest.
The issue of Uber and misclassification of workers has significant ramifications for all businesses who utilize independent contractors. Many companies that have classified workers as independent contractors will have issues if that classification is called into question by the IRS, the U.S. Department of Labor or state compensation boards. “With several employees over several years, this can quickly become a nightmare,” said Edgar Gee, a Knoxville, Tenn.-based CPA who specializes in employee classification issues in a recent article in the topic in Accounting Today.
With 21.1 million Americans classified as independent contractors, per a study from the Freelancers Union, there are millions of workers who are positioned to challenge the businesses for which they work in the way that Uber has been challenged by its drivers. It’s time employers carefully reexamined how they classify every worker within their organization. The IRS has specific guidelines to help business owners determine whether a worker is an employee or an independent contractor. You can find that information at this link.
What was once an issue that was perceived to be easy to duck can no longer be avoided. Just ask Uber.
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