What Accusations of Gig Economy Company Tip Theft Reveal About Industry Prospects

The larger issue appears to be that early hype to the contrary, it is difficult for those employed in the gig economy to make a living wage - and even harder for the companies attempting to encourage that fantasy to make a profit without exploiting them. JL

Shirin Ghaffary reports in Re/code:

Instacart isn’t alone in accusations of mishandling its workers’ tips. Other tech-enabled gig economy companies have been accused of similar practices. Whether these companies are or intentionally misusing their workers’ tip funds, a deeper issue (is) workers in the on-demand app economy are not being paid a consistent living wage. Tip theft might be the ugliest case of gig worker exploitation, but even when gig economy workers get their tips in full, many of them are being paid far below what we would consider a decent minimum wage, by some estimates less than $10 an hour after expenses

Last week, Instacart — the most popular app for delivering groceries to people’s houses in the US — received widespread criticism for allegedly denying their shoppers their hard-earned tip money.

It started when one Instacart shopper shared a receipt that seemed to show that the company was eating into his $10 tip and using that money to help subsidize the worker’s pay, netting him only 80 cents in base pay on a delivery. First, Instacart denied any accusations of tip theft, calling that shopper’s situation an “edge case” and a “glitch” in the company’s new pay model, which it says is designed to reward shoppers more fairly.

But that didn’t help explain the dozens of other similar cases workers shared online with screenshots of their pay stubs — or Instacart’s history of issues with worker pay. Today, the company agreed to change its policy to increase the minimum pay to workers for deliveries, separate that pay from designated tip money, and compensate workers who saw their tip funds redirected.

In a blog post released today, Instacart CEO Apoorva Mehta apologized for the ordeal over workers’ tips, “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.”

Instacart isn’t alone in accusations of mishandling its workers’ tips. Other tech-enabled gig economy companies, including DoorDash, have been accused of similar practices.

Whether or not these companies are or have been intentionally misusing their workers’ tip funds, the public outrage brings to light a deeper issue: Many workers in the new on-demand app economy are not being paid a consistent living wage. Tip theft might be one of the ugliest and most blatant potential cases of gig worker exploitation, but the reality is that even when gig economy workers get their tips in full, many of them are being paid far below what we would consider a decent minimum wage — by some estimates less than $10 an hour after expenses — for jobs that sell workers on a promise of making much more.

For too long, companies like Instacart, Uber, and Lyft have fallen back on the same explanation for these cases: Most of their workers enjoy the flexibility of their jobs, and most of them do it only part-time for supplemental income and are doing it well. It’s the complainers who aren’t doing it right.

If drivers pick up enough riders or if shoppers buy the groceries faster, they would make more, or so the argument goes. But for many workers it isn’t that straightforward. As the Instacart example shows, a series of algorithms that go into complex pay-rate models often dictate worker pay. While some companies, including Uber, are trying to do a better job of making their pay rates clear, they’re still not as simple as an hourly pay rate. And unlike a traditional job, if you think you’re not getting paid enough, there’s no manager to talk to. You can’t ask a formula for a raise.

A growing number of ride-sharing drivers and grocery delivery workers are increasingly frustrated and are asking for a more concrete response than most tech companies are willing to give their gig workers: They want a guarantee of higher wages.

“I’ve worked for several apps off and on — dog-walking, house-cleaning, grocery shopping,” said Ashley Johnson, 30, a former veterinary assistant and single mother who turned to gig economy work because it offered her the flexible hours she needed to raise her child. “This is the first time I’ve been trying to do apps full-time, and it is crazy — because I’m still not making bills, even though I’m working three shifts in a day.”

Johnson is one of the thousands of people who are petitioning Instacart to pay their shoppers more, among other demands. She says that while she is turning to other delivery apps like Shipt, which she says pays its workers a better rate, the reality is that where she’s from — a small town in Washington state — there are not enough customer requests for deliveries to make it a full-time job. Johnson said that’s because Instacart’s groceries are more affordable and more popular with customers.

In response to the criticism around Instacart’s pay practices, some consumers are cancelling their subscriptions, or tipping the delivery workers in cash and putting only 22 cents on the bill as a form of protest. And many Instacart users have backed up workers in their complaints by voicing their support online. But, according to many labor experts, customers can’t be relied upon to enforce wage standards.

“Generally, consumers want to pay less and employers want to pay less, that’s why we have a baseline. That’s why we have regulation,” said Rebecca Givan, a professor of labor studies and employment relations at Rutgers University.

The threat of regulation

New York City recently implemented a first-of-its-kind wage floor of $17.22 an hour, plus expenses, for ride-sharing drivers — a kind of minimum wage per trip — which is expected to bring an increase of nearly $10,000 per year to full-time drivers. Lyft and Juno decided to sue the city over these new pay rules, saying that the way it was designed would benefit Uber, their larger competitor. Lyft says it will pay drivers the same amount on a weekly basis instead of per trip. Regardless of disputes over the mechanics of the New York City wage-floor rollout, it’s a historic move that will force companies to give their drivers a predictable living wage.

Lyft and Uber have said this will result in higher fares, but they haven’t said by how much. According to Lyft, there could be other consequences, such as Uber taking more market share; ultimately, a monopoly would not be good for drivers and riders alike.

Setting those concerns aside, if the New York wage floor turns out to be successful, it could serve as a model for other cities.

“A lot of local governments are likely to be watching how the New York minimum wage experiment plays out,” said Arun Sundararajan, a professor of business at NYU who studies the gig economy. Sundararajan also cautioned that the “devil is in the details” with rolling out these kinds of regulations.

In California, lawmakers are trying to pass legislation that would codify a court ruling forcing gig economy companies to reclassify their workers as employees — which would mean they have to pay the baseline local minimum. In some major cities, including San Francisco, that minimum wage can be as high as $15 an hour. Tech companies including Uber, Lyft, Instacart, DoorDash, Postmates, and others have actively lobbied against such a decision, writing in a joint letter that it would “decimate businesses.”

Aside from legislative threats, there’s also ongoing pressure from the workers, who are increasingly partnering with worker advocacy groups like Working Washington that helped propel the 80 cent Instacart pay stub into the public discussion.

A two-tiered labor market

The outrage over alleged tip theft at Instacart will likely pass, as the company’s previous issues with workers have. As Instacart is on its way to an expected multibilllion-dollar IPO this year, in the eyes of investors, this may end up being nothing more than another minor blip on the record of an otherwise successful business.

But as long as there’s a deepening income divide in the US and an increasingly two-tiered labor system, the long-term fight over worker pay at tech companies that rely on low-paid contract labor will continue. While tech company contract jobs make up a relatively small percentage of all contract jobs across other industries, the tech company gigs are some of the most visible because they are the newest and fastest-growing, and because of the relative obscurity around how they calculate their workers’ pay.

There’s also an expectation that the technology sector bears more responsibility than its peers because it helped create the automation that has contributed to a wider gap between high- and low-paying jobs.

Companies like Instacart would be wise to start figuring out a better response than calling serious questions about worker pay a “glitch.” It needs to come up with a plan for handling one of the key economic issues of our time around contract worker pay before more places like New York and California end up figuring it out for them.