I don’t know about you, but I was pretty darned surprised when the PPP program was modified to let those folks who ran Schedule C (unincorporated businesses) participate in the loan program.

And, it was pretty creative.  The net profits of the firm (upon which social security and Medicare taxes  are imposed) was allowed for use as the annual salary, as long as the net income did not exceed $100,000.  Plus any employees to whom the business paid salary could also be included.  That made unincorporated businesses about equivalent to conventional businesses under the PPP program.

Well, it turns out there’s an even bigger wrinkle in this program.  But, first, a little history.

Back around 2018, the California Superior Court ruled that Uber (and, therefore, Lyft) did not have independent contractors running around the state driving for customers.  No, these folks were really employees of those firms.  The court affirmed the AB5 law that was passed by the California legislature and became enforceable on 1 January of that year.  The law used an ABC test- to determine if the person were a contractor or an employee.

Now, that would have been a grand experiment, ensuring that benefits and adequate compensation be provided all these Lyft and Uber folks who were transporting us around.  Except…

Dara Khosrowshahi and Uber (Lyft and DoorDash were also partners in this campaign) began a major electoral campaign (spending some $ 200 million) to pass Proposition 22- the repeal of the requirements that Uber and Lyft were employers; instead, if the law passed, the drivers would remain independent contractors.  And, that law passed.  So, except for the UK, Uber and Lyft drivers are all independent contractors- which means  their business income and expenses are filed with the IRS as Schedule C filings.

Now, let’s see what really happened because of that change.  Since there was an 80% drop in ride-hailing during the pandemic, it’s not surprising that these drivers opted to obtain PPP loans and EIDL (economic injury disaster loans) funding. So much so, that Uber and Lyft were the two most common business names in the EIDL program, each with very little scrutiny.  (The average loan was about $ 15000.)

The PPP loan program could be forgiveable, as long as the Uber/Lyft driver maintained the level of compensation that existed in 2019 (which most did).  However, the EIDL is a more formal loan, with a low interest rates.  These loans will need to be paid back, unless the driver just qualified for the temporary bonus ( $ 1000 to $ 10000) and never finished the paperwork for the full EIDL.

Pretty nifty deal for those who drove for Uber and Lyft…