Is Uber a Connectivity App or an Employer?

Uber identifies itself as a tech company which developed an app to connect livery car drivers with a network of registered users in need of rides.  Whenever a connection is made and a service is provided, Uber collects a 20% fee. However, some fail to see the difference between Uber and a cab company in the business of providing transportation services.  In particular, a group of Uber drivers believe that they are in fact employees of Uber and should be treated accordingly.

Currently Uber treats drivers as independent contractors, does not reimburse them for business expenses and extends the reach of its 20% fee all the way to their tips.  A federal judge in San Francisco has allowed a class action lawsuit disputing these practices to go forward.

When it comes to employee classification, the question is essentially one of control.  The IRS describes three characteristics it uses to determine the relationship between businesses and workers:

  1. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
  2. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
  3. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

A more detailed discussion, including a listing of specific factors used by the IRS to to determine whether a worker will be classified as an employee versus an independent contractor, is available in this related article.

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