Truth in Job Advertising

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Truth in Job Advertising: In order to entice potential new workers, employers are apt to make extravagant claims about pay and/or promotional prospects that are demonstrably false, sometimes outrageously so. This is particularly the case with positions that are not salaried, but instead are compensated on commissions or on other activity-based schemes. One example is provided by Uber, the fast-growing alternative to taxis and traditional limo services.

The Uber Case: Uber has claimed that its drivers in New York City who work an average of 40 hours per week earn a median annual pre-tax income of about $90,000. By contrast, the average taxi driver earns only about $30,000 per year, on much longer hours. And $90,000 is well above the median for many white-collar professions that require advanced degrees. (Source: "Uber Says Its Drivers Are Making $75,000 - $90,000 A Year," by Jillian D'Onofrio, Business Insider, May 27, 2014.)

A Philadelphia-based journalist decided to test the company's claim, by becoming an Uber driver herself. After deducting all her expenses, she netted only $9.34 per hour. At 40 hours per week for 52 weeks (2,080), this would yield pre-tax income of a mere $19,427 per annum. At 60 hours per week for 51 weeks (3,060 hours), the figure would be $28,580. Indeed, reaching $90,000 at this hourly rate would require 9,635 working hours, 10% more hours than exist in an entire 365 day year, at 24 hours per day.

Numbers That Don't Add Up: Might some lucky Uber drivers actually be earning $90,000 per annum, net of expenses and before taxes? Some drivers do report being in this enviable position, but the likelihood that median earnings, even in densely-traveled New York City, are anywhere near this number seem well outside the range of possibility.

Indeed, most Uber drivers who have responded to a survey by online publication Business Insider report $10,000 to $41,000 in net annual pre-tax earnings, with most of them pulling in less than the statutory minimum wage when divided by actual hours of work. (Source: "A Philadelphia journalist went undercover as an Uber driver — here's how much she made," by Antonia Farzan, Business Insider, May 8, 2015.)

The news website Slate.com also has looked into Uber's numbers ("In Search of Uber's Unicorn" by Alison Griswold, October27, 2014) and finds the $90,000 figure to be beyond reality. According to this article, average net earnings of $12 per hour before income taxes seems to be the norm. That translates into about $36,000 per annum for a driver working 60 hours per week. Moreover, the author could find no driver who reported earnings anywhere close to $90,000 per year, despite Uber's assertion that this is the median figure, meaning that over half earn even more. Recent strikes against Uber by drivers are also cited as proof of dissatisfaction over low pay.

The Forbes Analysis: Meanwhile, over at Forbes magazine ("Uber Data Show How Wildly Driver Pay Can Vary" by Ellen Huet, December 1, 2014) they came up with this analysis:

  • In a given week, there are a limited number of surge-pricing hours — Friday and Saturday nights or periods of bad weather. Drivers often tell me that these windows are where driving for Uber makes economic sense. If they had only regular fares, driving wouldn’t be worth their time.
  • The more hours drivers work per week, the more they’ll have to work lower-earning hours to fill their schedule, leading to lower average earnings.
  • But working more hours a week also lessens the risk of having extremely low hourly earnings. You’re more likely to get closer to the average pay.
  • Although Uber likes to quote yearly earnings for “full-time” drivers (which they call drivers who work 40 or more hours a week), a growing number of its drivers are part-time, according to Uber’s New York general manager. (See what pay stubs say about what Uber drivers really earn.) It’s an attractive option, as working only the few choice hours is the only way to earn very high hourly pay.

    Note that Uber's drivers are independent contractors who are responsible for obtaining (via purchase or lease), maintaining and insuring their own cars, not to mention buying their own health insurance and paying for the proper government-issued licenses and certifications to allow them to carry paying passengers. Uber also takes a hefty cut of their earnings (28% in the case of that undercover reporter).

    ​Words of Caution: Indeed, in an analogue to our advice to test the commute before taking the job, a prospective Uber driver would do well to take a few test rides as a passenger, to assess the true earning potential. For example, a half-hour ride in the lowest-cost Uber cars, the UberX, will cost the customer roughly $30 to $41 in NYC. Working 3,000 hours per year (60 hours per week) and billing out half that time implies gross annual receipts of $123,000 and net pay of $52,890 at 43% of gross (what the undercover journalist found to be ratio of take-home to gross pay. However, her actual experience was about $17 per hour, gross, not $41. 

    Conclusion: The case of Uber and its bloated claims is hardly unique. In another case with which this writer is personally familiar, a company paid independent contractors essentially on a commission basis and advertised average pay packages in its recruiting literature that proved to be about 15 times the actual median pay. This suggested either a massively skewed pay distribution, in which a minority of contractors earned orders of magnitude more than the bulk of workers, or else outright fabrication of the numbers by the company. In either case, it was a deliberate attempt to entice job candidates misleadingly, if not fraudulently. Moreover, the company's representations about the average effective hourly pay rate for its contractors were similarly inflated, by a factor of 6 times or more. Astonishingly, when challenged by a contractor on this matter, the company's CEO insisted with a straight face that pay rates followed the classic bell-shaped curve in which the mean (average) and the median are equal.

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