Uber: Employee or Contract Laborer

It seem like someone has it out for Uber. The company has made the news yet again! I am sure you all have recently heard about the Uber contract labor verses employee controversy. A ruling by California’s Labor Commission says that an Uber driver IS an employee and not a contract laborer.

The California’s Labor Commission stance was that Uber is “involved in every aspect of operation,” from critically examining potential drivers and their vehicles before hiring to setting the rates for trip fares. The Commission continued to state, ” Uber controls the tools drivers use, monitors their approval ratings and terminates their access to the system if their ratings fall below 4.6 stars.

Why does it even matter? This issue spans from medical malpractice disputes to payroll tax, workers compensation,  unemployment matters to list a few. From a tax standpoint, a business must withhold and pay payroll taxes on an employee but not a contract laborer. If this sticks, Uber could find itself in quite the tax dilemma.

Is California’s Labor Commission right or wrong? Uber has since appealed.

All states can be different, but what does the Internal Revenue Service say? Regarding whether one is considered an employee or contract laborer, the IRS asks the following:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (i.e. how the worker is paid whether the expenses are reimbursed, who provides tools/supplies)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.) Will the relationship continue and is the work performed a key aspect of the business?

The IRS continues to say, “Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.”

It will be interesting to see how this one plays out. Whether you agree or disagree with the latest California ruling on Uber drivers, it is very important as a business owner that you know when someone is considered either an employee or a contact laborer. If you have any questions on this, feel free to contact us.