[If Uber and Lyft had treated workers as employees, the two TNCs
would have paid $413 million into the state’s Unemployment Insurance
Fund between 2014 and 2019. ] [[link removed]]

WHAT WOULD UBER AND LYFT OWE TO THE CA STATE UNEMPLOYMENT INSURANCE
FUND?  
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Ken Jacobs and Michael Reich
May 7, 2020
UC Berkely Labor Center
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_ If Uber and Lyft had treated workers as employees, the two TNCs
would have paid $413 million into the state’s Unemployment Insurance
Fund between 2014 and 2019. _

, bytemarks (CC BY 2.0)

 

All employers must pay an Unemployment Insurance tax for each of their
workers. In California, the tax rate for new employers is 3.4 percent
of pay, up to the taxable wage limit of $7,000 a year per employee.
But since their beginnings over a decade ago, the transportation
network companies (TNCs) Uber and Lyft have not paid into
California’s Unemployment Insurance (UI) Fund. Both TNCs have held
that their drivers are independent contractors, not employees.

The state has long contested this practice. Since 2015, the California
Employment Development Department has found drivers to be employees
entitled to unemployment benefits on multiple occasions.[1]
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And AB5, which was enacted in 2019, tightened the rules for
classifying workers as independent contractors under the state’s UI
code. Nevertheless, the companies continue to treat their drivers as
independent contractors.[2]
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In this data brief, we estimate how much Uber and Lyft would have
contributed to the state’s Unemployment Insurance Fund between 2014
and 2019, had the companies classified the drivers as employees. OUR
FINDING: IF UBER AND LYFT HAD TREATED WORKERS AS EMPLOYEES, THE TWO
TNCS WOULD HAVE PAID $413 MILLION INTO THE STATE’S UNEMPLOYMENT
INSURANCE FUND BETWEEN 2014 AND 2019.

To obtain this result, we draw from a number of available datasets to
estimate how many workers have driven for each TNC each year, and how
many were paid less or more than the $7,000 taxable wage limit. We
then apply the 3.4 percent tax rate to each group.

According to company-provided data obtained by the California Air
Resources Board, 640,000 distinct workers drove for the two TNCs in
2018.[3]
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Since UI payments are owed by each company a worker drives for, we
adjust the number of drivers to separately count those working for
both companies. An analysis by JP Morgan Chase found that 20 percent
of online transportation platform drivers worked for more than one
platform in any single month.[4]
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Adjusting for these “multi-app” drivers, we obtain a total of
768,000 drivers for whom TNCs would have owed UI taxes in 2018.[5]
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Based on a variety of data sources (see the Technical Appendix), we
estimate that 571,000 of these drivers (74 percent) earned less than
$7,000 a year, a result of low pay as well as limited time working.[6]
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According to data on rideshare driver earnings reported to the IRS,
the earnings of those earning under $7,000 are evenly distributed up
to $7,000. [7]
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In that case, such drivers’ earnings averaged $3,500 a year. The
remaining 197,000 drivers earned more than $7,000.

The drivers’ 2018 aggregate taxable base earnings totaled $3.38
billion and the associated UI payments would have totaled $114.8
million.

The TNCs grew rapidly between 2014 and 2018, followed by slower growth
in in 2019. Since data on TNC growth in California are not available,
we simulate California’s TNC growth trajectory over these years by
using data on King County, Washington. We can then obtain the number
of drivers who worked in each preceding year and produce a five-year
estimate of missed UI taxes.[8]
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We estimate that if the drivers were treated as employees, the
companies would have been required to pay $413 million into the
California UI fund over the five-year period from 2014 to 2019.

New Jersey, which has a much higher UI taxable wage base[9]
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and higher tax rate, recently fined Uber for $530 million in unpaid UI
taxes between 2014 and 2018, and $119 million in missed interest
payments.[10]
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Uber and Lyft drivers have lost more than 80 percent of their income
as a result of the COVID-19 crisis.[11]
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the moment, under the CARES Act, independent
contractors qualify for unemployment benefits under the new
Pandemic Unemployment Assistance program (PUA). Employees (those
with W-2 earnings) generally qualify for regular UI and cannot
also access PUA, even if they have independent contractor
income. About 76 percent of Californians with online earnings also
have other W-2 income (Collins et al. 2019). These
drivers will receive higher benefits if their TNC
earnings are treated as employment income.

Read the report online
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***
_Ken Jacobs is the Chair of the UC Berkeley Labor Center. Michael
Reich is a Professor of The Graduate School, University of California,
Berkeley and Co-Chair, Center on Wage and Employment Dynamics. He is a
co-author of the report that led to a driver pay standard in New York
City._

_The Labor Center and the Center for Wage and Employment Dynamics
(CWED) are both projects of the Institute for Research on Labor and
Employment (IRLE) at UC Berkeley. IRLE connects world-class research
with policy to improve workers’ lives, communities, and society._

_We thank Donna Mandel, Dmitri Koustas and Jesse Rothstein for their
excellent assistance._

Technical Appendix

To estimate the amount the two TNCs would have paid in UI, we need to
know how many workers earned more or less than the UI base threshold
of $7,000. To do so, we using existing data to estimate the
distribution of hours worked over the course of the year and average
earnings per hour.

