Special Tax Alert

California’s Proposition 22 Passes – App-Based Drivers Classified as Independent Contractors

Kevin M. Jacobs, Managing Director

kjacobs@alvarezandmarsal.com

Jared Stitz, Senior Director

jstitz@alvarezandmarsal.com

Tom Falkner, Senior Director

tfalkner@alvarezandmarsal.com

Jeff Swerdlow, Senior Director

jswerdlow@alvarezandmarsal.com

November 5, 2020 / North America

On November 3, California voters passed Proposition 22, the Protect App-Based Drivers and Services Act, which addresses the classification of workers performing rideshare and delivery services and strikes a compromise between businesses and drivers. Rideshare and delivery service companies that use an online-enabled app or platform to facilitate their services, such as Uber and Lyft, may engage drivers as independent contractors if the following four conditions are met:

  • The company must not require drivers to be logged into its app at specific times or dates.
  • The company must not require drivers to accept any specific rideshare or delivery service requests as a condition of maintaining access to the app.
  • The company must allow drivers to work for other rideshare or delivery companies.
  • The company must allow drivers to work in other lawful occupations or businesses if they choose.

However, Proposition 22 also provides benefits for the drivers, including:

  • A net earnings floor based on 120% of California’s minimum wage,
  • A per-mile compensation component that is adjusted annually according to a consumer price index,
  • A healthcare subsidy for drivers working at least 15 hours per week, and
  • The availability of occupational accident insurance by or through the rideshare or delivery service provider…

While these benefits sound like employment benefits, the new law states that they are not, and therefore rideshare and delivery service businesses will not be required to withhold and pay payroll taxes and workers compensation for these workers…

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