Uber will reclassify all 70,000 of its UK drivers as workers, entitling them to the minimum wage, holiday pay and other benefits after a ruling from the Supreme Court last month.
The ride-hailing app’s drivers will receive at least the national living wage of £8.72 ($12.11) per hour starting on Wednesday.
This will be the minimum drivers can earn, in what Uber described as an “earnings floor, not an earnings ceiling".
Uber did not specify how much the reclassification will cost but said it does not expect to change its earnings forecast for the quarter or the year.
The changes are limited to the UK, Uber’s biggest European market, but raise questions about whether management is willing to consider adapting its business model in other countries.
The San Francisco-based company faces legal challenges in its home state of California, as well as pressure from European policymakers to improve conditions for gig economy workers.
“This is an important day for drivers in the UK,” said Jamie Heywood, Uber’s regional general manager for Northern and Eastern Europe.
“Uber drivers will receive an earnings guarantee, holiday pay and a pension, and will retain the flexibility they currently value.”
The ruling also has ramifications for the wider gig economy and other firms that use third-party services to employ freelancers.
Mr Heywood said he hopes “all other operators will join us in improving the quality of work for these important workers who are an essential part of our everyday lives".
In a ruling last month, the UK Supreme Court unanimously rejected Uber's arguments that the drivers were not workers, giving the company little option but to offer expanded benefits.
Uber said after the court ruling that the decision only applied to the handful of people that filed the initial suit. Since then, it had been tight-lipped over its plans for the UK business while it carried out a consultation with its drivers.
Under the changes announced on Tuesday, the minimum wage will apply after accepting trip requests on the app.
Drivers will be awarded holidays based on 12.07 per cent of their earnings, paid out every two weeks.
The workers will also be automatically enrolled in a pension plan that will include contributions of 3 per cent of a driver’s earnings from Uber.
This is on top of insurance — which covers sickness, injury and parental leave — that has been available since 2018.
The added costs to the company will mostly come from holiday payments and pension contributions rather than the minimum wage.
On average, Uber drivers already earn £17 ($23.60) per hour in London and £14 in the rest of the country, the company said.
In addition, Uber said it will set up a process for drivers to seek compensation for backdated holiday pay and lost earnings without the need to go through the employment tribunal where the case started.
UK law is unique in that it distinguishes between employees, who are entitled to statutory employment rights such as severance pay, and workers, who are eligible for the living wage and holiday pay, but not the full range of benefits.
Uber has been lobbying for a separate labour classification with limited benefits in the US.