Food Delivery Platforms Adopt the Restaurant Industry’s Worst Practice: Low Wages & Tipping
App-based food delivery companies do not pay delivery drivers a living wage. Instead, they offer a deliberately complicated combination of base pay, tips, and incentives. In the United States, this setup is directly borrowed from the adjacent hospitality industry.
Just as the major app-based food delivery companies are currently engaged in creating and using legal loopholes to avoid employee status for their drivers, the National Restaurant Association did the same a century ago. Through its lobbying power, the National Restaurant Association won a carve out to the federal minimum wage when it was constituted through the historic New Deal in 1938. Hospitality industry workers were deemed “tipped workers” subject to a lower wage rate, with tips supposedly making up the rest of the full minimum rate.
It has since stayed the same. The subminimum wage rate for tipped workers is currently $2.13 per hour at the federal level as compared to the federal minimum wage of $7.25. This atrocious two-tier wage policy, having underwritten restaurants and food service for decades, continues to unfairly benefit industry at the cost of workers. Tips as a substitute for wages creates a power dynamic between customers and servers, allowing for customer perception and bias to determine wages. This has predictably led to a gender and wage gap, with white male servers being paid up to 60% more than women of color, high rates of tip theft, and sexual harassment.
App-based food delivery companies have enthusiastically adopted the tipped wage model. Combining it with employee misclassification, they have fused together two regressive policies to further disempower workers.
Getting rid of this two-tier wage system is important not only for the hospitality industry but also to prevent its spread through gig companies into different sectors and geographies.
Tips Take Over
Delivery drivers have two major pay components — base pay with incentives and customer tips — but increasingly, unguaranteed customer tips are becoming workers’ main source of earnings. Estimates of New York City delivery driver pay show that tips comprise 44% of earnings. Similarly, a global survey across 15 countries found that 51% of respondents make more than half their earnings from gratuities. Analysis by industry bodies corroborate these findings. Driver tips are usually around 10–20% of an average food delivery order ($3.50) but about 40–50% of worker pay ($9.30).
This mirrors the wage model in the service industry. An average server in a $2.13 state in the United States earns 70% of their wage from tips. The NYC Hospitality Alliance candidly admits the extent to which customers are subsidizing companies’ operational costs, i.e. that paying workers full wages not reliant on tips would cost them $12,000 per full-time tipped employee. Companies coast on this broken wage system, exploiting it to the disadvantage of workers, not to mention customers who face the burden of the wage bill.
Scaling Up Tip Theft
Unsurprisingly, the hospitality industry also sees wide scale tip theft. Over 84% of full-service restaurants were found to have violated labor standards, including wage and tip theft. App-based food delivery has conveniently scaled up tip theft. DoorDash, Instacart, and Amazon Flex were all caught stealing driver tips for years, deceitfully using customer tips to pay the company portion committed per delivery. DoorDash settled a $2.5 million lawsuit with DC’s Attorney General, Instacart paid a $4.65 million fee to settle a class-action lawsuit, and Amazon was forced to pay back $60 million in driver tips after a Federal Trade Commission ruling.
These cases emerged only after workers shared their experiences online to cobble together information about the widespread practice. Given the regulatory maze around tips and transparency, there is no guarantee that DoorDash, Instacart, Amazon, and their equivalents are not presently doing the very same thing in other geographies. This manner of theft is particularly salient as food delivery moves into cities with workforces with limited digital literacy rates or without tipping cultures. At least cities with high internet usage offer avenues for digital organizing, like the workers of Instacart pursued in Seattle. When these food delivery apps enter contexts without a customer tipping culture, workers might not expect a tip and therefore not self-monitor to catch the differentiation of base pay and tips.
Tip transparency features as a constant demand from gig worker organizations. In response to the organizing of the Los Deliverstas Unidos, a worker union of NYC’s delivery drivers, the NYC City Council recently legislated tip disclosure requirements. While tip transparency is absolutely needed, it isn’t actionable. Apart from confronting customers or posting frustrations online, a zero dollar tip cannot be legally contested. Unlike in the restaurant industry, where at least notionally employers have to ensure their workers get tipped up to minimum wage, there is no such requirement with delivery drivers. This unstable and extractive pay model is even more problematic because companies can reduce base pay without any notice to drivers, despite occasional assurances of a minimum.
Regulatory Responses
Apart from tip transparency, gig workers have consistently asked for proper classification, fair pay, social security, safety, control of data, transparency of algorithmic decision-making, limitation of workplace surveillance and the right to unionize. Companies have responded by allocating millions to fight litigation and fund legislative campaigns doing the exact opposite.
Here, too, is a pattern of behavior similar to the National Restaurant Association. Restaurant workers have been organizing for decades against the tipped wage policy. My organization, the campaign for One Fair Wage, i.e. a full minimum wage with tips on top, has fought for ending the discriminatory tipped subminimum wage with the support of every major union in the country. Despite One Fair Wage winning on the ballot in Michigan, Maine, and DC, the lobbying power of the National Restaurant Association ensured that these victories were watered down or overturned.
App-based companies do not yet have a public position on subminimum tipped wages. However, should courts declare gig workers wrongly misclassified as contractors, companies could easily build the case that gig workers be categorized as “tipped workers,” like servers and bartenders, and not as full minimum wage employees.
There is common ground between tipped workers and gig workers in the fight to end subminimum wages. Put together, this concerns at least one third of the US workforce.
A real reset would require reaching further back into history and correcting the original carve-out. Minimum wage legislation remains potent, as demonstrated by the active quests to water down, work around, ignore, dismiss, and violate minimum wages. Minimum wages set a transparent, single, unifying frame. They have inbuilt mechanics of wage growth. They can be guaranteed.
Tipping is essential to propping up the restaurant and food delivery business. Food delivery companies are built on a workforce earning artificially depressed subminimum wages. Far from company claims of providing core city infrastructure, this wage model is morally corrupt. Neither the growth of these companies, their public listing, or their profitability is going to change anything materially for their delivery drivers.
As per the current vision of companies like DoorDash and Zomato, drivers will remain locked into a wage model with unpredictable fluctuating base pay and unguaranteed customer tips. They are locked out of wage growth, collective bargaining, pathways to income stability, and class mobility. Unless this tipped wage gap is closed, it will offer opportunities for endless mutation toward staggering new regimes of inequality.
Inayat Sabhikhi is an Economist and the National Coalition Manager at One Fair Wage.
