Uber and Lyft Owe California $413 Million in Unemployment Insurance Taxes, Study Says

It’s a “massive burden shift from multi-billion dollar gig companies to taxpayers and workers.”
May 7, 2020, 1:29pm
A new report from the UC Berkeley Labor Center finds that Uber and Lyft avoided paying California $413 million in state unemployment insurance (SUI) taxes by misclassifying drivers as independent contractors from 2014 to 2019.  As far back as September 20
Image: Pexels

A new report from the UC Berkeley Labor Center finds that Uber and Lyft avoided paying California $413 million in state unemployment insurance (SUI) taxes by misclassifying drivers as independent contractors from 2014 to 2019.

As far back as September 2015, California has ruled in favor of individual Uber drivers being reclassified as employees and thus entitled to unemployment benefits. With the arrival of AB5, a state law that requires companies to reclassify workers as employees, not contractors, if they exert significant control over workers, the business model championed by Uber and Lyft has faced a flood of legal challenges culminating in a landmark lawsuit by the state of California.

“This new report underscores the massive burden shift from multi-billion dollar gig companies to taxpayers and workers,” said California Labor Federation executive secretary-treasurer Art Pulaski. “Drivers are struggling to pay rent and keep food on the table while Uber and Lyft fleece taxpayers to the tune of a half-billion dollars. We demand these companies immediately begin paying their fair share for unemployment insurance and other social safety net programs we all rely upon.”

To arrive at their figure, researchers had to first figure out how many drivers were in the state (upwards of 768,000 in 2018). All employers are required to pay an Unemployment Insurance tax for each worker—in California, the tax rate is 3.4 percent of pay, up to a taxable wage limit of $7,000 a year. To calculate the figure owed, the researchers had to figure out how many drivers were paid less or more than the $7,000 taxable wage limit, then apply the tax rate to each group’s aggregate base earnings.

It’s worth noting that California is tied with four other states for the lowest taxable wage base for employer SUI contributions. Not only is $7,000 is the lowest allowed by federal law, but California has had the same base since 1983—it stands to reason that an updated SUI law would cost the two ride-hail companies additional hundreds of millions of dollars. In New Jersey, a new employer tax rate of 2.8 percent of pay and a taxable wage base of $35,300 is why the state fined Uber alone almost $650 million in unpaid UI taxes from 2014 to 2018 and missed interest payments.

Such fights threaten to snowball into increasingly expensive lawsuits and settlements over other areas of the misclassification scam. Consider that in California, just 2,000 Uber and Lyft drivers filed wage claims in excess of $630 million—Uber and Lyft claim they have at least 200,000 and 325,00 drivers in California, respectively.

To reach the study's findings, the researchers relied on pre-existing datasets not provided by Uber and Lyft because they, along with other employers that rely on misclassification, refuse to report the wage data of their driver employees to not just California, but every state. This is intended to undermine the legal argument that their drivers are employees, but it actually endangers those workers by preventing them from claiming unemployment benefits and denying them adequate financial assistance to make ends meet. In New York, Uber and Lyft have blocked drivers from collecting unemployment pay, a practice that has not stopped despite the ongoing pandemic that has wiped out most drivers’ ability to make ends meet.

“The companies have argued historically that because of the nature of the business—’anyone can drive when they want’—that workers don’t need access to unemployment insurance. This crisis has made it very clear that, in fact, they do,” Ken Jacobs, a UC Berkeley Labor Center researcher who co-authored this study, told Motherboard “We have federal pandemic unemployment assistance, which does apply for independent contractors, but very few rideshare drivers will qualify for that assistance. If you qualify for regular unemployment, you cannot get the pandemic unemployment insurance—76 percent of labor platform workers have other W-2 work. That means for most drivers, their driving income won’t count towards their unemployment and they will get much lower unemployment benefits if they continue to be considered independent contractors.”

One survey of 1,087 ride-hail drivers, done by the Mobile Workers Alliance and We Drive Progress, found that 49 percent of respondents had applied for unemployment insurance in California yet were still facing roadblocks, largely because Uber and Lyft refuse to report drivers' income or pay into the SUI fund. Another survey by Jobs with Justice and UC Santa Cruz reached 643 app-based drivers and found that 56 percent of respondents lost more than 75 percent of their income during the pandemic—28 percent of respondents said they were still "accepting jobs despite fears of the virus because they needed the income."

"Our research shows that, for most, this is not ‘gig’ work but full-time work. And many are supporting children and other adults," said Jobs With Justice's Research Director Erin Johansson. "Now, these same workers report losing 75-100% of their income because of COVID-19 — and apps like Uber and Lyft are doing little-to-nothing to help them because refuse to classify their workers as employees."

Mekela Edwards, a former teacher, and current Uber driver told Motherboard she is no longer able to cover expenses. Edwards self-isolated because of the risk her chronic asthma condition put her in. Despite a doctor's note telling her to self-isolate, her application for Uber’s sick paid leave went unanswered, she said. Her application for state unemployment insurance was approved for $0—this has been the case for many drivers because, again, Uber and Lyft refuse to report the income of their driver employees in California. Pandemic unemployment assistance has provided some relief for her, but it's not enough to survive.

“I’m holding on to my last $40. Uber has sent me messages urging me to drive, to stay safe driving, but no actual assistance,” Edwards told Motherboard. “They go out of their way to provide information for applying to unemployment, but won’t stop misclassifying me and other workers. They’ve spent millions on fighting AB5, but what have they done to protect their drivers? They do 20 little things to ignore the law instead of one simple thing: following the law. And if they cared about the drivers, they’d follow the law—but only public pressure and lawmakers have gotten Uber to respond in California.”

Public pressure and Californian lawmakers and leveling a fundamental challenge to the exploitative misclassification business models of Uber and Lyft. It’s clear that these proposed changes would radically improve the lives of those currently struggling to survive, but they would also radically alter how these same companies operate.

“Under the independent contractor model where all the risk is borne by the drivers, they want to maximize the number of drivers out there to minimize wait time for individuals. It’s estimated that over thirty percent of drivers’ time is spent just waiting for the next ride,” Jacobs said. "That reduces drivers’ income, increases greenhouse gas emissions, and clogs the city streets. In a model where they are liable for all that time, they have a strong incentive to increase utilization and maximize the time a passenger is in the car.”

In a statement, Lyft said: "This ignores basic economics in an effort to achieve a predetermined conclusion that serves a political agenda, and its assumptions are wildly off. For starters, in this hypothetical reality, everyone who has chosen to drive for Lyft would have been hired by Lyft as an employee. As we’ve repeatedly said, that wouldn’t happen in the real world—instead, many, many Californians would lose the opportunity to earn by driving with Lyft."

Uber, for its part, said "today our laws present a forced choice between flexibility and protection. We believe our laws should protect all workers, not just one type of work—and rather than restricting independent work, we should strengthen the protections and benefits afforded to it."

"That’s why we called on the Administration and Congress to pass historic new protections for independent workers, and why we continue to advocate for updated laws that permit companies like ours to provide new benefits,” it continued.

This article originally appeared on VICE US.