Jul 23, 2019 - Economy

DoorDash's "tips" model is under fire

Illustration: Aïda Amer/Axios

DoorDash is getting renewed heat over its pay model for delivery workers, whereby customer tips can be included in guaranteed minimum earnings. Critics argue this is consumer deception, although it's fairly similar to the "tipped wages" earned by waiters in certain states.

Why it matters: It's a reputational mess for DoorDash, as the "unicorn" tries to prove that its business model can work beyond billions of dollars in venture capital subsidies.

Until 2017, DoorDash paid its “Dashers” a flat $6 fee per order, plus any tips from the customer. Then it switched to its current model.

How it works: For each delivery a Dasher accepts, the company displays a “minimum guaranteed” amount he is sure to earn, which the company says is calculated based “the estimated time and effort required to complete that delivery."

  • For example, imagine a Dasher is guaranteed $7.00 to deliver a burrito.
  • No matter what, DoorDash will contribute at least $1 to the Dasher for this burrito delivery.
    • This is similar to how restaurants in most states pay their waitstaff a base wage below the full minimum wage, no matter how much they also earn in tips.
  • The burrito recipient tips $3. This leaves a gap of $3 to reach the $7 guaranteed minimum, once DoorDash's $1 contribution is included. In this case, DoorDash provides the extra.
    • Waitstaff generally is guaranteed to make at least minimum wage, all in. So if it's a very slow night with few tips, restaurants must make up the difference.
  • If the burrito customer tips $10, the Dasher would get $11 in total, with DoorDash only kicking in its $1.

DoorDash isn’t doing itself any favors by referring to these payments as "tips," but that's primarily because many people haven't really thought too deeply about what tips really are. In this case, they are often in lieu of payments DoorDash would otherwise make to Dashers. At a restaurant, it's in lieu of wages that the restaurant would otherwise make to its waiters.

  • DoorDash says that 15% of orders receive no tips. It also says that it contributes more than the customers to the minimum guaranteed amount on 65% of orders.
  • It’s unclear for what portion of orders Dashers earn more than that guaranteed minimum.
  • The company claims that, on average, it contributes about the same to Dasher fees as it did under the old $6 model, and that average Dasher earnings are $17.50 per hour.
    • Amazon also uses this tipped wages model for its Flex delivery workers, and grocery delivery service Instacart utilized it until recently.

Despite all the money being thrown at food delivery, profitability can be elusive.

  • DoorDash and other on-demand delivery companies are shifting the true costs of delivery labor to the customer without explicitly increasing the fees — devising elaborate ways to make their math edge closer to profitability.
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