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2021-02-13 Uber

Is the Drivers’ win over Uber really a win?

Ever since 2015 Uber drivers have been battling to be recognised as workers rather than self-employed – and now, in February 2021, the UK Supreme Court have ruled that they are in fact workers!  So a great success for the drivers and a hefty bill, no doubt, now to be paid by Uber to make sure they have all been paid minimum wage and holiday pay.

So that’s a win right?  Or maybe not?  Whilst the workers have got what they want, this also means that Uber will need to rework its business model.  It quite possibly means that every other ‘gig-economy’ business will have to rework its business model as well!  Will Uber go out of business and all of the drivers not have any work?  Well, that is probably too pessimistic, but it is going to cost somebody.

For Uber the win means a pretty hefty compensation bill – but it’s more than that!  Uber’s costs will go up, and potentially go up quite a lot.   Going from self employed to employed means that Uber now has to pay holiday pay, which adds around 11% to the costs.  They also have to pay employer’s NIC of 13.8% of wages to HMRC, and 3% employer’s pension contributions. Uber will also have to pay sick pay for any  workers off sick, which is an additional cost to the company. They will also have to cover any shortfall between the driver’s minimum wage based on the hours worked and what the driver has actually earned driving fares around.  So the change to Uber’s costs are an increase of holiday pay, (11%) employers NIC (13.8%) and pension contributions (3%) … or around an additional 27% of its wages bill just for the known things, ignoring sick pay and minimum wage shortfalls!

In its 2019 accounts Uber London Ltd made a profit of £6m – so it’s doing well.  But is also quite hard to tell from the accounts, quite how much the drivers cost the company.  The drivers’ actual costs are not shown in the accounts, so this is difficult to quantify.  At the time of the 2016 employment tribunal there were 40,000 Uber drivers and as Uber’s share of the fare revenue is around 25% we can guess that the drivers’ share, or their wages, was some £256.5m.  27% of this is £69m … in other words Uber would make a huge loss rather than a profit – a loss it couldn’t possibly sustain and maybe not even pay!  Somebody will have to pay for this – and that might mean the average taxi fare going up by around 15%. 

This win may also affect a different part of Uber’s business, and

there is another law case going on about whether or not it is liable to VAT on the fares.   At the moment it is only liable to VAT on its share of the fare – not on the whole fare.   Losing this case probably means that they will be liable to VAT on the whole fare … which potentially means a price increase of around another 15%.

Might this mean that taxi rides with Uber will have to go up by around 30% for Uber to stay in business?   Which is a problem when its business model is partly based on being one of the cheapest taxi fares around!  It is also a problem for lots of other gig-economy businesses who will, no doubt, have similar legal and financial issues.

Of course, there is another alternative.  The law courts have said that Uber’s business model creates workers – so Uber needs to put its fares up and pay more to its drivers … or redo its business model.  Can it figure out how to move away from where it is now – to a future where it still has self-employed drivers? Which will mean the drivers are back to where they were ie no minimum wage or holiday pay – but the world keeping cheap and convenient taxi fares.  Call me sceptical, but I think the world wants cheap taxi fares more than it wants well paid taxi drivers.

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