To estimate the distribution of hours worked over the course of the
year and average earnings we use data from Uber’s Chief Economist
Jonathan Hall and former Department of Labor Chief Economist Alan
Krueger on drivers’ weekly work hours. Hall and Krueger (2016)
provide earnings and the distribution of weekly hours worked for San
Francisco and Los Angeles Counties, using four weekly hours bins:
1-15, 16-34, 35-49 and 50+.[12]
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We obtained the number of months drivers worked in a year from JP
Morgan Chase (2018).

The transportation consulting company Fehr and Peers (2019) and the
California Air Resources Board (2019) provide the number of 2018 TNC
vehicle miles traveled in the San Francisco and Los Angeles metro
areas. [13]
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These two metros account for nearly 80 percent of TNC vehicle miles in
the state. We then compute weighted averages of the two metro area’s
distribution of hours and drivers’ hourly earnings.  The result is
an estimated average hourly earnings of $18.85 in 2015.

We conservatively assume that nominal hourly earnings remained
constant from 2015 to 2019.

Our final dataset, on the distribution of months worked in a year,
comes from the Farrell, Grieg and Houmudi (2018) analysis of JP Morgan
Chase data. Using national data from Chase credit card accounts, these
authors find that 58 percent of the drivers worked 1-3 months for
TNCs, 19.2 percent worked 4-6 months, 10 percent worked 7 to 9 months,
and 12.5 percent worked 10-12 months.

We can then create the distribution of workers among 16 hours per
week-months per year cells. Using the midpoint of the month and hours
ranges in each cell, we estimate the average hours worked and average
hourly earnings in the year for each of the cells.[14]
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Finally, we calculate the share of drivers in cells where the average
hours worked results in earnings below $7,000.

To corroborate our findings, we also examined results of an analysis
of platform workers (mainly rideshare drivers) based on national IRS
data reported on 1099 forms available in Collins, Garin, Jackson,
Koustas and Payne (2019). Applying their results to California, we
find that the national IRS data imply the owed amount of UI payments
lies within 1.3 percent of our estimate above.

Endnotes

[1]
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Pamela A. Izvanariu, Matters Settled But Not Resolved: Worker
Misclassification in the Rideshare Sector, 66 DePaul L. Rev. (2017)
Available at: [link removed]
[[link removed]]

[2]
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Carolyn Said. Judge: California Lyft drivers should be employees. San
Francisco Chronicle. April 8, 2020. Available at:
[link removed]
[[link removed]]

[3]
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California Air Resources Board. SB 1014 Clean Miles Standard 2018
Base-year Emissions Inventory Report. December 2019.
[link removed]
[[link removed]]

[4]
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Diana Farrell, Fiona Greig, and Amar Hamoudi. The Online Platform
Economy in 2018. JPMorgan Chase & Co. Institute. September 2018.
[link removed]
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[5]
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This is likely an undercount, since a driver may be unduplicated in a
single month, but work for more than one company over the course of a
year.

[6]
[[link removed]]The
distribution of annual hours driven by all drivers would be much more
concentrated among full-time drivers.

[7]
[[link removed]]
Brett Collins, Andrew Garin, Emilie Jackson, Dmitri Koustas and Mark
Paynek. Is Gig Work Replacing Traditional Employment? Evidence from
Two Decades of Tax Returns. IRS SOI Joint Statistical Research
Program, 2019. We used other results in this report to estimate the
proportion of drivers with earnings under $7,000. The results were
extremely close to our findings using other data. See our Technical
Appendix.

[8]
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James Parrott and Michael Reich, 2020. “A Minimum Compensation
Standard for Seattle’s TNC Drivers.” Report prepared for the City
of Seattle, forthcoming.

[9]
[[link removed]]State
of New Jersey, Department of Labor and Workforce Development, 2020.
NJDOL Announces Increases in Maximum Benefit Rates & Taxable Wage
Base.
[link removed]
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[10]
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Matthew Haag and Patrick McGeehan. Uber Fined $649 Million for Saying
Drivers Aren’t Employees. _New York Times_. Nov. 14, 2019.
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[11]
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Noam Scheiber. Jobless Claims by Uber and Lyft Drivers Revive Fight
Over Labor Status. _New York Times._ April 7, 2020.
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[12]
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Jonathan V. Hall and Alan B. Krueger. An Analysis of The Labor Market
For Uber’s Driver-Partners In The United States. NBER Working Paper
Series. November 2016. Working Paper 22843
[link removed] [[link removed]].

[13]
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Fehr & Peers. Estimated TNC Share of VMT in Six U.S. Metropolitan
Regions (Revision 1). Memorandum to Brian McGuigan, Lyft and Chris
Pangililnan, Uber. August 6, 2019. August 6, 2019.
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[14]
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For the closed intervals we use the mid-point, with the exception of
drivers working in one to three months, which will include a
disproportionate share of short term drivers. Rather than using the
mid-point we calibrate the number so that the average hours worked per
driver matches our estimates from the CARB data. For the open interval
(50+) we use 50 which gives us a conservative estimate. If we use 55,
the numbers would be somewhat higher.

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