Uber is paying out millions to New York City drivers. Here's what to do with the money

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Uber is paying out millions to New York City drivers. Here's what to do with the money

Stop me if you’ve heard this one before: Uber is paying out millions of dollars that it owes to drivers.

You may have heard it back in January, when the rideshare company agreed to a $20 million settlement for misleading drivers about earnings. Or in March, when Uber was found to be shortchanging drivers in Philadelphia.

Now it’s New York City’s turn. Uber revealed that it has been inadvertently taking too big a cut from many of its NYC drivers since 2014. Now that the mistake has been recognized, nearly half a million drivers are getting a bonus (or, at least, the money they were supposed to be paid in the first place).

Here’s what every New York City Uber driver needs to know, and what they can do with their found money.

Why Uber owes drivers money

Uber hasn’t had what many PR experts would call "the best press" over the past few months, but giving them the benefit of the doubt, it appears that this whole issue was caused by a simple calculating error.

Uber has a 25% service fee applied to every ride an Uber driver makes. The problem isn’t necessarily the fee, but rather when it’s applied. Even though Uber’s terms of service were updated in 2014 to note that their fee would be taken on the net fare – that is, what a passenger pays before sales tax and other fees – they’ve actually been taking it off of the gross fare.

In a statement to Quartz, Uber said that it ended taking up around 2.6% more from drivers than it would have if it had appropriately applied the fee to the net fare, and is paying it back with 9% annual interest. The average payout is about $900, but spread out across an estimated 500,000 drivers in NYC, that’s a grand total of around $45 million.

Drivers are already beginning to share their payout amounts on forums, but some advocacy groups say the amount should be much higher. The New York Taxi Workers Alliance argues that Uber should be paying out 10% more but aren’t including "the full tax and surcharge amounts" drivers are owed.

In any case, drivers will have to settle for their $900 average for now. The good news is that it won’t take much effort to claim it.

How Uber drivers can claim their payment

Any New York driver who has driven in the past 90 days (essentially any time from the end of February to the last week of May) will have their owed amount automatically deposited into their account. It’s the least Uber could do after underpaying them for two and a half years, but it’s a nice gesture regardless.

Drivers who haven’t been on the road recently will have to fill out an online form to confirm their bank account information. Direct deposit should happen within a week or two.

All drivers should receive a notification from the Uber app about the mistake and instructions on claiming their money. The company will also be holding information sessions at their Greenlight Hubs. You can go to the Uber site for your city to look up where your Greenlight Hub is. No driver will have to sign a waiver to claim their money; they are automatically entitled to it. Again, it’s the least the company can do and should be expected, but considering Uber’s hostile stance toward drivers in other areas, that’s not something that should be taken for granted.

What Uber drivers can do with their money

So, congratulations New York City Uber drivers! You just came into $900 (or more! Or less!). What are you going to do with it? A night out on the town would be nice, but maybe you should make that cash work for you for months – or even years – to come. Here’s how you can do it.

Pay for insurance

Insurance for Uber drivers is no joke; since you’re a contractor, Uber doesn’t provide the same benefits and protections they would a salaried worker. That means you’re on the hook for life insurance, health insurance, long-term disability insurance, auto insurance, and personal injury insurance.

Nine hundred dollars can go a long way in buying a new insurance policy, or funding your current policy. You likely already have health insurance, since it’s legally required, so why not use your windfall to pay your premiums for a few months? Or buy life insurance; a healthy person in their 30s can get a policy for well under a hundred dollars a month, and you’d be able to fund it for at least a year.

Auto insurance is another key insurance type, especially for Uber drivers. You may already have a personal car insurance policy, but that might not be enough to cover you. A rideshare insurance policy may be what you need to make sure you (and your passengers) have enough protection in the event of an accident. There are a lot of companies selling rideshare insurance now, some as an add on to an existing policy, and it’s relatively inexpensive, so you shouldn’t have any trouble finding a policy that works for you.

Start an emergency fund

There’s nothing like the peace of mind that comes with having a financial safety net. Insurance helps with that, but for immediate expenses that you need covered in a pinch, an emergency fund is much more useful.

An emergency fund is a savings account – easily accessible so you can get the money out without issue – that you let sit unless you need it for...an emergency. Experts typically suggest at least three to six months’ worth of living expenses saved up so you can handle whatever curveball life throws at you. Nine hundred dollars won’t cover all of that, but it can go a long way toward building up (or even finishing!) that fund.

Invest the money

Maybe instead of spending that money on insurance, or letting it sit in a savings account, you really want to see it grow. That’s not a bad idea, and investing it is the way to go.

There are a few different ways Uber drivers can invest their money:

  • An IRA. IRAs are a great way to save for retirement while also getting some tax benefits (either now or in the future, depending on if you choose a traditional or Roth IRA). There are annual contribution limits to an IRA, which can be a nice motivator: you know exactly how much you can put in every year, and it doesn’t feel like an endless cycle of putting money into it. For most people the limit is $5,500 a year, so $900 is a good chunk of that.
  • An ETF. An ETF, or exchange-traded fund, is essentially a bundle of investment. Because it has multiple assets, it’s generally a lot safer to invest in than a single stock; if one of the investments in an ETF goes down, it’s balanced out by the others. It’s never been easier to invest in ETFs, with options ranging from classics like Vanguard and Charles Schwab to new players like Betterment and Wealthfront. A major part of these platforms is assessing your risk profile, and they’ll tailor your investments to the kind of investor you are – a great way to get the most out of your money.
  • Riskier investments. ETFs are a relatively stable way to invest (as stable as any sort of investing can be, at least). Want to go the "high risk, high reward" route, though? Go for something riskier. Stocks are volatile, but Robinhood makes it simple (and affordable) for even novice traders to dip their toe in the stock market. Or if you want something really off the wall, look into Bitcoin, the cryptocurrency that has seen huge growth over the past year. Word of warning: the potential may be huge, but you risk your $900 dwindling quickly if the market doesn’t turn your way.

It’s unfortunate that Uber drivers weren’t getting their rightful pay for so long. But at least the problem is being rectified with relatively little friction, and it’s a chance to do something great with your money. Whether it’s insurance, an emergency fund, or an investment, make Uber’s mistake your gain.

Oh, and one last note: What about Lyft drivers? According to Recode, Lyft charges a commission on the gross fare, but that’s in their driver agreement. So Uber and Lyft were doing the same thing, but Uber wasn’t supposed to be doing it. Local rideshare startups Gett and Juno have not commented on their fees.