Uber Underpaid New York Drivers by Tens of Millions of Dollars

The company shorted New York drivers due to an accounting error, but plans to compensate them.

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Uber said Tuesday that it had underpaid its New York-based drivers by tens of millions of dollars, due to a mistake in the way it calculated its commissions. The company plans to compensate the drivers for their lost earnings, reports The New York Times.

Uber said it had been calculating its cut based on a figure that included state taxes, but should have been basing the calculations on a pretax figure. So if a passenger paid $20 for a ride, and $2 of that fare represented taxes, Uber was taking its share based on the full $20, not the $18 it should have.

"We are committed to paying every driver every penny they are owed—plus interest—as quickly as possible," Rachel Holt, Uber regional general manager for the United States and Canada, said in a statement.

But as The Times noted, this accounting error points to a large issue with driver pay. Namely, should all of those taxes for each ride come out of drivers' pockets, or should Uber cover those costs?

Uber was actually sued by a driver's group last year over this very issue. The group claimed that forcing drivers to pay these taxes amounted to wage theft. Yet The Times examined documents indicating that's exactly what Uber may be doing, at a potential cost of "hundreds of millions of dollars" to drivers, according to the newspaper.

In New York, each Uber ride is subject to a 9 percent state sales tax, plus a 2.5-percent "black car fund" surcharge, which covers workers' compensation and death benefits. State law requires those charges to be paid by passengers, meaning they are added on top of fares. But Uber receipts indicate the company is deducting the charges from driver pay, and its driver contract makes no mention of taxes, according to The Times.

Uber has denied that it deducts taxes from driver pay as a matter of practice. In May, an Uber official told The Times that its fare process was equivalent to charging someone $1 for a slice of pizza, tax included.

Much of Uber's business model is predicated on treating drivers as independent contractors, lessening the company's financial commitments to them. Uber recently admitted that it is testing a new payment method that charges riders based on how much an algorithm predicts they are willing to pay, but that the difference is not passed on to drivers. It's not surprising, then, that a recent study found that 96 percent of Uber drivers leave within a year, primarily due to low pay.

Instead of winning the loyalty of its drivers through fair treatment, Uber seems more interested in lobbying government officials to get its way. Last year, it began a lobbying campaign to roll back the New York state sales tax, and it has deployed lobbyists in other regions that have considered stricter regulations on ride sharing.