Uber Technologies Inc. (NYSE: UBER) and a subsidiary, Raiser, have been ordered to pay $649 million to the state of New Jersey for years of unpaid employment taxes for its drivers. The state’s Department of Labor and Workforce Development says $530 million is owed in back taxes for unemployment and disability insurance from 2014 to 2018. The state is seeking another $119 million in interest due to the non-payment.
New Jersey says that Uber owes the money because it had misclassified its workers as independent contractors and not as employees. New Jersey has some the strictest measures for determining whether a worker qualifies as an independent contractor, including that the services performed fall outside the employer’s usual course of business. New Jersey says that Uber’s workers fail to meet that classification.
The case represents the first time that a local government has sought back payroll taxes from Uber. The company, which has hundreds of thousands of drivers in the United States, has so far been able to successfully beat back attempts to reclassify its drivers as employees. As employees, they would be entitled to basic protections and benefits, such as overtime pay, health care and unemployment insurance. Estimates show that the labor costs of companies like Uber and Lyft could rise by 20 to 30 percent if they were required by regulators or courts to treat drivers as employees.
Across the country, states and cities have moved aggressively to rein in companies using this employment loophole. Worker advocates say that job misclassification hurts workers, who miss out on benefits, and the states where they live, which miss out on tax revenues. When independent contractors file for unemployment or disability insurance benefits, it’s the taxpayers that foot the bill.
A 2018 audit of about 1 percent of New Jersey’s employers determined that more than 12,000 workers had been misclassified as independent contractors, resulting in more than $462 million in underreported wages and millions in unpaid employment taxes. Robert Asaro-Angelo, New Jersey’s labor commissioner, said in a statement, “The New Jersey Department of Labor and Workforce Development is cracking down on employee misclassification because it stifles our work force and inflicts a huge financial toll on our economy.”