The GMB Union’s recent employment tribunal victory over Uber has created national headlines but what will the actual impact be? With the help of certified accountant and established industry expert Gary Jacobs, we evaluate the potential implications for the taxi and private hire industry.
Lack of working status flexibility
Uber UK claim that the two drivers at the centre of the case are very much in the minority. Jo Bertram their Regional General Manager stated, “The overwhelming majority of drivers prefer being self-employed and joined Uber precisely because they want to be their own boss. Being classified as workers could deprive them of the personal flexibility they value.” It’s on these grounds that the company has based its decision to appeal the verdict
The tribunal judges ridiculed Uber’s assertion that its London operation was a network of thousands of small businesses linked by a technology platform as “faintly ridiculous”. They accused the firm of resorting to “fictions, twisted language and even brand new terminology” to present their drivers as self-employed.
Following the outcome many reports have alleged that the company could struggle to attract drivers if it is unable to offer them the flexibility of being a self-employed contractor? However Gary is keen to point out that,
“This isn’t a class action in a law court. Although its significant, it is just a two people in a tribunal hearing. In reality it has created a precedent for future cases but it is not a benchmark that will definitely change driver engagement. Historically Uber has ignored such rulings and carried on regardless. Currently to change their employment status each driver will need pursue an individual case and cover the costs of the process. Each hearing would still be judged on its own merits.”
One potential alternative to the current arrangement would be for Uber to offer drivers zero hour contracts. This would afford the drivers the flexibility that they currently enjoy. On the other hand should Uber do so they would then be liable for additional costs such as National Insurance Contributions and holiday pay. The drivers themselves could also face higher tax bills.
How much will the ruling cost Uber?
It’s difficult to accurately estimate the potential cost to Uber without knowing the precise numbers behind their operation. A lot depends on how many hours a week their drivers work. The proportion of drivers that would want to pursue employed status is also unknown.
However, with Gary’s expert assistance we’ve attempted to reach a ball park figure of what the higher operating costs might equate to should every driver become an employee. Where our numbers are based on an estimate we’ve tried to explain the logic:
40,000 Uber drivers – based on GMB figure
Each driver earns on average £16/ hour – taken from Uber press release
£49,920 average full time drivers’ annual earnings – based on a 10 hour day, 6 days a week, 52 weeks a year
£12,480 average part time drivers’ annual earnings – based on 15 hour week, 52 weeks a year
30,000 of Uber drivers work full time (60 hours/week) = £1,497,600,000
10,000 Uber work part time – (15 hours/week) = 124,800,000
Uber’s annual wage bill would be £1,622,400,000
Uber’s National Insurance bill at 13.8% = £223,891,200
And allowing 6% to cover holiday and sick pay = £97,344,000
National Insurance plus holiday and sick pay cover = £321,235,200
Additional overheads could amount to £321 million each year
Even for a company with an estimated value of £68 billion the potential extra costs are substantial. However there will be a fair few ifs buts and maybes to be decided along the way before any dent is made in their profit and loss reports.
Will Uber make drivers pick up the bill?
The GMB Union’s victory has been hailed as a huge moment for workers’ rights in the so called “gig economy”. Though there is a danger that Uber will refuse to deduct any of the potential additional costs from their profit margins.
In a hyper competitive market its hard to imagine that they will pass costs onto passengers via higher fares. It therefore stands to reason that drivers could face a hike in their operator’s commission level percentage and a decrease in their income levels.
Will the ruling help the taxi and private hire industries to compete?
3 Major advantages that Uber currently holds over many of its taxi and private hire rivals are:
- The flexibility it can offer its driver base
- The size and availability of its fleet to passengers
- Fares that are far below the market rate (except when surge pricing applies)
Potentially the ruling could have an impact on each of these factors and bring parity back to the market place. If Uber passes any additional costs onto their drivers then other operators might start finding recruitment easier.
However the possible implications (if any) of the ruling on Uber’s overheads might be just as applicable to other companies within the industry. Other operators will potentially also need to re-evaluate their drivers’ employment status.
There is also the possibility that Uber will carry on regardless and nothing will change. We will just have to wait and see.
Read more: VAT in the Private Hire Industry