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How Instacart is Stealing Tips And Cutting Pay By Changing to a Service Fee

How Instacart is Stealing Tips and Cutting Pay By Changing to a Service Fee

Last week, I wrote about how Instacart was changing their pay structure. On the surface, they are giving us a higher base delivery fee and item commission but removing our tips. In some markets, we are getting a higher “bump” for Costco and no change at all in other cities. The higher base delivery fee and item commission does not make up for what we lose in tips. They are also instituting Peak Days for Sunday and Monday where we would be making about $0.25-$2.00 more per order, depending on the city. Sundays will pay more than Mondays. Shoppers average about one order an hour so we’re only looking at a very small increase in pay even on peak days.

I’ve done the calculation along with other Full Service Shoppers (FSS) and we are all getting a very significant pay decrease from these changes. I get about 50% of my Instacart income from tips. With the new pay scale, I would be getting a 17% pay decrease. On some days, it will be closer to 30%, while on some days I will be getting a 10% pay increase because of a few customers who don’t tip. I have done the calculation for another shopper in Los Angeles and he will be getting on average a 27% decrease with 61% of his income coming from tips. On some days, the pay cut would be as high as 50% because of the large tips he gets. For the most part, he has many more good days than bad, relative to the new pay scale. He would be going from $24 an hour to about $18.50 an hour.

The higher percentage of tips you get as income, the higher the pay cut will be. If you get roughly about 40% of your income in tips, then you won’t see a huge pay cut. Anything over 40% and you are looking at a pay cut. As two data points, I get about 50% in tips and getting a 17% pay cut. My friend is getting 61% of income in tips and getting a 27% pay cut. The largest I have seen is 65% income in tips and about a 33% pay cut.

Instacart claims that 20% of orders don’t get tips. Instead of making the customer application workflow better in order to increase tips for those orders, they decided to do away with tips. There are other services that claim a very high tip percentage and keep making their application better to get more people to tip.

Service Fees

Instacart has been playing around with the wording of their customer application for the past few months. A few shoppers who also uses Instacart noticed that instead of tips, it is now saying service fee.

It also notes that the service fee would not necessarily be going towards the shopper who delivered to you, but to all shoppers including In-Store Shoppers (ISS) that shops for delivery only orders. Instacart has changed In-Store Shoppers to be employees and they get an hourly wage. In order to motivate them to shop faster, they also get a small match of the “tip” from that order. This match varies by city. Some cities don’t get any match while some get 20%. The Full Service Shoppers who delivers the grocery often gets the entire tip but ISS also gets paid a percentage match of the tip that comes from Instacart directly.

This is where Instacart is stuck. It promises to pay FSS tips and is legally obligated to do so. They also promised that ISS gets a portion of the tip from such orders and they have been paying out of pocket for that. Also, Instacart claims to “only” take 20% from the delivery fees and now have to pay ISS a portion of the tips. Instacart needed a better way to collect fees from customers and distribute it among its workers.

In order to solve the issue, they have converted Tips into Service Fees. The main goal is that Instacart could use customer’s tip to help pay their own workers. However, it was never to help shoppers. From everyone I spoken to, everyone was getting a pay cut. Some shoppers noted that a lot of shoppers get most of our income from tips and Instacart wanted to get piece of the tips. By changing it to service fee, Instacart could do what it liked with this money. There have been legal precedence that restaurants or businesses could charge a mandatory service fee and distribute it as they see fit, including keeping it.

Higher Delivery Payouts

The base delivery payout will be higher for both full service orders and delivery only orders. The largest increase is for delivery only orders since they pay so little after the last pay cut in March. Here is an example of it in Seattle:

Here is also the note that went along with the new rates:

Note: Each week rates for available hours will be stated clearly. Rates may vary slightly on different weeks based upon a variety of factors including customer demand in individual markets.

Depending on the week, these rates may change. Most of us are hoping that these rates will increase because of the service fees. However, this allows for them to reduce the rates as well, giving us another unofficial pay cut. I will be monitoring these rates in my own city and get other shoppers to take note of them in their own city to see if there is any change going forward.

Even if the rates are going up, this means that some workers will be working harder than others for the same pay. There could be a large tip for delivering 50 cases of water and not a large tip for delivering 50 packages of aspirin. On the new system, both would be paid the same, even though 50 cases of water is much harder to deliver than 50 packages of aspirin.

Bonus for 5-star Orders

The only way that Instacart rewards the best shoppers is a $100 bonus for the top 25% of shoppers in terms of rating for the week. Here is what was in the email:

Shoppers who are in the top 25% of five star customer ratings will get a $100 quality bonus each week. You must complete at least 20 deliveries per week to qualify. The bonus program will run through the end of the year, at which point we’ll evaluate shopper and customer feedback before making any modifications.

This bonus alone won’t really motivate the best shoppers. 20 deliveries is about 15-20 hours a week. This does nothing for those who work full time and do over 60 deliveries a week. In order to properly motivate the best shoppers, this bonus should be tiered for shoppers who shop more hours. So $200 bonus for at least 40 deliveries and $300 bonus for at least 60 deliveries. This would go a long way to properly motivate shoppers and to keep quality high.

The bonus most rewards part time shoppers who work around 15-20 hours a week who also deliver a lot of delivery only orders. It doesn’t properly reward shoppers who have more than 20 deliveries a week.

Instacart Profits from Service Fees

For the most part, most people will probably not realize the change and keep paying a service fee, so Instacart will be getting additional net revenue to help pay their own workers. The full service shopper will be getting a pay cut but in-store shoppers will maintain their pay for the time being. They also got a new notice that changed their payout from a percentage match of the tips to a portion of the service fee. Note that in-store shoppers in some cities do not get a match of the tip.

The problem is that our efforts are not properly compensated for. Without a tip, there is almost no motivation to provide great service or shop for large orders. Shoppers typically only accept large orders because of the possibility of a good tip. Without it, I think most shoppers will pass on large orders, especially at Costco. The pay increase in some cities don’t properly compensate us for very large orders.

In my next article, I will be writing more about how the change in pay will affect behavior of shoppers.

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