How the Uber ruling affects drivers and consumers

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Opening a business requires huge amounts of capital, sustainable effort, staff and resources that the common man just cannot afford. However, we cannot deny that the self employed enjoy a level of freedom that private employees can only dream of. On the other hand, the latter believe they are more comfortable and stress free when they know that they will get a fixed salary at the end of each month, but some do bemoan the fact that their jobs force them to limit their ambitions. The ride hailing app, Uber allowed both a way out and broke the mould by giving individuals a chance to make a living whether they steady have jobs or not, but that is about to be compromised.

According to a ruling by a London based employment tribunal, Uber drivers are to be classified as workers rather than self-employed, a decision which has had mixed feelings from drivers and consumers alike.

To understand how this affects the control Uber drivers have, let’s discuss how it affects their IR35 rating. This legislation is designed to prevent tax avoidance by workers who provide services to clients via intermediaries but who would be deemed employees if the intermediaries are not used. Such workers are called ‘disguised employees’ by the HMRC and which Uber allegedly allows its drivers to be since their drivers (or partners as mentioned in their legal contracts) locate passengers via an app rather than through an actual employer. In other words, if an employer has control over his/her workforce, their employees cannot be called ‘self employed.’

However, under the new ruling it seems drivers who use the application to earn a living will be rated as employees who can take advantage of paid holidays, rest breaks and earn the national minimum wage irrespective of the number of rides they book. They have the right to claim these rights from the people who hired them but they cannot say that they do not work for anyone.

The outcome is dependent on the control Uber has on its drivers such as the fact that there is a fixed fare that is non-negotiable and that they can only divert from default routes at their own peril among other regulations that do not allow Uber drivers absolute control. What is interesting to see is that the definition of control is now being considered as one that can be exercised via technology designed by a business and feedback:

However, even though the ride hailing app has a modicum of control over its drivers, that still does not affect their IR35 rating since it gives the lion’s share of control to their drivers. That’s why they are called ‘partners’ rather than ‘drivers’. On the other hand, it would be wise to keep a close watch on the HMRC approach towards this tax legislation.

Sharing concerns with those who think the idea is a mistake, Mark Littlewood, Director General at the Institute of Economic Affairs opined “It’s a mistake to think of Uber as an employer – it is simply a platform that allows drivers and customers to meet and trade. By harnessing the power of the app, drivers are able to work for themselves; they set their own working hours and decide with whom they will do business.”

“Uber is no different from the dozens of other sharing platforms, such as Airbnb and eBay. It would be laughable to suppose that those who run their business through eBay should expect sick pay and holiday leave from the tech firm. Forcing regulations such as the minimum wage and the Working Time Directive onto sharing platforms will invariably increase their operating costs and force them to scale down. Drivers and consumers will pay the price through a limited number of “jobs” with Uber and higher prices for customers.”

“The nature of the labour market is changing, with more people self-employed than ever before. Sharing platforms such as Uber have had a huge part to play in this change that allows people greater flexibility in their work. They should be applauded for enabling these positive changes to peoples’ working lives, not restricted by senseless rulings such as this.”

The Uber case may also have an impact on client-freelancer engagement insomuch as the definition of ‘contractors’ and ‘self employed’ goes. The latter provide their services as part of a profession or undertaking but as ‘ freelancers’ they are also privy to rights that salaried employees have access to such as paid and sick leaves. This can be a downside of the new ruling since drivers will have every right to ask for those rights and their clients might suffer from it. However, since they are freelancers, they might not claim as many of those rights to make much difference.

So will the new ruling have an effect on the amount of control Uber allows its drivers? Depends. While it will certainly blur the lines between the self employed and employed, it might not have much effect on the income the former makes or take away their autonomy. In fact, it might just benefit them if they decide to ask for benefits that every salaried individual has the right to enjoy. In other words, they might just make it out of this verdict as self employed individuals who don’t have to pay out of pocket for medical aid, vacation time and sick leaves. However, only time will tell if this ruling will result in these favourable outcomes in the long run or not.

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Shams Urrehman
MD Accounts Direct

Hi, I'm Shams Urrehman, Qualified accountant since 2005 and Director at Accounts Direct Ltd since 2009. I have been advising freelancers, management consultancies, IT contractors, SME’s and other businesses about accounts and tax planning.

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