The State of New Jersey has fined Uber Technologies Inc. (NYSE:UBER) around $649 million in unpaid taxes for its drivers. The state has indicated that the taxi-hailing company erroneously classified its drivers as independent contractors.

Uber to pay $530 million in unpaid taxes

The state wants the company to treat the drivers as employees and not independent contractors. New Jersey’s Labour and Workforce Development Department issued the request to the company and its subsidiary Raiser after the discovery of unpaid taxes. An audit uncovered around $530 million in unpaid taxes for disability insurance and unemployment from 2014 to 2018. Considering this is a late payment, the state also wants an additional $119 million in accrued interest.

This decision shows how different states are viewing employment practices around app-based companies. Equally, this will be the first time a local government is seeking to back payroll taxes from the taxi-hailing company with numerous drivers in the US. Several Uber drivers in the US have joined a class action against the company seeking better protection and wages. The company continues to hold that its drivers are independent contractors who should not receive regular benefits.

Uber spokeswoman Alix Anfang has indicated that the company does not agree with the findings of the state. She said that the company is challenging the preliminary determination.

States want ride-hailing drivers classified as employees

Various cities and states are reigning in gig-economy firms that rely on cheap and independent labor. The companies for decades have successfully circumvented efforts to change the trend of franchising and outsourcing work.

Government regulators have been discussing the driver classification issue in the past year. A new law passed in California in September could require the classification of taxi-hailing drivers as employees rather than independent contractors. The law could come into effect from January 1 next year in Oregon, New York, with Washington also considering similar legislation.

However, ride-hailing companies Uber, Lyft (NASDAQ:LYFT), and other technology companies have expressed opposition to the law. They have put together a $90 million ballot initiative to fight the legislation.