(Reuters) - A new California law designed to limit the use of “gig” workers threatens to drive up labor costs for companies that rely on inexpensive freelance drivers to make fast deliveries of everything from restaurant meals to household goods.
California Governor Gavin Newsom signed the bill, known as AB5, on Wednesday. It goes into effect on Jan. 1 and could roil the gig economy if companies are forced to replace independent contractors with employees who earn at least the state minimum wage of $12 per hour and are eligible for expense reimbursement and benefits such as health insurance and paid time off.
Here are some facts about the issues involved:
Research firm Second Measure says Postmates, DoorDash and UberEats reap the greatest percentage of U.S. sales from California - estimated at 41.3%, 24.3% and 23.9%, respectively.
Second Measure, which analyzes anonymized credit and debit card spending, does not track Amazon.com Inc’s (AMZN.O) gig delivery service called Flex. Flex workers deliver millions of parcels and handle same-day deliveries for Whole Foods and Amazon’s Prime Now service.
Gig delivery companies have been crucial to tackling one of the biggest challenges facing traditional and online food and product sellers: expensive “last mile” deliveries to customer doorsteps.
And, critics say, the law could affect a swath of industries employing about 450,000 independent contractors and saddle employers with labor cost increases of 30% or more. Employers are tracking the legislation closely since California has a track record of setting policies that are adopted in other states.
Uber Technologies Inc (UBER.N) has already said it does not believe the law requires it to change its practices, a position that could be tested in court.
Gig delivery companies say their workers make anywhere from $15 to $27 per hour.
UberEats, Postmates, DoorDash, Amazon Flex, GrubHub, Instacart and Target Corp’s (TGT.N) Shipt delivery drivers in California put their pay at $8 to $19 per hour, according to a Reuters analysis of nearly 700 entries on recruitment site Glassdoor, which invites workers to report their pay.
Drivers who work for gig delivery companies choose “jobs” from company-supplied mobile apps. Pay is based on a variety of factors including travel distance, time and customer tips. Drivers are not reimbursed for the use of their cars, gasoline or other expenses.
DoorDash and Amazon shed some light on how delivery pay is calculated.
The current “guaranteed minimum” pay formula at DoorDash, which delivers for companies such as McDonald’s Corp (MCD.N) to Walmart Inc (WMT.N), takes into account the size of the order or package, expected wait times and mileage.
Some or all of a tip may go toward meeting the minimum. For example: A guaranteed minimum of $10 would include base pay of $1, a $3 customer tip and $6 in additional pay from DoorDash. DoorDash’s new model, expected to roll out at the end of September, will have a guaranteed minimum of $2 to $10 based on distance and time, plus any promotions. Drivers will receive 100% of customer tips on top of the guaranteed minimum. Amazon’s Flex service offers drivers hourly “blocks” at a set rate of pay, allowing the company to pay independent contractors what amounts to a set hourly wage. Amazon says it pays at least $15 to $19 per hour for that work. For example, a three-hour block that pays $15 per hour would be offered at $45. Package delivery drivers, who supplement the work done by Amazon’s delivery van partners, do not receive tips. Flex drivers who take groceries and other items to Whole Foods and Prime Now customers can receive tips on top of what Amazon pays.
Uber, which reaps most of its revenue from drivers who ferry passengers from place to place, said its independent drivers are already properly classified because their “work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces.”
Uber, Lyft Inc (LYFT.O) and DoorDash have earmarked a combined $90 million to spend on a ballot initiative aimed at protecting themselves from AB5.
Compiled by Lisa Baertlein in Los Angeles; Editing by Greg Mitchell and Grant McCool