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“For a consumer to somehow glean that this tip is in fact just subsidizing what the company would have paid on the back end is a completely deceptive practice,” said one consumer advocate.

By Olivia Solon, NBC NEWS

February 4, 2019

https://www.nbcnews.com/business/business-news/why-instacart-doordash-w…

Tips paid to workers at on-demand delivery services including Instacart and Doordash are being used to substitute a portion of workers' wages rather than directly boosting their income, according to online forums dedicated to gig economy workers, and reports to worker rights groups.

While the companies insist they have been transparent with their workers about the pay structure, consumer protection groups have criticized the practice as deceptive to consumers and unfair to workers.

“Any consumer in the United States thinks that the money they are paying in a tip is 100 percent on top of anything else the service provider might be paid,” said Carmen Balber, executive director of Consumer Watchdog, a nonprofit that advocates for consumers.

Towards the end of 2018, Instacart started rolling out a new earnings structure that it claimed offered more transparency to its 70,000 contracted workers. Prior to the change, drivers would get a base rate plus a fixed fee for every item ordered and the tip would be added on top.

Under the new payment system, the company calculates a “batch payment,” which varies according to the nature of the items the “shopper” (contracted worker) must pick from the shelves and deliver. Shoppers would earn more if they had to carry five-gallon bottles of water versus a small bag of fruit and vegetables, for example. On top of the batch payment, the shopper is paid for mileage driven as well as small bonuses during peak hours.

Instacart said it guarantees a minimum per-job payment of $10. If the total pay is under $10, Instacart will supplement the pay to hit $10. If the customer tips at checkout, that tip is used to supplement the batch payment to hit the $10 minimum. Only once the $10 minimum is reached does the tip amount start to boost the worker’s take-home pay.

Hundreds of workers have been posting screenshots and reports of their earnings through the on-demand apps to Reddit and other online forums, which appear to show the company using customer tips to subsidize workers’ base pay. Some workers report that the new payment structure has reduced their earnings by 30 to 40 percent.

In one case a shopper shared screenshots showing they received a “batch payment” of just $0.80 from Instacart because the customer had paid a $10 tip, bringing the total fee for the job to $10.80. When the driver queried why they hadn’t earned more for the job, an Instacart community support representative responded, “The reason that your batch incentive was low for this particular order is because of the tip amount.”

Instacart told NBC News this was an extreme edge case and said that it would introduce a new $3 minimum batch payment to prevent this from happening in the future.

Instacart’s handling of tips and treatment of drivers is the subject of a class-action lawsuit filed last week in California’s Superior Court on behalf of Los Angeles-based worker Sarah Lozano and other Instacart “shoppers.” Instacart told NBC News it does not comment on pending litigation.

The complaint alleges that Instacart “intentionally and maliciously misappropriated gratuities in order to pay plaintiff’s wages even though Instacart maintained that 100 percent of customer tips went directly to shoppers. Based on this representation, Instacart knew customers would believe their tips were being given to shoppers in addition to wages, not to supplement wages entirely.”

Arns Law, the firm that filed the lawsuit, obtained a $4.6m settlement from Instacart in 2017 after filing another class action relating to worker compensation at the on-demand delivery startup. Instacart did not admit any wrongdoing, but agreed to change the way it explained fees to customers.

Phoenix Di Corvo, a Seattle-based graphic designer and Instacart shopper, told NBC News that she saw a big drop in income when Instacart introduced a new pay structure in November 2018, as reported by Business Insider.

Prior to November, Di Corvo said she would get an $8.75 base rate plus a fixed fee ($0.40) for each item ordered. Any tip added at checkout would be paid on top of that. A typical 12-item order would yield $13.55 before tip, she said.

“Now you will see a 12-item order for $12-14, but $6 of that is the tip,” she said, adding that she had to start working much longer hours to make up the shortfall.

“Just imagine if I went to dinner and I got my bill and put my tip in and the restaurant said ‘OK, we are now going into adjust Susan’s pay for the day,'” Di Corvo said. “It’s ridiculous!”

It’s a similar situation with Doordash, which updated its pay structure in late 2017. Drivers get a pay guarantee depending on the size and complexity of the delivery job. If that pay guarantee is $6 and the customer doesn’t tip, Doordash pays the full fee to the courier. However, if the customer tips $5, the courier still only gets $6 and the portion that Doordash pays drops to just $1.

Both companies insist that workers receive 100 percent of customer tips.

“This is technically true, but it’s not how people think about tips. A tip is supposed to be a supplement to a worker’s pay, not a substitute,” said Sage Wilson at Working Washington, a workers' organization that fights to improve labor standards and represents almost 2,000 Instacart shoppers.

Both companies said that the payment structure helps to more fairly and consistently distribute customer tips to guarantee a certain level of earnings for drivers on every trip.

“Since implementing this pay model more than a year ago, we’ve seen a significant increase in Dasher retention, percentage of on-time orders, and Dasher satisfaction,” Doordash spokeswoman Becky Sosnov said.

“Doordash technically doesn’t ‘steal’ your tip, they give it to you,” wrote one Doordash driver on Reddit earlier this month. “But they use it to subsidize what they pay out of pocket which is basically the same thing at the end of the day.”

“Since implementing this pay model more than a year ago, we’ve seen a significant increase in Dasher retention, percentage of on-time orders, and Dasher satisfaction,” Doordash spokeswoman Becky Sosnov said.

Kaylania Chapman, a former worker for both Instacart and Doordash, said she stopped working for these services after her income fell so significantly. She discovered her tips were being partially absorbed by the company after a regular Instacart customer asked her if she’d received a $10 tip and showed her the receipt for the order. Chapman had not received a significant boost to her pay from the tip.

“I am very disappointed. To me that’s not showing good company ethics at all,” Chapman said. “I made really good money, but then they started to change the pay scale,” she told NBC News.

The workers are now calling on customers to either tip in cash or to add the tip only after the job is completed to ensure they are fairly paid. Last week, Working Washington launched an online petition demanding that Instacart stop the practice of what it describes as “tip theft.”

“We’re constantly reviewing and evaluating feedback from our shopper community to ensure they’re fairly compensated for the work they’re doing on behalf of our customers,” Instacart spokeswoman Natalia Montalvo said in a statement. “Last year, we introduced new earnings features designed to pay our shoppers more consistently for their time and effort while also keeping average shopper earnings the same.”

But not every on-demand delivery company treats tips in this way. UberEats asks customers to tip the driver only after the food has been delivered and the payment for the delivery has been taken. The company confirmed to NBC News that any tip paid at this point directly benefits the driver, and two UberEats drivers backed up that statement.

Olivia Solon is a tech investigations editor for NBC News.

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