Boasted as an eco-friendly, simple way to make money, ride-sharing is transcending the transportation game internationally. Algorithms link drivers with passengers via smartphone apps in seconds. GPS monitoring and crowdsourcing help ensure quality, safety and vehicle hygiene.
These innovations could render traditional dispatchers obsolete. Likewise, the expensive permit or “medallion” requirement to operate a cab, and uphold quality and safety, may be tending toward extinction.
While you can earn a pretty decent wage on your own set schedule, there are some hidden costs that prospective drivers may not be aware of. From vehicle requirements to taxes, mull over these considerations to make sure the ride-sharing biz is for you.
1. Check that your vehicle qualifies.
The top two Transportation Network Companies (TNCs)—Uber and Lyft—have fairly uniform vehicle criteria to assure safety. For example, Lyft vehicle models must be 2005 or newer (depending on the state), have four functional doors, be free of body damages/dents, and equipped with front seat adjustment controls—to name a few.
Other basic driver requirements among these top companies include:
- 21+ years old
- Three years of driving experience
- An in-state driver’s license
- A clean driving record
- A successful background check
Luckily, if your personal car isn’t up to snuff, most TNCs help drivers get a qualified vehicle through their business partnerships and discounts. For instance, Uber helps drivers get offers on leases with flexible return policies, all-inclusive rentals, discounts on new cars, and more.
2. Consider wear and tear.
From stop-and-go traffic to hours of idling while waiting on passengers, ride-share vehicles undergo a decent amount of wear and tear—particularly when it comes to replacing brake pads and tires. And as the odometer climbs, the transmission tends to go south and the resale value of the car might nosedive.
Again, if you decide to lease or rent a vehicle through your TNC’s vehicle solution program, you may be able to offset those costs with their free maintenance perks. Plus, with wear and tear factored in, Uber drivers on average still make around $19 an hour—in cities like New York, earnings may be even higher.
3. Make sure you’re covered.
A popular misconception is that ride-share drivers have to buy commercial insurance to transport passengers. On the contrary, both Uber and Lyft provide $1 million in liability, from when the trip is accepted to reaching the rider’s destination. They also extend contingent collision and comprehensive coverages, provided drivers obtain them on their personal auto policy.
There is a small caveat, however: If a ride-share driver sustains injuries in an accident for which they’re at fault, medical bills could come out of their pocket. But if the other driver causes the accident, their insurance would likely kick in to cover damages first—including injuries suffered by the driver.
4. Understand local laws.
By and large, most cities are hammering out ways to accommodate ride-share companies. The foremost issue is whether to hold ride-share drivers to the same standards as taxi drivers. Some major cities, like Philadelphia and Atlanta, prohibit them from picking up passengers at the airport unless they have livery plates, while some places have banned them altogether.
There’s also discussion in cities like San Francisco around the use of leased vehicles—opponents arguing that drivers aren’t technically “sharing” their personal vehicle if they’re “renting” it from a dealership. Take these partnerships away, and many drivers could be left in the lurch.
To date, though, no such regulation has gone into effect, and most cities are keen on coming up with a solution, instead of banning ride-share drivers outright.
5. Remember taxes.
Ride-share drivers are technically contractors hired by TNCs to provide cab-hailing services. Therefore, you’re not receiving a standard paycheck where taxes are automatically taken out, which means federal and state income taxes—not to mention Social Security and Medicare—are your responsibility.
Because you’re self-employed, most of your behind-the-wheel expenses are tax-deductible (oil, gas, repairs, mileage). But still, taxes can comprise 30 to 50 percent of your income, so make sure you’re setting aside earnings.
Despite all this, many find the ride-sharing business to be a useful way to supplement income, have more flexible hours, and stay financially afloat in between jobs. (Some drivers even list the social aspect as one of the many perks.) Furthermore, applying for a gig is relatively hassle-free, and many swoop up their first passenger within the first couple weeks of applying. And because you’re not beholden to a schedule, there’s nothing to lose in giving the be-your-own-boss business model a try — after all, you can opt in and out at any time.
About the author
Eric Madia is Vice President of Auto Product at Esurance, where he is responsible for designing the company’s auto product lines. Eric has 22 years of experience in the industry, focused primarily on the underwriting, pricing, and innovation of auto insurance products. You can follow him on twitter @Erictheactuary