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Essay: Should Uber Drivers be Classed as Employees? Examine Advantages for Drivers Under Dynamic Pricing and Sick Pay

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A recent UK tribunal case has found that Uber drivers are not self-employed and so should be paid the minimum wage and holiday pay. Is this to the advantage of actual and potential drivers or not?

Jonny Davies | Rn L6 | A-level Economics

Before considering the employment right of Uber drives, one must examine the economy they work within. The Gig economy by definition is “a labour market characterised by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs”. Firms that operate within this sector tend to offer on-demand services on apps and websites, which puts a user in contact with somebody who can supply the service that is required. They then make profit by taking a percentage commission of the fee earned by the workers. In an online survey of 2,238 UK adults aged 16-75, 21% said they have tried to find work managed via platforms in the gig economy, equivalent to around 9 million people [2]- almost one fifth of the adult population, many of which as drivers for the ride-hailing app Uber. Research from Citizens Advice published in 2015[3] found that as many as 460,000 Brits may be “bogusly self-employed,” 10% of the UK’s 4.8 million self-employed workers today. Many drivers argue that being classed as self-employed is of no advantage as they cannot possibly work enough hours and accept enough jobs to earn more than the minimum wage, when taking into account costs and fees. In contrast many drivers and Uber themselves suggest that being fully employed would be a worse alternative.

GMB, the union who brought the case against Uber, last year found that a member working exclusively for Uber as a cab driver in London was paid £5.03 net per hour for 234 hours driving during August calendar month (GMB) [1]. This is £1.47 per hour below the national minimum wage of £6.50 per hour. For each hour he worked, the fees he paid to Uber were £2.65 per hour that equated to 53% of his net pay per hour.  He works a 7.54 (3dp) working per day, assuming that he has no days off and no lunch break. If we assume that, he works a 5-day week and works every week in the month of August then he works almost an 8-hour day plus an hour for lunch. How can Uber realistically expect its driver to earn more than minimum wage by doing more hours? Furthermore, lawyers for the drivers also claim that Uber acts unlawfully by frequently deducting sums from drivers’ pay, often without informing the drivers in advance, including when customers make complaints. If Uber wishes to work in this way, then it must acknowledge its responsibilities towards those drivers as employees. However, Uber’s defense is that it is just a technology company that is used by drivers to find customers, not a taxi company, and that drivers do not work for Uber but instead work for themselves as self-employed businesspersons. Under the current platform that Uber drives are self-employed contractors and there appears to be ‘tremendous pressure’ for drivers to work long hours and face ‘repercussions’ if not accepting jobs, as lawyers representing Mr. James Farrah told judges at the court case[4].

On the surface, it seems obvious that being employed would be beneficial to Uber drives. They would receive sick pay, holiday pay and have a secure form of income. In addition, Uber would be obliged to pay its drivers minimum wage. One way this may not be the case is when looking deeper at Uber’s pricing model. Uber’s fares are dynamically priced, this means that the fare a rider sees is based on variables subject to change over time. These variables include the estimated time and distance of the predicted route, estimated traffic, and the number of riders and drivers using Uber at a given moment. From and economic point of view the simple price mechanism is in action. Dynamic fares help ensure that riders can always receive a quick pick up by matching the supply of drivers with the demand of passengers. The increased demand from passengers may cause prices to increase temporarily. For instance, two Uber journeys of the same distance and duration would cost a different amount if one was on New Year’s eve at 1:00 am and one was next Tuesday at 2:30 pm. This encourages more drivers to get on the road and head to areas of the city where demand for rides is higher than drivers’ ability to accommodate all the ride requests happening at any moment. Uber drivers also benefit from this mechanism. Firstly, as the demand is high the drivers spend less dime in-between journeys wasting time and fuel. Secondly, this increase in prices works its way to benefit the drivers as Uber’s percentage cut remains constant. This means that the drivers can make significantly more money per hour. If the drivers were fully employed Uber would absorb all the benefits of this dynamic pricing and the drivers would still earn the same wage. Some would argue that these prices increases are scarce and therefore it is not a credible benefit to drivers. However, it is seen that most weekends and rush hours Ubers’ dynamic pricing comes into action. In addition, the price model is not negatively price dynamic as the drivers never lose money because of it. This model is to the advantage of actual and potential drivers, as Uber has no plans to remove the system, as it is extremely profitable for them.

Another advantage of being employed is sick pay. As an employer Uber would have to pay and employee £89.35 a week Statutory Sick Pay (SSP) for up to 28 weeks [5]. It is paid for the day the driver would have been working, however it’s not paid for the first 3 days you’re off, unless the employee had been paid SSP within the last 8 weeks. Tax and National Insurance would be deducted, at the same rate of your normal wage. As an employee, Uber drivers would also be entitled to holiday pay. Most workers who work a 5-day week must receive 28 days’ paid annual leave per year. This is calculated by multiplying a normal week (5 days) by the annual entitlement of 5.6 weeks. However, assuming that Uber drivers would work irregular hours their situation would differ from the norm. When taking the aforementioned GMB’s driver example, assuming he worked 250 day in a year (the national standard number of workdays), he would be entitled to 227 hours and 30 minutes of statutory holiday entitlement. These both must be seen as advantages of full employment to the drivers. However, the holiday pay can include bank holiday. In proportion to the majority who may have contractual holiday and sick pay it may be seen as an injustice to actual and potential Uber drivers.

When one delves deeper into the complication of employment it may been seen as a potential disadvantage for current and future Uber drivers alike. Firstly, the aforementioned flexibility is to the advantage of many Uber drivers. This flexibility allows people to combine commitments in their life, making it an attractive choice for some. Dr. Eamonn Butler, a British economist, co-founder, and Director of the Adam Smith Institute, said another advantage of Uber’s is that it is a cheap model [6]; people do not need to own a house, neither is there an extensive list of prerequisites. He said it could also be beneficial for unemployed workers who are between jobs or out of work as it can be used as “a good stop gap” and a means of earning money. This means if Uber workers were considered as full time employees there benefits would be unattainable. This is because it would be much more difficult, if not impossible to dip in and out of contact with the company.

Another concern is that there would be little incentive for Uber to pay more than the minimum wage.  The potential for Uber drivers to earn more movers away the kinds of fare they can get, for example the afforested dynamic pricing to number of hours worked. Furthermore, it would be difficult for Uber to determine the wages given to drivers as one cannot determine how productive these hors would be.

To conclude, there are both advantages and disadvantages to actual and potential Uber drivers of being legally considered as employed. There are significant structural advantages such as holiday and sick pay. These are legal requirements that Uber would have to fulfil is the drivers were considered as their employees. On the other hand, the ability to earn dynamically and earn more for harder work is significantly reduced. However, I believe it would be of advantages for Uber drives to be classed as employed as it is extremely difficult to take advantage of the flexibly hours and pay as Uber takes a substantial cut of earnings. A fixed wage would bring more job and earning security to drivers and their families.

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