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How Digital Platforms Pocket your Tips

Categories : Cash enables an immediate transfer of value, Cash is the first step of financial inclusion, Costs of cash versus costs of electronic payment instruments
March 12, 2021
Tags : Cash, Digital payments, India, Online payments, tipping, US
Digital platforms regularly encourage and sometimes force users to pay tips to provide a “seamless” customer experience. In fact, this practice enables tech companies to withhold part or all of gig workers’ tips.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

As gig economy workers, delivery couriers are considered independent contractors with variable and complementary earnings and thus are not covered by minimum-wage laws. The tips digital platform users pay couriers do not necessarily translate into revenues, as platforms develop algorithms to adjust pay-outs according to business objectives.

Amazon to pay $61.7 million to settles charges of cheating drivers out of their tips

Early in February 2021, Amazon agreed to pay more than $61.7 million to settle Federal Trade Commission charges that it had cheated Amazon Flex drivers out of nearly a third of customer tips between late 2016 and August 2019. The firm would have “secretly reduced its contribution to drivers’ pay […] and used the customer tips to make up the difference between the new lower hourly rate and the promised rate,” according to the Federal Trade Commission. “In total, Amazon stole nearly one-third of drivers’ tips to pad its own bottom line,” Commissioner Rohit Chopra, a Democrat, said in a statement.

Tipping Digitally is Not the Same as Tipping Cash: “Tips Are in Fact Profits for the Companies”

In 2015, drivers sued Yelp over unpaid tips for food delivery service Eat24. In the mid-2010s, Postmates charged service and delivery fees that were split between the platform, its merchant partners, and the couriers. However, Postmates did not have an easy-to-access option to tip restaurant workers. Gratuities remained optional, creating “resentment for everybody except the people who can afford the service. All the other parties involved resent each other, even though they’re all in it together,” according to Daniel Krim, a former Postmates bike courier.

Back in March 2016, a class action settlement forced Uber to allow drivers to ask riders for tips, including in cash.  In July 2019, the New York Times revealed that Doordash, the largest meal delivery platform in the United States, also used customers’ tips to subsidize its compensation to delivery workers. Instacart followed a similar policy until February 2019. In April 2019, then-Bronx Democratic councilman Ritchie Torres announced he would draft a bill to require platforms to state whether they paid gratuities to contractors besides or instead of their base pay before processing transactions. “There’s a special place in hell for companies that confiscate the tips of low-wage workers,” Torres said. “These tips are, in fact, profits for the companies – dollars the companies should be paying workers out of their own profits.”

Tipping Platform Delivery Workers during the Covid-19 Pandemic

During the early weeks of the Covid-19 lockdowns in the United States, abusive bait-and-switch customers lured full-service Instacart shoppers into fulfilling their orders by promising high gratuities, only to reduce their tips to $0 after shoppers delivered their groceries. Aware of abuses against contractors, indignant customers have opted to leave cash tips in envelopes at their doors. Delivery workers in India have complained that few customers tip them for their services, assuming they are employed by digital platforms such as Bigbasket, Grofers, and Dunzo.

Protecting Cash Against the Tyranny of Digital Platforms and Cashless Payments

Protecting the economic livelihood of vulnerable gig workers and the freedom that comes with paying and being paid in cash should be essential parts of discussing how to rein in tech behemoths and greedy entrepreneurs. #Cashtipsonly.

This post is also available in: Spanish