Instacart Ends Controversial Tip Policy; DoorDash and Amazon Flex Don't

When you tip someone, you assume the money you're leaving goes directly to them as a bonus on top of what they're being paid as your bartender, cab driver or waiter. You don't assume the company they work for would then decide to pay them less or more based on what you tip.

But this is exactly what was happening at the food delivery company Instacart, and what still seems to be happening at DoorDash and Amazon Flex.

In a statement, DoorDash defended its policy as transparent and supported by "Dashers" — what it calls its food delivery workers. Amazon Flex did not respond to requests for comments about how they're handling tips and compensation.

We know how Instacart was handling tips because, under pressure from workers and media reports, the company publicly reversed its policies in early February. This was after Instacart used the complexity of its payment structure to obfuscate how it was using tips to offset worker compensation.

From the outside, it’s difficult to know how gig platforms like Instacart, DoorDash or Lyft calculate what they pay their workers or how they price their services. In both cases, algorithms crunch real-time data to spit out numbers — and the inner-workings of those algorithms can change at any moment. Pricing and pay is often dynamic, based on conditions like the supply and demand of the gig worker. Both customers and workers have routinely complained about a lack of clarity.

Here’s how Instacart’s payment structure works: When a customer orders groceries, the company computes a payment — what it calls a “batch” — for the worker based on a bunch of factors, like how many items are in the order and how far the worker has to travel to deliver them.

Customers also enter the tip amount ahead of time, with the idea that if a customer is really dying for kumquats and kombucha, then a high tip can encourage Instacart workers to take and complete the order speedily. The batch amount and the tip are all paid through the customer’s phone to Instacart, which then pays out the total to the worker.

The controversy over tips started ramping up for Instacart last October, when it restructured how it paid workers. There was instant backlash, with workers saying they were earning far less than they did before, which Instacart denied.

In response to worker complaints, the company set a minimum payment floor of $10 per delivery. That minimum included both the customer tip and the “batch” payment calculated by Instacart. And this is where the slipperiness slips in.

Instacart used customer tips to ensure it was meeting its minimum payment floor. If customers tipped low and the worker did not make the $10 minimum per order, then Instacart would chip in extra money to make sure they did. If customers tipped high, then Instacart didn’t kick in additional funds — effectively lowering the actual payment for the job.

Workers said it boiled down to this: When they got low tips, they got higher compensation from Instacart; and when they got high tips, they got lower compensation from the company.

Through an advocacy group called Working Washington, Instacart workers posted stories and screenshots online detailing their grievances. In one case, a worker's actual payment from Instacart for an hour-long delivery was just 80 cents — with a $10 tip from the customer. Instacart said that case was an anomaly. On Jan. 14, over 1,500 workers signed an open letter objecting to how the company was compensating them.

In an email to KQED in early February, a spokesperson from Instacart said, “Our shoppers also always receive 100% of the tips given to them by our customers.” This is true. But what is also true is those customer tips were being used so the company had to pay less in compensation to meet its promised minimum.

DoorDash implemented a similar policy back in 2017. In an email to KQED, a DoorDash spokesperson wrote:

"Based on Dasher input, it was designed to ensure that Dashers are more fairly compensated for every delivery. DoorDash always pays Dashers a fixed base pay, plus 100% of customer tips. We will continue to protect Dashers with boost pay in cases where earnings would otherwise be insufficient to cover the effort. Since implementing this pay model in 2017, Dasher retention and overall satisfaction have increased significantly, while average delivery times have decreased."

What these companies are doing is essentially what’s called a tip credit, which is legal in most states. It means an employer can pay tipped workers less than minimum wage, as long as the tips bring the workers over the minimum wage threshold. If the tips don’t, then the employer must chip in extra in wages.

Tip credits are illegal in California. Employees must be paid minimum wage, and they keep any tips on top of that wage. Employers are not supposed to deduct anything from tips or use them to adjust compensation. In restaurants, non-tipped workers and management are not even supposed to touch the tips — a convention put in place to stop tip theft.

However, that doesn't make what Instacart was doing or what DoorDash, and reportedly Amazon Flex, continue to do illegal. That’s because of how the company classifies its workers.

Instacart, DoorDash and Amazon Flex all follow the typical gig model used by Lyft, Uber and others. They classify workers as independent contractors, not as employees. This means they are not protected by minimum wage laws and therefore California's law against tip credits. Instacart and other gig companies can change the amount of tips and compensation paid to these workers as they see fit.

In the case of Instacart, the blowback from workers and customers was enough that the company decided to revamp its policy.

In an open letter, Instacart’s CEO, Apoorva Mehta, wrote, “Tips should always be separate from Instacart’s contribution to shopper compensation.” Mehta also said, “All batches will have a higher guaranteed compensation floor for shoppers, paid for by Instacart,” and noted that Instacart would retroactively compensate shoppers for payments when tips had been included to meet minimums.

Working Washington has celebrated getting Instacart to change its policies and is trying to use this as a springboard for more organizing among gig workers.

But DoorDash is still using the same tip model, as is Amazon Flex reportedly, which affects thousands of gig workers. And as long as workers in the gig economy are contractors, then all of their earnings — tips included — will continue to be at the discretion of the company developing the app and setting the algorithms.