A rough model built by Re/code with the help of ZenPayroll estimates that Uber could end up paying an added $208.7 million a year if it has to reclassify its California drivers.
It breaks down to about $89.1 million for payroll taxes for 45,000 drivers working 20 hours a week in the state, and roughly $119.6 million per year in workers’ compensation insurance. Altogether, it’s $4,637 per employee in California.
Uber's business model, not to mention the company's 50 billion valuation, is firmly rooted in the assumption that drivers for the company are not its employees, but instead contractors that Uber — a technology company — connects to customers with its app. Maybe that's so — and Uber claims that's what drivers like about it and have come to expect. But after a California Labor Commission ruling last month, Uber drivers are ever closer to being called employees. Even more recently, in a case involving liability and a driver for Yellow Cab an SF jury found Yellow Cab drivers, previously classified as contractors, were in fact employees.
Uber is likely to fight reclassification state by state unless a group steps up with a class action suit. Therefore these kinds of costs could be incurred one at a time and slowly. Here in California, which might be home to Uber's largest driver base, not only would classifying Uber drivers as employees end up costing the company and questioning its entire business model. Uber would also have to pay penalties for having mis-classied them as contractors for so long.
If Uber does have to reclassify, it wouldn’t just be hit by additional taxes — it could suffer major penalties for all the drivers it had mis-classified up until now. FedEx, perhaps the closest parallel, had to pay a $228 million settlement when it lost a class action suit about the way it classified its California drivers.
Related: Now Uber Wants To Track Your Location Even When App Is Not Running