Racing for Tips
The Proliferation of the Subminimum Wage
Veronica Avila is a 2018–19 Data & Society Fellow and the Strategic Research Associate with the Restaurant Opportunities Centers United (ROC). This is the first blog post in our Labor Day series, Dispatches from the Field, which takes a workers’ perspective on the way technology is reshaping work.
Recently, The New York Times columnist Andy Newman described his harrowing experience delivering food on an electric bicycle for various platforms, including DoorDash and Uber Eats. He detailed the dangerous conditions, stress, and unpredictability of his wages. His tips fluctuated and were not guaranteed—two-thirds of his customers did not tip. This story, coupled with mounting public pressure from workers, consumers, and tech workers, helped pressure the DoorDash CEO to announce that Dashers’ pay would increase by the exact amount a customer tipped. The announcement reversed course on DoorDash’s previous policy, which counted tips towards the delivery worker’s guaranteed minimum pay.
Newman’s story highlights the centuries-old problem of subminimum wages. Subminimum wages allow employers to pay workers a base wage that is below the full minimum wage and use tips as a replacement for wages, rather than a supplement. By enacting a subminimum wage model, platform-based delivery work has emulated the legacy of exclusion that has plagued the restaurant industry for over a century.
By enacting a subminimum wage model, platform-based delivery work has emulated the legacy of exclusion that has plagued the restaurant industry for over a century.
The subminimum wage
The restaurant industry has normalized a business model and pay structure that outsource the responsibility of payment, allowing employers to provide a low base wage while consumer provided tips comprise the majority of workers’ income. Restaurants are the largest employers of subminimum wage workers. Restaurant work, and more broadly tipped work, began in the late 1800s. After emancipation, newly freed slaves stepped into the paid workforce and primarily worked in service roles like waitstaff and railroad porter. At that time, many employers were not paying workers in these roles a wage, but rather relied on guests to offer workers a tip instead, entrenching the economic subjugation of Black workers.
Now, over 130 years later, the federal subminimum wage has only increased to $2.13. In 1996, the National Restaurant Association, the corporate business lobby that is almost as old as tipped work itself, managed to carve tipped workers out of any future increases to the federal minimum wage. As a result of low base wages, and a dependence on tips, tipped occupations are amongst the lowest paid in the country. Seven of the 15 lowest-paid jobs in the United States are tipped roles, and consequently, tipped workers live in poverty at over two times the rate of the general workforce. The wage structure perpetuates precarity and leaves its workforce—mostly women and people of color (and particularly those that fall into both categories)— to experience economic volatility.
Digitization of an old template
With the onset of platform mediated work, we are witnessing the digitization and proliferation of an old template. The restaurant industry’s pillars— outsourcing of payment, false notions of entrepreneurship and agency, and inconsistencies between the claims of income versus real income earned—also underpin the gig economy, food delivery work in particular. As the gig economy emerged, like restaurant work, it was cloaked with notions of flexibility and choice, disguising a business model that evaded the traditional responsibilities of employers. These companies, much like rideshare apps Lyft and Uber, use “the tools and rhetoric of technology to blur the line between entrepreneurship, employment, and consumption.”
This blurred relationship allows companies to skirt traditional employment obligations by declaring that workers are consumers of their platform technology, who use it to secure gigs. By classifying workers as independent contractors, these gig economy companies create a disparate and disaggregate workforce, which helps them avoid adhering to the Fair Labor Standards Act, providing healthcare, paying unemployment, etc. Classifying workers as independent contractors allows for lean labor overhead, making it a compelling business model for venture-capital investors.
By classifying workers as independent contractors, these gig economy companies create a disparate and disaggregate workforce.
Many companies that offer platform-based employment have also enacted a subminimum wage compensation model. A cursory review of more than 200 new economy platforms found that while 10 percent include tips as a required or optional means of compensation, tipping policies vary widely. For instance, GrubHub recommends a minimum tip of $5 on any order, whereas Juno only allows tipping following a five-star review. Only half of the platforms that enable tipping make clear that 100 percent of tips are passed on to the worker providing the service. Two platforms, DoorDash (pending an announcement of their new compensation model) and Takl, explicitly state that they do not ensure 100 percent of tips are passed on to the worker providing the service. Amazon Flex notes in its employment agreement that drivers are entitled to 100 percent of all tips “earned” while delivering with Amazon Flex, and that only Service Fees are guaranteed for the provision of services.
The subminimum wage model employed by tech companies leaves them having to pay as little as a dollar per delivery to its workforce. Tech delivery companies have come under scrutiny for their handling of service charges and tips, at times having to settle lawsuits for millions of dollars. Instacart and Caviar were both accused of misrepresenting service and gratuity charges as tips, which were never shared with delivery workers.
Racing for tips
In the restaurant industry, tipped workers are often forced to tolerate sexual harassment and other inappropriate behavior from co-workers, managers, and guests. The reliance on tips creates a dynamic that leaves tipped workers dependent on managers to provide lucrative sections and shifts, reliant on co-workers to cook food accurately and promptly, and of course reliant on guests to leave a tip—the cornerstone of their wage.
For delivery workers, the reliance on tips often leads them to work during dangerous conditions. The elements of a delivery job that are constant are “nasty weather, dangerous encounters with cars and long hours for wages and tips that can fall well below the minimum wage.” Bicycle-based delivery jobs are among the most dangerous jobs. In Boston, a study of bike delivery workers found that “70 percent had suffered an injury resulting in medical attention or lost work, including fractures, sprains, and strains.” If workers are injured during a delivery, their status as a private contractor and dependence on tips often forces them to lean on friends and family members when they cannot ride. Many delivery workers also “depend on the goodwill of bicycle mechanic friends or sympathetic bike shops to keep them working (and thus eating) as their bicycles wear out from near-constant use.”
