Update 9:59 p.m. PT 7/23: DoorDash announced it is changing its tipping policy to stop subsidizing its workers’ base pay with customer tips. The company’s CEO, Tony Xu, announced the changes in a series of tweets posted on his personal account Tuesday night.
“We thought we were doing the right thing by making Dashers whole when a customer left no tip. What we missed was that some customers who *did* tip would feel like their tip did not matter,” wrote Xu.
Xu stated that more specifics on the changes will be announced in the coming days; for now it’s unclear if the company will change its policy of quoting workers a guaranteed minimum amount if they accept a job. The company did not immediately respond to a request for comment.
In the gig economy world, not all food delivery tips are delivered equally.
Virtually all these companies, including Uber Eats, DoorDash, Instacart, and Grubhub, give customers the option to tip. But two of them — DoorDash and reportedly Amazon — are sometimes using that tip money to cover what they would have had to pay drivers anyway. Despite intense backlash in February that prompted Instacart to change a similar policy, DoorDash and Amazon are, as many see it, continuing to dip into the tip jar.
Say, for example, that you’re a DoorDash driver who is guaranteed a minimum of $10 to deliver a burrito to a customer’s house. The customer tips $5 for the burrito. Instead of receiving $15 from DoorDash, you could receive as little as $11 total. That’s because DoorDash only guarantees $1 out of its own pocket for each order. Anything extra, the company makes up for in tips.
While Recode and other publications have extensively chronicled these policies, they’re getting renewed scrutiny thanks to a first-person account that New York Times reporter Andy Newman published on Sunday about the grueling hustle of being a delivery app courier.
“The way some companies transform the meaning of a tip is particularly deceptive from a customer’s perspective, which is why you see these waves of outrage about it,” said Sage Wilson, a spokesperson for the workers rights organization Working Washington.
DoorDash and Amazon’s tip policies have continued to upset many customers who feel that the companies are misusing tip money and cheating their workers. Some have vowed to tip only in cash. San Francisco has opened an investigation into whether the policies break local labor law. And in California, a proposed law would likely compel gig economy companies to classify workers as employees, which would guarantee them a minimum wage (separate from tips) and other benefits.
As the debate goes on, delivery apps’ controversial and inconsistent tipping policies continue to have a significant impact on the gig economy workers who make their livelihoods delivering for these apps. But because these standards are often changing, keeping track of how each app handles tips, and factoring that into which apps you use and how you tip on them, is complicated. So Recode created a definitive guide to explain where your tips are going.
Despite an outpouring of criticism from customers over its tipping policy, DoorDash has not changed its practices.
Here’s how the tipping policy works, per DoorDash’s website.
Before DoorDash workers accept a delivery request, they’re quoted a guaranteed minimum amount they’ll receive to do the job. To meet that guaranteed base pay, DoorDash promises to contribute at least $1, plus whatever the customer tips. That means in some cases, the company is only contributing $1 out of its own pocket and leaving the rest of the workers’ guaranteed pay to come from tips.
However, the company maintains that in cases where the customer doesn’t tip at all (a company spokesperson said that happens around 15 percent of the time), or the customer tip is significantly less than the guaranteed minimum (a spokesperson said this happens about 65 percent of the time), DoorDash will contribute more than the customer tipping.
But some customers feel deceived because when they tip, they’re expecting that money to be an additional payment to the driver — on top of whatever the company would pay them anyway. They’re not expecting the tip to instead subsidize the company’s share of what it promised its worker.
Nothing so far has seemed to change the company’s direction on this. Not an investigation by the city attorney in its hometown, nor a recruiting boycott by the bright young engineers of Silicon Valley, nor a continued drumbeat of criticism on social media.
Meanwhile, since the controversy over tipping was first reported on back in February, the company has grown to become the top player in the food delivery industry and is valued at $12.6 billion.
DoorDash has become more transparent about its worker pay, controversial as it is. In a series of changes it announced about a month ago, the company now shows drivers how much they receive in tips compared to base pay for each order.
And the company continues to maintain that its workers (whom it calls “Dashers”) prefer its current pay model over the flat-rate system they had before.
In response to concerns about DoorDash’s tipping policy, a spokesperson emailed the following statement, in part:
Dashers tell us they value knowing the minimum they’ll earn upfront, and our model is designed to make the guaranteed minimum fair for every delivery — including the vast majority of orders where DoorDash provides a pay boost to ensure the Dasher receives at least the guaranteed amount.
