Friday, December 21, 2018

Don't Signup with Uber Just Yet - Get the Facts First

If driving for pay is something that you think you would enjoy and you want to learn how to become an Uber driver, you are in the right place.

The rideshare industry is booming and being a rideshare driver can be a lucrative and stable income source as long as you are living in a medium or large city.

With the right vehicle and some basic rideshare knowledge, a serious driver can consistently make over $20 per hour. For many people, this level of income is far better than the $11 or $12 per hour they can earn at the local grocery store or Walmart.

With a less-than-ideal rideshare vehicle and a lack of knowledge, many Uber drivers would be better off leaving their cars in the driveway and finding something else to do for income. They are dabbling in the rideshare opportunity and they will ultimately walk away saying that nobody can make any money driving for Uber.

Uber vs Lyft

Two of the most popular rideshare companies are Uber and Lyft. In most major cities Uber controls over 70% of the local market with Lyft taking the rest.

If Uber is the main rideshare company where you live, then start your driving career with them. As the largest ridesharing company in the business, Uber operates in 500 cities around the world. The company has over 2 million drivers serving over 40 million passengers and completing about 15 million rides every day.

The rideshare industry is booming and its growth trend is expected to continue.  For many individuals, driving part-time or full-time for Uber makes a lot of sense as a source of income. However, there is more to being an Uber driver than just sitting behind the wheel taking passengers from one destination to the other.

The primary factors you need to address before signing up as an Uber driver are:
  • selecting a vehicle that meets Uber’s requirements 
  • having adequate insurance coverage while you are rideshare driving

Vehicle Selection

In general, Uber requires a vehicle with 4 doors that seats at least 4 passengers and is no older than 7 years.

Specific Uber vehicle requirements vary from state-to-state and city-to-city so check their website for your location.

Like any business, successful rideshare driving involves minimizing expenses and maximizing income. Because fuel is the largest single expense for an Uber driver, selecting a vehicle with high gas mileage is critical.

The ideal rideshare vehicle is probably an electric or hybrid like the Toyota Prius. Buy a used one for $10,000 or less and plan on it lasting 300K miles with relatively low maintenance costs.

If you are like the typical person who checks out Uber driving you already have a car. You want to know if you can make money driving the vehicle you already have.

Answering the question specifically isn't possible in an article like this but we can cover some important points:

> fuel is your biggest expense - you can make more with a high-mileage vehicle than with a low-mileage one

> the steep depreciation that occurs during the first three years of a car's life makes these newer vehicles a poor choice for rideshare driving in most cases - if you choose to drive new vehicles and use them for rideshare driving, understand that your per-mile expense for driving that vehicle is relatively high

> although your vehicle may meet Uber’s requirements for the premium services like UberXL and UberBlack, there may not be enough demand for these services to keep you busy - most passengers choose UberX so you may find yourself driving UberX rides to pay the bills even though you'd like to have premium fares

Knowing how much it costs per mile to drive your vehicle is critical if you want to know how much you are actually making as a rideshare driver. You have to know the true cost of driving after you account for tax deductions, depreciation, maintenance costs, fuel, and vehicle replacement cost.

One rideshare driver and industry analyst, Wylee Post, has figured out how to easily calculate the per-mile cost of any vehicle. Visit his RideshareGuide website to get The Science of Rideshare Driving eBook and discover resources on how to become an Uber driver.

Rideshare Insurance Coverage

You probably know already that Uber's insurance coverage for accidents doesn't cover all the rideshare periods. To refresh your memory, a typical rideshare activity is broken down into three periods:

Period 1: Driver utilizes the ridesharing app to request a ride
Period 2: Driver accepts ride request from the app and drives to passenger's location
Period 3: Driver picks up passengers and takes them to their destination

Uber only covers periods 2 and 3. When you have the Uber app on but haven't accepted a ride request yet, you are in Period 1 where your own insurance has to provide coverage.

Now you might think that your existing personal auto insurance will cover this period but that is not likely to be the case. Even if your insurance provider is rideshare-friendly, they probably charge a monthly fee for a supplemental policy that covers rideshare driving. If your insurance company is not rideshare-friendly, they may void your policy once they find out that you’ve been using your car for ridesharing activities.

You may save a little money by not getting rideshare insurance but if you get in an accident during Period 1, you may find that you have ZERO coverage and are now personally liable for all damages and injuries. Also, when your insurance company drops your policy, getting a new policy becomes harder and more expensive because you will be considered a higher risk.

And don't think you can hide your Uber driving from your insurance company. When you file an accident report with Uber, they will call your insurance company and check your coverage. This call alerts your insurance company to the fact that you are rideshare driving. Numerous rideshare drivers have been dropped by their insurance companies after filing an accident report.

So what should you do about insurance?

