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Uber to Repay Millions to Drivers, Who Could Be Owed Far More

Uber said Tuesday that it had made a mistake in the way it calculated its commissions, at a cost of tens of millions of dollars to its New York drivers, and the company vowed to correct the practice and make the drivers whole for the lost earnings.

The ride-hailing service said it had been taking its cut from a figure including state taxes, rather than a pretax fare. If a passenger handed over $20, and $2 of that represented taxes, Uber’s commission was a percentage of the full $20, not of $18, as it should have been. Even at pocket change per ride, the cumulative difference was vast.

“We are committed to paying every driver every penny they are owed — plus interest — as quickly as possible,” Rachel Holt, the company’s regional general manager for the United States and Canada, said in a statement.

But Uber’s handling of passenger payments raises questions about a larger legal issue, potentially far more substantial: not the pocket-change difference in the commission but whether that entire $2 in taxes is improperly coming out of the drivers’ wallets.

Uber’s contract with drivers appears to allow the company to deduct only its 25 percent commission, not taxes, from their fares. But a lawsuit filed by a drivers’ advocacy group in New York last year said the company was making its drivers swallow the tax burden — a practice the group said amounted to wage theft.

Documents examined by The New York Times also point to such a practice, which could have cost drivers hundreds of millions of dollars.

The questions arise as Uber is facing mounting pressure over what drivers say is declining take-home pay, epitomized this year by a viral video of an argument between a driver and the company’s chief executive, Travis Kalanick.

Bhairavi Desai, executive director of the advocacy group, the New York Taxi Workers Alliance, said that “from the beginning, Uber built its business model on the assumption that ‘we hate taxes,’” and that it had long “passed this tax on to drivers.”

In response to Uber’s acknowledgment of error on Tuesday, the advocacy group said in a statement that “Uber hasn’t just wrongly calculated its commission; it has been unlawfully taking the cost of sales tax and an injured-worker surcharge right out of driver pay.”

Other jurisdictions, like Rhode Island and Massachusetts, also levy taxes or fees on ride-hailing services, but it is not clear how Uber collects those taxes.

In New York, the company must reckon with a state sales tax of nearly 9 percent per ride, as well as a 2.5 percent “black car fund” surcharge to cover workers’ compensation and death benefits.

Under New York state laws and tax regulations, the charges are supposed to be paid by passengers, meaning they are to be assessed on top of the fares. But trip receipts have long suggested that Uber deducts the amount from the drivers’ portion instead. The receipts have typically depicted an overall fare amount, from which the company subtracted an “Uber fee” (essentially its commission), the sales tax and the black-car surcharge. The drivers received what remained.

The collection method dates to at least 2014, and possibly to 2012, when Uber began operating in New York, and has affected tens of thousands of drivers.