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On-demand delivery company Instacart announced on Wednesday that it plans to overhaul the way it pays its contracted workforce to ensure that tips do not subsidize its workers' pay.
On Monday, NBC News reported that Instacart and other delivery companies including Doordash were using customer tips to subsidize the fees the company paid to drivers -- a practice that consumer protection groups criticized as deceptive to consumers and unfair to workers.
Under the new payment structure announced on Wednesday, Instacart will separate tips from the company's compensation to drivers and pay drivers for the tips Instacart absorbed dating back to October 2018, when the previous payment system was rolled out.
Read more from NBC News:
In a blog post addressed to the company's contracted workforce on Wednesday, Instacart founder and CEO Apoorva Mehta described drivers, referred to by the company as "shoppers", as "household heroes for millions of families across North America".
"This past week, however, it's become clear that we've fallen short in delivering our promise to you," Mehta said.
For every job, Instacart calculates a "batch payment," which varies according to the type and number of items the contracted worker had to pick from the shelves and deliver. The batch payment are generally higher if they have to carry five-gallon bottles of water versus a small bag of fresh produce, for example.
Under the old model, If the batch payment was under $10, Instacart would make up the difference to ensure that drivers were paid a minimum of $10 per delivery. So if the batch payment was $6, Instacart would add $4. However, if the customer tipped the driver, Instacart would reduce its contribution. For example if the customer tipped $3, Instacart would only pay $1 to reach the guaranteed payment.
"While our intention was to increase the guaranteed payment for small orders, we understand that the inclusion of tips as a part of this guarantee was misguided," Mehta said. "We apologize for taking this approach."
Under the new model, which will be rolled out "in the coming days," Instacart will contact all drivers who lost out on tips on jobs below the $10 threshold. If a driver was paid $7 by Instacart, he or she will receive an additional $3 from the company in back pay. A source close to the company who was not authorized to speak publicly said the move would cost the company millions of dollars.
Instacart said it will also raise the minimum batch payment from $3 to $5 for smaller delivery-only jobs and between $7 and $10 for jobs where the driver also picks and packs the orders.