The plight of delivery workers, especially platform-based delivery workers, may only burgeon.
To exacerbate the race for tips, companies like Postmates, Uber, and DoorDash have instituted surge pricing to incentivize delivery workers to go online during ‘peak’ periods. Peak periods are often during moments of inclement weather, rainy days, blizzards, etc. In extreme instances, the consequences of racing for tips, especially during inclement weather, can be fatal. Caviar couriers have shared that during torrential downpours they have received an encouraging “peppy, emoji-adorned message” from the company that reads “when it rains the orders POUR on Caviar!… Go online ASAP to cash in!” On a rainy afternoon in 2018, during a moment of surge pricing, “it only made sense to work when conditions were bad, making an already dangerous job downright treacherous.” A young Caviar delivery worker was racing to drop-off orders when he was struck and killed by a car. Caviar, like other delivery platforms, profit “off the vulnerability of independent contractors much the way…restaurants have long profited off the vulnerability of” tipped workers.
The plight of delivery workers, especially platform-based delivery workers, may only burgeon. Food delivery is expected to continue to boom. A recent survey by the Restaurant Opportunities Centers United of over 1,200 restaurant workers across the country, who worked at least 20 hours a week, found that over 31 percent of industry workers were working at restaurants that used delivery platforms like Seamless, DoorDash, etc. This percentage will likely increase, as by next year, over half of all restaurant orders are projected to be delivery or takeout orders. Delivery has added coveted revenue stream for restaurants. In 2018, the online food delivery market grossed over $19 million in revenue and is expected to continue to grow each year, reaching over $23 million by 2023.
Reclassification
Not only has tech proliferated a subminimum wage through the delivery economy, but mobile payment systems have spread the ubiquity of tipping. Systems such as Square, the parent company of Caviar, facilitate the solicitation of a tip at the end of a transaction. The growing adoption of these payment platforms by brick-and-mortar retailers has enabled traditionally non-tipped industries, like flower shops, bakeries, delis, and ice cream shops, to introduce digital tipping. These payment platforms facilitate the adoption of a subminimum wage since employers are able to easily monitor tips as they adjust the wage structure.
Digital tipping, together with the repeal of the ‘80/20 rule,’ introduces the potential to reclassify traditionally non-tipped occupations as tipped roles where workers are paid a subminimum wage. Until late 2018, tipped workers across the country were protected by a United States Department of Labor-mandated service threshold, the ‘80/20 rule.’ The ‘80/20 rule’ ensured that a tipped worker had to spend at least 80 percent of their time engaging in customer-facing work. Only 20 percent of a tipped worker’s time could be spent engaged in activities that are not customer-facing and thus cannot produce tips, such as polishing silverware, taking out the trash etc. If a tipped worker spent more than 20 percent of their time doing non-tipped worker, an employer was obligated to pay the full minimum wage for that time. In late 2018, the Trump Administration rescinded the ‘80/20 rule’. The repeal of tipped worker protections leaves any worker that earns at least $30 a month in tips at risk of earning a subminimum wage.
In Washington D.C., traditionally non-tipped establishments have begun reclassifying workers and reducing their pay rates below the minimum wage. In late 2018, at a coffee and gelato shop in D.C., workers arrived to work one day to learn that their wages would drop by $2.75 an hour, leaving some workers earning the same wage they were paid several years prior. Workers were suddenly forced to have to rely on tips to make ends meet.
The adoption of mobile payment platforms has also spread tipping into unlikely places, such as aviation. Flight attendants traditionally perceived as “safety professionals” have increasingly been pushed to become salespeople and service workers. Shortly after the repeal of the ‘80/20 rule,’ Frontier Airlines announced that it would begin to accept tips on its mobile payment devices. In 2016, the Association of Flight Attendants (AFA), the union for Frontier Airlines workers, objected to the introduction of tipping. The union claimed that the company’s management “moved forward with a tipping option for passengers…in an effort to shift additional costs to passengers” and avoid providing airline workers with a raise.
As long as the subminimum wage is allowed to persist, it will continue to normalize the outsourcing of wage payment and spread to current and emerging industries.
One Fair Wage
The persistence of subminimum wages in 43 states nationwide is threatening to spread to new industries, attempting to exploit the concept of consumer tips as a replacement of wages. In particular, platforms that mediate food delivery, are paying their delivery workers a subminimum or non-wage, forcing them to survive, like many restaurant workers, mostly on tips. The spread of the subminimum wage to fast-growing tech corporations signals a grave threat to workers nationwide; as long as the subminimum wage is allowed to persist, it will continue to normalize the outsourcing of wage payment and spread to current and emerging industries.
There have been efforts, led by the Restaurant Opportunities Centers United, to overturn this antiquated and exploitative wage structure. In 2019, sixteen states, including New York, and the U.S. Congress introduced legislation that would phase-in One Fair Wage (OFW) for all workers, meaning the subminimum wage would gradually increase until it matched the full minimum wage. Recently, the Raise the Wage Act passed the House with One Fair Wage intact, the first time that federal legislation to phase-in OFW has moved so quickly and so far. The country is at a crossroads: We can maintain a wage model that has kept women and workers of color in poverty for centuries and is increasingly penetrating new industries, or we can push to enact legislation that phases in OFW for all workers and denormalizes wage outsourcing.
Veronica Avila is a labor rights organizer and researcher. She is currently the Strategic Research Associate with the Restaurant Opportunities Centers United (ROC), a restaurant workers’ center committed to improving wages and working conditions for the nation’s restaurant workforce. Prior to her work in research she was a labor rights organizer, organizing with several service worker unions and the Chicago chapter of ROC. Veronica holds an MSc in Inequalities and Social Science from the London School of Economics. She was a 2018–19 Data & Society Fellow.