Amazon contracts drivers to deliver packages for Amazon.com and Prime Now through its Amazon Flex program. While the company has been less transparent about its policies than DoorDash, Amazon sometimes “dips into the tips earned by contracted delivery drivers to cover their promised pay,” according to the LA Times, which uncovered the practice in February. But the company won’t tell you as much.
When asked about the company’s tipping policies, a spokesperson sent the following statement: “Delivery partners still earn $18-25 per hour, including 100% of tips — and on average drivers earn more than $20 per hour.”
In public statements, Amazon insists that it pays “100 percent of tips” to its delivery people, and that it contributes an average of more than $19 an hour toward each driver’s pay. That may be true — but it doesn’t mean that the company isn’t still reallocating tip money toward its expenses.
A spokesperson for the company declined to answer whether Amazon puts tip money toward base pay.
Instacart shoppers are promised batch payment minimums of $5 to $10, depending on the type of order and the kind of work being done (delivery only versus shopping and delivering). Whatever the customer tips is paid out in addition to that minimum.
This is a change from a previous policy that did allocate customers’ tips toward delivery workers’ base pay. After a receipt went viral in February that showed how a driver was only paid 80 cents on an order with a $10 tip, customers, workers, and politicians widely criticized the company’s tipping policy. The company ended up reversing the changes to its tips system.
In a blog post, Instacart CEO Apoorva Mehta apologized for how the company had handled tips, writing, “While our intention was to increase the guaranteed payment for small orders, we understand that the inclusion of tips as a part of this guarantee was misguided.”
It’s an example of how a company can respond to public pressure to do what many saw as the right thing. Still, some drivers have complained that they remain confused by Instacart’s pay algorithm and say that the company hasn’t sorted out its problems with worker pay, per reporting by Vox’s Chavie Lieber in May.
The rest: Uber Eats, Grubhub/Seamless, Postmates, and Caviar
The other top players in the food delivery industry all say they don’t dip into worker tips, and so far, there hasn’t been any evidence to prove otherwise.
Still, many drivers for these companies say they’re underpaid, overworked, and stressed to make ends meet. It’s well known that the gig economy is a tough hustle. A recent US Federal Reserve report found that about 60 percent of full-time gig workers said they would have a hard time finding $400 to cover an emergency bill. Some estimates indicate that ride-hail drivers make as little as $10 an hour in the US, after expenses. And increasingly, gig workers are organizing to fight for better pay and working conditions.
The bill that could change it all: AB 5
A big reason food delivery companies can redirect tip money is that their workers, for the most part, aren’t considered employees with minimum wage and other protections.
That’s why some arguments that liken delivery apps’ tipping policies to the restaurant industry’s practices aren’t an equal comparison. There are parallels: For now, in all but eight states (Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon, and Washington), eateries are exempt from paying their workers the federal minimum wage if they make more than $30 a month in tips.
But because a restaurant’s servers, hosts, and dishwashers are considered employees, they’re largely guaranteed protections like overtime and, in many places, sick leave and other benefits. App delivery workers are largely classified as independent contractors, so for the most part, gig workers aren’t promised these protections.
Thanks to a new bill in California, that could change. AB 5, which was introduced earlier this year in the state legislature and will be up for a vote this fall, would make it harder for companies to continue to classify delivery workers and drivers as contractors rather than employees. In California, that means these companies could be forced to pay workers an hourly minimum wage, in addition to whatever they earn in tips.
Uber, Lyft, and other gig economy companies have been actively lobbying against the bill, arguing that many workers don’t want to be employees and that it would pose a huge risk to the companies’ business models. But it seems unlikely that these firms will be able to stop the largely pro-labor legislature from passing the legislation. Representatives from most of the major ride-hailing and delivery app companies have been meeting behind the scenes with union leaders to try to reach a compromise before the bill is voted on in a few months.
The debate over AB 5 highlights how competitive an industry all these gig economy companies are in. Delivery apps in particular are fighting for market share — and experts predict some of these companies are going to consolidate.
It’s notable that one of the companies doing the best right now is DoorDash, which has one of the most criticized tipping policies. That doesn’t bode well for workers. It remains to be seen if sustained public pressure can compel these companies to change how they pay their workers, no matter the cost.