You have to feel sorry for Tony Xu, CEO of DoorDash. The food delivery company has been a darling of the VC world, but it encountered a backlash after a New York Times story described how the company keeps most of the tips customers intended for its delivery workers.

Outrage was heaped upon DoorDash, with lawmakers calling for investigations and new regulations. Finding himself at the center of a media and social media storm, Xu did the sensible thing and announced via Twitter that DoorDash would change its policy and give deliverers 100 percent of their tips.

Hooray, you might say, and many have. But you'd be wrong. All the righteous ire about DoorDash keeping tips ignores the broader truth that the way service people are paid in our society is deeply unfair. DoorDash was simply making an honest, and possibly effective, attempt to compensate for it.

Workers who deliver takeout by bicycle or car for companies like DoorDash or Postmates or Grubhub generally don't earn much. Neither the minimum wage nor the lower tipped minimum wage applies to them because they're independent contractors rather than employees. That means these companies are free to set pay for deliveries as low as they like, the only limitation being people's unwillingness to work for an amount that's too low. Indeed, as more people signed up to deliver and the pool of available workers grew, these companies--under pressure to become profitable--have cut back on what they pay deliverers.

Meanwhile, although most restaurant patrons do leave some sort of tip, tipping is much more uncertain when delivery people bring takeout food. One reason for this may be customers' common belief that most of the added fee for delivery goes to the delivery person, rendering a tip unnecessary. Whatever the reason, when New York Times reporter Andy Newman worked undercover as a delivery person for Uber Eats, Postmates, and DoorDash, he reported that the majority of customers did not tip him, while some did. In the restaurant industry, which also effectively replaces part of employees' salaries with tips, research has shown that the size of tip seems to depend on the customer's mood, the server's attractiveness, and his or her race.

DoorDash and the guaranteed minimum

Considered in this context, DoorDash's policy of keeping some or all of customers' tips may not be so dastardly after all. Up until this week, Xu staunchly defended it as a way of making deliverers' income more stable and predictable. It worked like this: DoorDash would offer a delivery person the chance to make a delivery at a guaranteed minimum fee. In an example Newman used, that fee was $6.85. If the customer tipped zero, the deliverer would get $6.85. If, as in Newman's case, the customer tipped $3, DoorDash paid $3.85 in addition to the tip, so that the total remained $6.85--and DoorDash saved $3. Had the customer tipped $10, DoorDash would pay only its minimum fee of $1, giving the deliverer $11 for the trip.

From what Newman wrote, that system was working. He reported that in general he made more from DoorDash than he did from Postmates or Uber Eats. The tip-included guaranteed minimum let him know beforehand what he was going to make for a trip, critical information when deciding whether or not to accept a delivery offer. Indeed, he reports, on a Reddit forum for DoorDash deliverers many expressed concern that the new policy could do them more harm than good.

Customers, on the other hand, are pleased, since they usually intend their tips as an extra payment to the person standing in front of them, not a subsidy to a well-capitalized startup or a way to make up for other people who don't tip. As Xu said in a series of tweets explaining the change, "What we missed was that some customers who *did* tip would feel like their tip did not matter."

So DoorDash will change its ways, the outrage will die down, and cars and bicycles will continue zipping around our urban areas, carrying takeout to hungry people who can't or don't want to fetch it themselves. None of this will solve the bigger problem, which is that it makes no sense to have a large portion of our nation's workforce dependent for a meaningful portion of their income on whether or not a customer has had a bad day, or finds them attractive, or is favorably biased to their ethnic background.

A tip should be what it is in every other nation except Canada--a token amount intended as thanks for particularly good service, not something the recipient depends on to pay the rent. And all workers, whether tipped or not, should be able to count on their employers to pay them a living wage.

Published on: Jul 30, 2019
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