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June 24, 2024

Delivery App Giants Hike Fees After Seattle’s Minimum Pay Law Takes Effect

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Jan 16, 2024

Seattle’s new law aimed at providing minimum pay protections to delivery app drivers took effect this past weekend, prompting companies like DoorDash, Uber Eats, and Instacart to raise their fees charged to customers. The law has delivered early wins for drivers through increased pay, but also triggered tensions between the apps and local restaurants facing higher commission rates.

Law Mandates Base Pay Formula for Drivers

Seattle’s PayUp ordinance, approved by the city council in September 2023, requires companies that offer prepared food delivery in the city to pay drivers a minimum per trip fee based on distance traveled, time spent, and tips.

The formula guarantees a minimum payment of $0.30 per minute and $1.50 per mile from acceptance to delivery. Drivers must also receive at least the full tip given by the customer. The city estimates this will provide an average minimum payment of $11.73 per trip.

Prior to the law, drivers were paid per delivery but there was no minimum guarantee – leading to wide fluctuations in pay. Supporters said the PayUp requirements create a consistent wage floor that compensates drivers fairly.

“Everyone deserves fair pay for their work, especially after companies like DoorDash and Uber reported record profits last year,” said Seattle Councilmember Andrew Lewis, who authored the bill. “This legislation moves us toward an economy that works for all.”

Delivery Apps Raise Customer Fees and Restaurant Commissions

In the days leading up to the January 14 effective date, DoorDash, Uber Eats and Instacart all announced or implemented fee hikes for Seattle customers. DoorDash raised its existing commission rate charged to restaurants by 3.9 percentage points in order to comply with the law.

Uber Eats tacked on a flat 99 cent “Seattle Fee” for all orders originating within city limits. On January 13, Instacart emailed Seattle customers saying they would charge an additional 1.5% “Seattle City Fee” on all delivery and pickup orders.

The table below summarizes the fee increases implemented by each company:

Company Fee Increase
DoorDash Raised restaurant commission rate by 3.9%
Uber Eats Added flat $0.99 “Seattle Fee” per order
Instacart Added 1.5% “Seattle City Fee” on order subtotal

DoorDash said they determined the 3.9% commission hike was necessary based on data modeling to cover the increased earnings for Dashers while avoiding effects on customer demand.

“We’re committed to providing Dasher opportunity while limiting the impact on merchants and consumers,” DoorDash said in a statement.

The apps framed the fees as a necessary step to comply with Seattle mandates. However, some industry experts say the companies could absorb more costs without substantially impacting profits.

“These companies are raising delivery charges in an effort to pass the compliance costs to consumers instead of shareholders,” said Kellen Kazan, a gig economy analyst. “Their high profit margins suggest there is room to maintain earnings while providing better driver pay.”

Drivers See Pay Boost But Face Fee Transparency Issues

Early data shows the PayUp law has led to an immediate jump in pay for delivery drivers in Seattle. One Uber Eats driver said he earned $8 more than usual on a typical 4-hour dinner shift last Friday. Others reported $5-10 per hour pay increases on average.

“It’s made a huge improvement so far,” said Paul Wu, a delivery app driver who has worked in Seattle for three years. “Earning $15 or $20 per hour consistently means I can actually pay all my bills.”

However, some drivers have experienced issues receiving a complete breakdown of pay data per trip as required by the law. Lydia Nicholson, a leader in the newly formed Seattle App-Based Drivers Association, said she has only gotten basic cumulative totals from Uber Eats rather than per trip details.

“We want transparency into how each trip payment is calculated, including mileage rates and time,” Nicholson said. “It’s the only way to ensure we’re getting what we’re owed under the law.”

City Signals Enforcement Against Violations

The office of Seattle Mayor Loretta Smith, who made the PayUp legislation a key priority during her campaign last year, warned this weekend that the city will aggressively enforce compliance by delivery apps.

Companies found to violate requirements on minimum driver pay, pay transparency, or providing worker rights notifications face fines of up to $1,000 per offense. Violations over tipping rules could trigger fines of up to $500 per offense.

“Let me be clear – Seattle will not tolerate denial of workers’ rights or any attempts to skirt this landmark law,” Mayor Smith tweeted on Saturday. “My administration will organize the full power of enforcement to protect app-based drivers.”

Some industry experts believe gig economy companies may mount legal challenges against the ordinance despite Seattle’s strong language. There are also questions about how the rule might impact restaurant prices and delivery app availability in lower income neighborhoods.

“There are still open questions about how sustainable and equitable this policy will be,” said Chad Rutherford, an economist studying the gig economy at the University of Washington. “But in the short term it does improve conditions for some vulnerable workers.”

Future in Other Cities Unclear as Battle Lines Emerge

The early effects of Seattle’s law are being watched closely by other cities considering similar legislation. Chicago, New York City, and San Francisco have proposals in the works modeled after PayUp.

At the same time, state legislatures are advancing preemption bills backed by gig economy companies that would limit city-level action on issues like driver pay and classification.

Just this month, the Arizona legislature introduced a bill prohibiting municipalities from enacting ordinances that affect third-party delivery platforms. With support from major app companies, lawmakers in Florida, Texas, Indiana and other states are pushing similar measures.

The arena for this emerging policy battle between cities and states is still taking shape. Seattle Mayor Smith said she hopes their city’s experience informs wider change.

Smith tweeted on Sunday: “Seattle is setting the pace on the fight for worker justice and economic fairness. To my fellow mayors – stay strong. Protect your workers.”

The coming months promise growing tensions on all sides as delivery drivers advocate for more rights, apps aim to protect profits and market position, restaurants grapple with rising fees, and consumers face higher costs. Meanwhile, Seattle faces challenges translating its bold policy experiment into lasting, equitable outcomes.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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