“It’s a hot topic,” says Derek Sells, chairman at The Cochran Firm.
In July 2015, New York City Mayor Bill de Blasio dropped his plan to place a cap on the number of vehicles Uber and Lyft drivers would be allowed to operate within the city. The following January, his office released a study that found that “electronic dispatch services,” or ridesharing companies, did not have a significant impact on New York City’s congestion.
However, those considering driving for Uber, Lyft or other ridesharing services need to be cautious before getting behind the wheel. For one, says Sells, they need to treat the job like it’s their own private business with auto insurance. Currently, most rideshare drivers are treated as independent contractors, meaning that, come tax season, they’ll receive a 1099 form in the mail.
Potential drivers “need to realize that they’re responsible for getting their own tax ID numbers, and also paying taxes on the revenue that they bring in,” Sells says. “Before they even begin driving, they should get some advice on how to set up their own company. They need to understand there’s a risk due to their insurance coverage, because their driving is a risk—they get into an accident and personal injury occurs, they could be sued. So they need to plan for a worst-case scenario.”
As part of this prep, Sells suggests tracking on-the-job miles so that drivers can take deductions for the depreciation of their vehicles. “That’s why it’s important to track the number of miles that you use it for rideshare purposes,” he says. “If you use it 10 percent of the time for rideshare, you’re going to want to be able to write off 10 percent of the cost of the vehicle.”
He adds: “A lot of these rideshare companies require that a certain type of vehicle be obtained in order to qualify to drive. They want cars that are decent. And so, you want to be able to deduct the depreciation that’s going to happen. Third-party liability insurance is required by state law, and that insurance is also a business expense.”
Brett R. Gallaway
, an employment and labor attorney at McLaughlin & Stern, says the ridesharing companies classify drivers as independent contractors in an effort to avoid the Fair Labor Standards Act.
Under the act, all employees must be paid time-and-a-half for hours worked in excess of 40 per week, and be paid at least the federal minimum wage, which is $7.25 per hour; in New York, the minimum is $9. Section 213B, also known as “the motor carrier exemption,” applies to employees who operate vehicles to pick up and drop off individuals. Says Gallaway: “Taxi cab employees are not to be paid overtime—they are exempt.”
“Of course, Uber wants to classify them as independent contractors, because anybody that is classified as an independent contractor doesn’t fall under any of the prerequisites of the FLSA or overtime regulations in state labor laws,” he adds.
Independent-contractor status is why Bryan Arbeit
, an employment litigator at Wigdor LLP, urges drivers to thoroughly read the terms of their agreement. Arbeit stresses that drivers need to understand just how much they can earn. “Companies usually quote gross earnings that do not include out-of-pocket expenses for such things as insurance, gas, a rideshare insurance policy and other car maintenance,” he says. “A driver should consult an Uber accident
lawyer if the driver experience is different than promised, or if he or she feels that he or she is not being properly compensated.”