Uber and Lyft are jointly spending nearly $ 100 million on a November election initiative in California to overturn a state law that would force them to classify drivers as employees.
However, according to an analysis by Reuters, that amount appears to be less than the possible costs of complying with the existing law.
The two taxi companies would each have to pay more than $ 392 million in annual payroll taxes and employee compensation costs, even if they drastically cut the number of drivers on their platforms, a Reuters calculation found.
Based on a recently published study of driver payments from Cornell University in Seattle, Reuters calculated that each full-time driver would cost the company an additional $ 7,700 on average. That includes about $ 4,560 in annual employer-based California and federal payroll taxes and about $ 3,140 in annual employee compensation insurance, which is mandatory in California.
The companies say they would have to raise prices significantly to offset at least some of those extra costs, which in turn would likely cause a decline in consumer demand but absorb the blow of the extra cost to the bottom line.
Uber and Lyft have also said they can exit the California market – an economy that would rank fifth in the world if the state were a sovereign nation. Other US states have said they plan to follow California’s lead and pass similar laws.
A “yes” vote on California’s Proposition 22 gives Uber and Lyft what they are looking for, which is to quash the state handyman law known as AB5, which went into effect in January. Uber and Lyft have insisted that the law should not apply to them, leading to a legal battle.
The struggle over employee classification highlights the political and business risks facing Uber, Lyft, DoorDash and a host of other companies that have built companies on employees who are not classified as employees who qualify for health insurance, unemployment insurance or other benefits.
Under the company-sponsored voting measure, gig workers would receive a number of benefits, including minimum wage, health care grants and accident insurance, but remain independent contractors who are not entitled to more substantial employee benefits.
The question of whether so-called gig workers should be treated as employees has become a national issue in American politics.
US Democratic presidential candidate Joe Biden and his running mate, Senator Kamala Harris, have both expressed strong support for California’s labor law, and directly called on voters to reject the companies’ ballot bill that would weaken it.
US President Donald Trump’s campaign didn’t weigh directly on the ballot, but the government’s Department of Labor published proposed rules in September that would standardize legal definitions across the country and give companies more leeway to retain independent contractors. United States Secretary of Labor Eugene Scalia criticized AB5 in an opinion piece published Sept. 22.
California represents 9% – or about $ 1.63 billion in all of 2019 – of Uber’s global rides and gross food delivery bookings. However, California generates a negligible amount of adjusted income before interest, taxes, depreciation and amortization, Uber said in November.
Lyft, which operates only in the United States and does not have a food delivery business, said in August that California makes up about 16% of the company’s total rides. Lyft does not break revenue from rides, but California contributed $ 576 million as a share of its total revenue for 2019.
California sued Uber and Lyft in May for failing to comply with AB5. The taxi companies said their employees 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 less than 25 hours a week. Many drivers use the service to supplement income from other jobs.
While there are no legal requirements that would prevent the companies from classifying part-time drivers as employees, Uber said the fixed administrative costs per employee would make it more expensive to allow part-time work. Uber said it would therefore be forced to cut the number of drivers in California by 76% to 51,000 full-time drivers.
Uber also said it could cut cash wages to offset higher benefit costs, lowering the potential tax burden.
Lyft executives in lawsuits have said the company should “significantly reduce” the number of drivers in California to a smaller number of drivers, but has not provided a figure. The company did not respond to detailed requests for comment.