Uber Hit With $650 Million Tax Bill After 'Misclassifying' Drivers

Trenton, NJ (WorkersCompensation.com) - The New Jersey Department of Labor and Workforce Development (NJDOL) alleges that the rideshare company Uber has been wrongfully classifying its drivers as independent contractors and is demanding that the company pay $649 million for years of unpaid employment taxes for its drivers. The department has sent letters to Uber’s subsidiary Raiser, saying it must pay $523 million in taxes that are past-due over the last four years, in addition to $119 million in interest and penalties on all monies owed.

“The Department employee conducting the audit requests to meet with the business and review its books and records for a single year,” a representative for the NJDOL told WorkersCompensation.com in response to our question about what generated the investigation. “If that review reveals any potential worker misclassification – that is, employees misclassified as independent contractors – the audit is expanded.” 

An audit that involved Raiser uncovered that $530 million in back taxes had not been paid for unemployment as well as disability insurance from 2014 to 2018, authorities said. 

These notices are the latest attack on the business models of rideshare companies that consider their workers to be self-employed entrepreneurs rather than employees. Opponents say such classification deprives their drivers of certain benefits, including workers’ compensation. Uber and Lyft are among the rideshare companies that have pledged $30 million to fight a new California law that is expected to make rideshare companies reclassify their workers as employees. The companies are also getting ready to fight a similar lobbying battle in New York, where lawmakers plan on considering legislation regarding gig workers in 2020.

“I expect we may see more of this,” said attorney Shannon Liss-Riordan, regarding New Jersey’s tax claim against Uber. Liss-Riordan has sued Uber on behalf of drivers in California and Massachusetts. “Uber and Lyft, by misclassifying drivers, are harming not only the drivers but also the states and the public at large. The money that they’re not paying into the unemployment and disability systems is being picked up by the states and the taxpayers.”

In a press release, New Jersey Labor Commissioner Robert Asaro-Angelo stated, “Additionally, employees who are wrongly classified as independent contractors in effect pay double FICA taxes because they pay both their own and the portion that their employer would have paid if they were properly classified. When independent contractors file for unemployment or disability insurance, their benefits are paid by taxpayers because their employer didn’t contribute. This defiance of the law puts honest business owners at an unfair disadvantage … For those who say properly enforcing our unemployment laws will stifle worker flexibility, let’s be clear: there is no reason temporary, or on-demand workers can’t be treated like other employees who work flexible hours for short durations.”

Back in 2015, the New Jersey agency had informed Uber that it had acquired a court order judgment ordering that the rideshare company pay around $54 million in unemployment and temporary disability insurance contributions that were overdue. It’s still unclear if Uber has paid that or not. 

“The New Jersey Department of Labor and Workforce Development is cracking down on employee misclassification because it stifles our workforce and inflicts a huge financial toll on our economy,” Commissioner Asaro-Angelo said.

Labor groups have praised the NJDOL’s action. “It’s a stinging rebuke of the architects of the gig economy, and we hope it permeates across other sectors,” stated Bhairavi Desai, the executive director of the New York Taxi Workers Alliance, in a statement. “New Jersey is sending a message that the state’s labor laws aren’t dictated by corporations.”

In a statement to WorkersCompensation.com about the alleged violation, Uber’s Senior Communications & Policy Manager Alix Anfang said, “We are challenging this preliminary but incorrect determination because drivers are independent contractors in New Jersey and elsewhere.”

Anfang further told us: 

"These numbers are outrageously high and clearly overestimate our activity in the state by many multiples:

• Assuming a 4% UI on payroll and 25% Uber commission:
•      o 650 million - 119 million interest - 200k in penalties = 530,800,000
• ·  $531 million assumes a total gross bookings in NJ through 2018 to be $18 billion

"This is extremely early in a multi-year process"

It will likely take several years to sort out the situation. 

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