By Tina Bellon
Oct 5 (Reuters) – Uber Technologies Inc UBER.N and Lyft Inc LYFT.O together are spending nearly $100 million on a November California ballot initiative to overturn a state law that would compel them to classify drivers as employees.
That sum looks less huge, however, than the potential costs of complying with the existing law, according to a Reuters analysis.
The two ride-hailing companies would each face more than $392 million in annual payroll taxes and workers’ compensation costs even if they drastically cut the number of drivers on their platforms, a Reuters calculation showed.
Using a recently published Cornell University driver pay study in Seattle as a basis, Reuters calculated that each full-time driver would cost the company, on average, an additional $7,700. That includes roughly $4,560 in annual employer-based California and federal payroll taxes and some $3,140 in annual workers’ compensation insurance, which is mandated in California.
The companies say they would need to significantly hike prices to offset at least some of those additional costs, which in turn would likely cause a decrease in consumer demand, but cushion the blow of the added costs to the bottom line.
Uber and Lyft have also said they could abandon the California market – an economy that would rank fifth in the world if the state were a sovereign nation. Other U.S. states have said they plan to follow California’s lead and pass similar laws.
A “yes” vote on California’s Proposition 22 gives Uber and Lyft what they seek, which is to overturn the state’s gig worker law, known as AB5, which took effect in January. Uber and Lyft have insisted the law does not apply to them, sparking a legal battle.
The tussle over classification of workers highlights the political and business risks facing Uber,