Exclusive: DoorDash reveals how much it relies on customer tips to pay its workers

By Sean Captain

In its ideal world, food-delivery service DoorDash would pay its contractors almost nothing–relying on customer tips to cover most of the fee quoted for a job. In the real world, conditions are usually not so ideal, as DoorDash reveals to Fast Company, disclosing the share of driver payments that come via tips from users. In about 15% of cases, customers leave no tip, and DoorDash pays the entire amount, the company tells us. (The default tip is usually set to 15% in the app.)

In the next roughly 45% of cases, customers contribute less than half the money required to meet the minimum quoted fee–called the “guaranteed amount”–leaving DoorDash to chip in the majority of the fee. (DoorDash calls the money it contributes to make up the difference a “pay boost.”)

That news may not do much to satisfy workers protesting the company’s unorthodox accounting of pay and tips–especially in light of concessions by grocery delivery service Instacart last week that set minimum payments from the company to drivers.

The guaranteed amount for a DoorDash assignment, quoted in the driver app, comes from some combination of the company’s own payments and customer tips in 85% of cases. If a customer pays more, DoorDash pays less–as little as $1 (called “fixed base pay”), if that’s all is required to get pay up to the guaranteed amount. DoorDash also adds a dollar when tips meet or exceed the guaranteed amount for an assignment. Thus, drivers know the minimum they will make before accepting a job, but the final amount may be higher, depending on the size of the tip.

Protesting Instacart workers have accused the company of also using tips to subsidize pay. Instacart denied the practice, and a new minimum-pay structure introduced last week would seem to rule out the possibility. But DoorDash acknowledges applying tips to the guaranteed amount in its FAQ about the new payment system.

That’s not how tips or gratuities are supposed to work, says economist Sylvia Allegretto of the Institute for Research on Labor & Employment at the University of California, Berkeley. In a case like DoorDash’s, “Tips become part of a wage subsidy instead of becoming a gratuity,” she says. “I think most customers intend for them to be a gratuity.”

One way to insure that, says Allegretto, is to tip in cash, not in the app. Ignorant of how much the customer tips, DoorDash has to pay out 100% of the guaranteed amount. Protesting Instacart workers had been encouraging customers to do something similar by leaving just a 22-cent tip that forced the company to pay more.

Criticisms aside, 80% of contractors (called “Dashers”) are happy with the current pay system, says DoorDash, based on worker surveys conducted since the system was introduced in late 2017.

Previously, tips were awarded on top of fees from DoorDash, but overall compensation was lower, says the company. DoorDash says that contractors are being paid better overall with a new algorithm that calculates the real amount of work that goes into an assignment. As an example, a representative compared the hassle of trudging to pick up an order at a downtown location versus breezing into a restaurant at a shopping mall. (In late 2018, Instacart also introduced an algorithm intended to better reflect the effort in a particular job.)

Still, 20% of DoorDash contractors are dissatisfied with the current pay system–based on the company’s own measurements–including what they call a lack of transparency in how pay is calculated. (Industry consultant Jake Kronborg, aka Gig Coach Jake, recently posted an extensive critique of DoorDash’s pay system on YouTube.) Not many contractors are voting with their feet, according to DoorDash, which says that “retention and overall satisfaction have increased significantly” under the new model. It declines, however, to quantify how much retention has improved.

Nor does DoorDash say how the new algorithm and practice of counting tips toward fees have affected its bottom line. That’s critical information at this stage of DoorDash’s evolution. According to Bloomberg, DoorDash chief financial officer Prabir Adarkar stated that the company is planning for an IPO, though he did not specify when it would take place. DoorDash refused to confirm or deny Bloomberg’s reporting when we inquired.

In an official statement sent to Fast Company, DoorDash states:

DoorDash’s pay model provides transparency, consistency, and predictability. Having extensively tested pay models with our Dasher community, we believe our model best serves both Dashers and customers. 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. We believe in being transparent with all members of our community, which is why we’ve highlighted how the model works on our blog, our Dasher FAQ, and our Consumer FAQ since 2017.

This article has been updated to correct inacurate information provided by DoorDash.

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