Before signing up for Uber – or any TNC company – check with your insurance company. Make sure your policy is rideshare-friendly. If the policy is not rideshare-friendly, take out a new policy, one that’s either provided by a rideshare-friendly company or one that’s designed specifically for ridesharing. You can also take out a supplemental Period 1 ridesharing policy for good measure.

Adding a supplemental insurance policy or taking out a whole new policy may take some effort and expense but if you really want to become an Uber driver and do it right, start with adequate insurance coverage from day one.

While we're talking about insurance, understand that Uber will require the driver's name to be listed on the insurance policy.

Primary aspects of succeeding as an Uber driver: 
1. pick an appropriate vehicle 
2. have adequate insurance

Now let's talk about some potential surprises that await newbies when they are figuring out how to become Uber drivers:

- Uber charges a 25% service fee
- as a business owner you are liable for Social Security and Medicare taxes
- the driver approval process may take longer than you'd like

Uber's 25% Cut

This can be surprising to new drivers: Uber takes 25% of your earnings as a service fee. For instance, Uber will take about $3.75 for a trip that ends with a $15 fare. This is how Uber makes its money.

While 25% of your daily earnings may not sound so bad, the cut does add up as you complete more trips. If you make about $600 in a month driving part-time, about $120 of that goes in Uber’s pocket, not yours. The amount of money that Uber takes every month will differ according to your gross earnings.

Understand that this service fee is part of the rideshare gig. Uber needs to make money to stay in business and this is how they do it.  Keep in mind that Uber and Lyft are still startup companies that have yet to turn a profit. Let them take their current service fees and hope they figure out how to become profitable without increasing the cut they are taking already.

Social Security and Medicare Taxes

New business owners can be surprised to find that they have to pay Social Security and Medicare taxes on their business' income. Employees tend to forget about these tax expenses because they are just line items on their pay stub and the only line they pay attention to is the bottom one. If they do look at the Social Security and Medicare lines they may forget that the numbers they are seeing only represent half of the actual cost - the employer is paying the other 50% of these taxes for the employee.

Nobody likes paying taxes but that is the way the system works. If you want to (legally) be in business for yourself just accept this fact and work with it.

Let's talk about the positive side of the tax equation for rideshare drivers. All kinds of work-related expenses become tax-deductible when you are driving for Uber.

That includes the money you pay for parking and toll, car repairs, insurance fees, even snacks and bottled water. Data expenses, mobile phone expenses, car washes, and accessories are also tax-deductible.

Once the tax season approaches, you will receive a 1099 form from Uber instead of a W-2 form from a traditional employer. The 1099 will show how much Uber paid you and from that number you can write off a number of business-related expenses. If you have an accountant, discuss this with him or her to know your options.

It is your responsibility to track all your expenses before tax season comes. You will present everything, from a logbook of your total mileage to receipts and tickets, to the IRS. You can use a number of apps and tools to keep a good record of all your work-related expenses. Do not be lazy! Make a habit out of tracking your total mileage and work-related spending to avoid potential issues with the IRS once you claim your tax deductions.

Accounting for tax expenses and tax savings makes it hard to determine how much money you are actually making as a rideshare driver. If you want to allow for expected maintenance and repair expenses, vehicle depreciation, and vehicle replacement cost, the process becomes even more complicated.

Wylee Post, a rideshare driver and industry analyst, has developed a simple way to determine your actual take-home pay after allowing for all of these factors. Visit his RideshareGuide website and check out his Science of Rideshare Driving book for the step-by-step process.

Be Patient During the Application & Approval Process

There are two parts of Uber's approval process. First, you have to apply and be accepted as a driver. Second, you have to take your vehicle to an approved facility for a safety inspection.

It's going to take a few days to get this done even if there are no snags. Obviously, the application and approval process can take longer if Uber has to ask you for more information or if you have to take your car back for a re-inspection after fixing safety issues. When you fill out the application, take your time and provide all of the information requested. If your vehicle has any safety issues like windshield wipers, lights, tires, brakes, etc., get them fixed before having your car inspected by Uber.

Becoming an Uber Driver - Short Version

We've just covered how to drive for Uber, now le'ts recap.

The primary points to remember are

1. pick an appropriate vehicle – it must meet Uber’s vehicle requirements
2. have adequate insurance – make sure you are covered for rideshare driving

Beyond those fundamentals keep in mind that

- Uber is going to take a 25% service fee out of your fares
- you have to pay Social Security and Medicare taxes on your Uber income
- it will take several days to get your application approved and your car inspected

If you are serious about creating a part-time or full-time income, finding out how to become an Uber driver is definitely worth your time.

The pay is good and the work hours are flexible. If you approach rideshare driving as a business it will reward you as a business.

Do not dive headfirst into Uber driving without knowing the facts. Just a little research will let you make an informed decision about starting a rideshare driving business instead of blindly jumping in.