Uber, DoorDash discourage tips in wake of NYC minimum wage law

New York delivery drivers are seeing their first paychecks under a new, hard-won minimum wage mandate. But they're not ready to celebrate just yet. 

The obligatory base rate for delivery workers of at least $17.96 an hour, which went into effect Dec. 4, has resulted in higher overall earnings in the first week, according to receipts from drivers sent to Bloomberg and posted on social media sites. But to compensate for the added costs, Uber, DoorDash and Grubhub, owned by Just Eat Takeaway.com, have made changes to their apps that workers say will reduce their hours and could limit earnings potential in the long run. 

One of the most controversial changes concerns tipping. As a result of the new law, Uber and DoorDash said they'll have to pass increased costs on to consumers in the form of added fees. As a result, both companies moved the prompt for tipping on the app to appear after customers have already placed their orders, which could mean fewer tips for drivers. DoorDash said the move is necessary "to ensure our platform remains affordable for all New Yorkers." 

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Higher wages also mean the companies won't be able to recruit as many workers, they said, which necessitates squeezing more deliveries out of fewer drivers. Moving the tipping option will discourage drivers from "cherry-picking" deliveries based on the size of the tip. Instead of chasing orders with the highest tips, drivers will be obligated to take any order that comes up or risk having only limited access to the platform.

Tips, which used to account for as much as half of drivers' total weekly earnings, now make up only 5%-15%, according to the pay stubs of some drivers under the new model. Drivers reported getting more orders that had no tips, even as their overall earnings have increased. Uber added a $2 fee to all delivery orders and informs customers that "tipping remains optional." DoorDash is planning to increase fees in the coming months.

The new pay is much better than what it was before but is still not an ideal wage for New York, so even modest tips would help, said a driver who has been doing Uber Eats deliveries full-time for about five years and asked to remain anonymous for fear of retaliation by the company. 

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Prior to the minimum wage rule, delivery app workers took home $11.12 per hour with tips, or $4.03 per hour without, according to a 2022 report by the city to inform the calculation of the new pay level. That's well below the city's $15 standard minimum wage.

New York and other big cities have taken measures in recent years to try to regulate and better protect workers in the volatile gig economy, where earnings, largely determined by the app companies' algorithms, can be irregular. Last month, Uber and Lyft agreed to pay New York drivers $328 million in back pay and institute a series of labor reforms, including offering paid sick leave and improving hiring and earnings notices. The European Union recently backed a deal to potentially reclassify millions of drivers as employees, which would grant them benefits such as paid leave, unemployment benefits and a minimum wage. 

But the regulations often come at a cost for workers as the companies seek to compensate to protect earnings. Of the three major players in New York, only Uber, which also offers ride-hailing, has become consistently profitable. What's more, the minimum wage is set to rise to almost $20 an hour by April 2025 as the city expects the companies will be able to absorb the pay by having a smaller and more efficient workforce. New York has about 60,000 delivery drivers, the city said in September. 

"Policies have consequences, and these changes come as a direct result of the extreme earnings standard imposed in New York City," said DoorDash spokesperson Eli Scheinholtz. "The city itself acknowledged that platforms could make changes to our tipping structure to help meet the significantly increased costs, which is exactly what we're doing and therefore should come as no surprise."

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A 2022 study by the National Equity Atlas on California's Proposition 22, which also promised to establish a pay floor for drivers, found that the law not only made drivers work more hours to make equivalent earnings, it also diminished drivers' control over their work. That was partly because companies rescinded features such as the ability to filter out low-paying rides, undercutting promises that drivers can "be their own boss." 

Uber and DoorDash fought New York's wage mandate in court, claiming the city didn't understand how the delivery industry works and warned the results would limit service and raise prices for customers and restaurants while allowing them to employ fewer drivers. Uber is introducing a first-come, first-served scheduling system in January to control the number of drivers on the platform at any one time.

"The goal of the city's rule is to have a significantly smaller, significantly better paid, more productive full time workforce relying less on tips & more on direct pay," said Uber spokesperson Josh Gold in a social media post. 

The base pay of $17.96 per hour includes some waiting time between orders, but how much idle time — which can be nearly 40% of a delivery shift — is unclear. The law also allows for an alternative rate of $29.93 per hour only for the time that the driver is on a trip to complete a delivery, without compensating for idle time. The companies can choose which rate to pay drivers. Uber will make that decision on a weekly basis. In the week ended Dec. 11, it used the $29.93 rate, as did DoorDash. Grubhub declined to disclose details of how it intends to comply with the rule. 

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"Since the pay rule requires us to pay for idle time, the changes are designed to reduce idle time," said Uber's Gold. 

"This is why delivery workers are still relying on tips in order to complement their pay, to make sure that they actually get to earn a living wage," said Ligia Guallpa, executive director of the advocacy group Workers Justice Project. 

Uber's planned scheduling system next year will mean drivers must sign up for hourly time slots in advance. DoorDash and Grubhub already have similar systems in place that will limit when drivers can take orders instead of choosing times spontaneously that are the most convenient to them. Priority access to reserve time slots will be given to those who have completed the highest number of trips in the past month and maintain a high order acceptance rate, Uber said in a blog post.

Some drivers see the changes, such as the tip prompt, as a form of retaliation by the companies, said Josh Wood, an Uber Eats driver who is also an organizer for Los Deliveristas Unidos, the workers group that pushed for the minimum wage rule. "It does dampen the effect of this minimum wage that we fought so hard to achieve, as it's calculated based on the assumption that tips don't change."

While Mayor Eric Adams hailed the victory on wages as a "powerful tool to hold apps accountable," the city's own policy documents noted platforms could make changes to "discourage or eliminate tipping" to adjust to the higher base pay. 

"We know that it's uncharted territory to regulate an industry that pays in piecemeal orders," said Wood. "It seems like good news so far, but it's by no means a total victory. We have a lot of fighting and organizing to do."