Uber may have disrupted the ride-hail industry, but reassembling it hasn’t come quite as easy for the Silicon Valley scion.
Tens of thousands of drivers in New York City lost out on millions of dollars over several years due to an accounting mishap, Uber recently admitted.
The problem stems from the way Uber deducted its commission from the cost of rides, accounting for taxes before taking its fee, which allowed the corporation to take a larger cut for itself—at the expense of drivers.
Uber recently admitted a $45 million accounting mishap shortchanged its drivers in New York.
In response, the company promised to fully compensate each employee, marking the second time this year Uber has had to pay up over salary-related issues.
But that sum—which could reach as high as $45 million—could represent just a small portion of the total damage for the rideshare giant, which now faces questions on whether the way it calculated its commission in New York was legal at all.
Order of Operations
Certain rules must be followed when solving a complex equation. Figures must be multiplied before they’re divided; added before they’re subtracted.
A similar hierarchy exists when assembling a rideshare fare.
At play in New York City is the driver’s pay, plus state sales taxes, and a 2.5% “black car fund” surcharge, which contributes to workers’ compensation and death benefits.
In the contract with its New York drivers, Uber promised to take its 25% commission from the driver’s pay, according to several reports. Taxes and the black car fund fee would then be assessed and added on top of that reduced driver’s pay to produce the total fare.
Instead, Uber’s cut came from the total fare, after taxes were tacked on, the company said.
For example, if a ride cost $20, and taxes on it were an additional $5, Uber’s contract said it would deduct its fee from the $20. Instead, the company was taking money from the full $25. The move makes the total pie larger, allowing Uber to take a bigger slice.
But that diet may not just be unhealthy—it may be illegal.
A Buck a Slice
In fact, the practice may in fact be wage theft, according to the New York Taxi Workers Alliance.
The issue was part of a lawsuit the advocacy group filed against Uber last year, where it alleged, along with its commission, the rideshare company deducted state taxes and fees directly from its workers’ fares, causing drivers to shoulder the burden of the cost rather than passengers, as New York state law requires.
Uber deducted state taxes and fees directly from its workers’ fares, causing drivers to shoulder the burden of the cost rather than passengers, the New York Taxi Workers Alliance charged in a lawsuit.
But an Uber official called that perception skewed when recently asked about the issue by the New York Times.
The official said the taxes were being added to the passenger’s fare before being subtracted from the driver’s pay so Uber could remit the money to the state, comparing the practice to “selling a slice of pizza for $1, with tax included,” according to the Times report.
While the official admitted the concept was confusing, it may just be plain confused, according to the Times report. It describes Uber receipts it obtained as showing an overall fare, from which the “Uber fee,” state sales tax, and the black car surcharge were deducted. The remainder was the driver’s paycheck.
And the company’s most recent contract also confuses the matter, defining “fare” as “the base plus a rate for each mile and minute,” a description that doesn’t include taxes, the Times reported.
Still, the New York Governor’s Office and Attorney General have yet to comment on whether charges will be filed against the ride-hail giant, possibly because the state ultimately received tax payments, limiting action it could take against the company.
But several legal avenues remain on behalf of the drivers themselves.
The Taxi Workers Alliance suit is ongoing. And earlier this week, another prominent advocacy group, the Independent Drivers Guild—an affiliate created by Uber and the International Association of Machinists and Aerospace Workers union—called for an investigation into the company, as well as other rideshare providers in New York, questioning the use of “upfront pricing.”
The difficulties come in the middle of a year already filled with growing pains for Uber.
As the year continued, Uber found itself at the center of sexual harassment allegations, tangling with Google in court over claims of stolen technology, and dealing with an inquiring Justice Department as the agency considers whether to prosecute Uber over charges it helped drivers evade law enforcement on the roads.
Uber has always proudly bragged of its power to disrupt, but lately, it seems that the company may erupt instead.