What is Prop 22 and how will it impact employment verification?
Uber and Lyft have more than 500,000 drivers in the state of California. If Proposition 22 passes, the employment status and verification process for all of these drivers, as well as those working for other gig-based companies, will change.
Uber and Lyft drivers in California are currently considered employees. Prop 22 gives Uber, Lyft, DoorDash, and other delivery services the ability to hire these drivers as contract workers, meaning the verification process for them also changes. With a booming mortgage and lending industry, understanding these two different verification processes is essential to navigating this busy period.
What is Prop 22?
Prop 22 is up for vote in the November 3 election in California. If Prop 22 passes, Uber, Lyft, and other delivery companies will be allowed to reclassify all of their drivers as independent contractors. In order to understand the “why” behind this, let’s examine some history of this type of legislation.
A judge ruled in August of 2020 that Uber and Lyft must classify drivers as employees, not contractors. This ruling came in light of AB 5, a 2019 labor law that reclassed independent contractors in California as employees. This reclassification translates to hourly wage requirements, as well as access to various benefits. Labor unions and workers’ rights groups considered the ruling a victory. But companies like Uber, Lyft, DoorDash, and Postmates felt the ruling reduced the flexibility of their drivers.
Uber and Lyft initially put forth Prop 22, which will once again allow employers to hire drivers as contractors. This status gives the drivers more flexibility when it comes to the hours they work but prevents them from getting the insurance benefits and protections that come with standard employment.
Prop 22 does offer some protections to gig workers, despite the contractor status. Prop 22 would see gig workers getting 1.2 times the state minimum wage, as well as healthcare subsidies and certain reimbursements. But the pay bump only applies during what’s defined as “engaged time,” which is any time a worker has a customer in their vehicle.
How Prop 22 will impact employment verification
Income verification differs for contract and full-time employees. Depending on whether or not Prop 22 passes, verifiers will have two very different paths ahead of them.
The Verification process if Prop 22 passes
Drivers for Uber, Lyft, DoorDash, Postmates, and other gig workers become contractors if Prop 22 passes. In this case, you would proceed with the verification as you would any other contractor applicant. You need to verify contractor income differently than traditional employee income, as contractors don’t often have traditional paystubs or W-2 tax documents.
Income verification letters are the best way to handle contractor verification. An income verification letter acts as proof that the contractor works for a specific employer. This letter confirms their relationship as well as their income. Tell your applicant what the letter needs to include, as different lenders have different verification requirements. Typically, a verification letter will have the following: pay rate, dates of work, and additional fees or contracts.
Ask the applicant if you can contact their employer directly in the event they have issues getting the verification letter. This situation shouldn’t arise, but it’s good to get ahead of this potential issue beforehand.
There are alternatives to an income verification letter that also fulfill verification requirements. If your applicant is having issues securing an income verification letter, request these documents:
- Invoices: Contractors almost always send invoices to clients. Ask your applicant for several successive invoices to show proof of income over two or more months.
- Bank statements: Couple invoices with bank statements to show proof of deposit. If there are any large deposits (think: anything over $1,000) with no explanations given, inquire further.
- Contract agreements: Contract agreements often show how much money the client pays the contractor. As a result, contract agreements are a great supplemental piece of verification, especially when coupled with any of the above items.
- Previous 1099 form: Applicants can also request their previous 1099 from the IRS. This process is immediate when done digitally but requires a few weeks if handled via mail. Be sure to notify your applicant of this if they decide to go this route.
It’s a good idea to notify the applicant of the above documents before they even leave the office or get off the phone with you. This preventative measure ensures the applicant has the documents ready if they can’t get an income verification letter.
The Verification process if Prop 22 fails
Uber, Lyft, and other gig workers stay classified as employees in the event Prop 22 fails. In this case, verification for Lyft and Uber drivers becomes like any other standard employment verification.
Income verification for employees requires the correct proof of income document. Typically, you’ll want to have at least two forms to ensure the applicant is genuine.
- W-2: An official W-2 transcript from the IRS is concrete proof of income. Again, keep in mind this process takes a few weeks if done via mail but is instant when requested digitally.
- Recent paystubs: A month or more of recent paystubs are an acceptable proof of income. It’s important these paystubs are recent and consecutive, however. If the applicant is new at their job, you can also request paystubs from their previous job but should also request an additional proof of income to be safe.
- Bank statement: Bank statements should be paired with paystubs as an additional proof of income and added safeguard. Again, take note of any large unexplained deposits and ask the applicant where those deposits are coming from.
- Proof of income letter from employer: A proof of income letter from an employer is one of the easiest, quickest ways to verify income and employment. The applicant can request this on their own and should run into little resistance. The only potential hurdle here is HR, which may or may not make it a top priority. To help speed matters up, encourage your applicants to use a letter of employment template.
Just as with the contractor process, it’s a good idea to notify your applicants of the above documents during your initial communication. Help your applicants plan ahead in any way possible to speed up the process and prevent any hiccups.
Predictable success, no matter the future
The future is uncertain, as it often is. But whether or not Prop 22 passes, employment verification is easy for contractors and employees alike with Truework. We automate and streamline the entire verification process, cutting out the need for HR to get involved, in most cases. We have a large network comprised of data from more than 45,000 verifiers, making it possible for us to quickly and efficiently fetch any necessary information for verifications.
If a company isn’t in our network, our dedicated team of United States-based specialists does any necessary research to ensure you get the information you need to process loans and mortgages as quickly as possible. The future is uncertain, but with Truework, you can be sure you’re getting a quick and painless verification when you need it most.
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