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Inside New York’s plan to guarantee Lyft and Uber drivers a minimum wage

As app-based companies have grown in popularity over the last several years, driver wages have declined. A new policy in New York City could reverse the trend and set a precedent for other cities that want to see drivers get a living wage

Inside New York’s plan to guarantee Lyft and Uber drivers a minimum wage
[Photo: nycshooter/Getty Images]

In New York City, over 80,000 people earn their living by driving for app-based companies like Uber, Lyft, Juno, and Via. In the past several years, these companies, which control around 75% of the ride-hailing marketplace in New York City, have benefited from (and helped create) a boom in demand for rides, fueled in part by failings of the local subway system, and in part by the sheer availability of car service. But even as their services have become more prevalent to New York City, and many other places across the country, the drivers’ earnings are not keeping pace: In fact, they’ve been declining. But a new suite of pay rules up voted for on December 4 by the city’s Taxi and Limousine Commission could change that, and set an important precedent for the way this growing sector is compensated.

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Part of the reason for-hire vehicle drivers have seen their wages stagnate, or even fall, is that they are not legally full-time employees of the companies that they drive for. Rather, they’re independent contractors, and thus are not protected by minimum wage laws. Because drivers are contractors, not employees, they’re also responsible for leasing or purchasing their own vehicle, and all the upkeep that goes along with that (which amounts to around $400 per week for a driver). They’re also not entitled to paid time off, health care, or other benefits that full-time employees receive. Consequently, around 85% of drivers take home less than the local minimum wage of $15 per hour. And as the number of trips made by the four largest for-hire vehicle companies rose from 42 million trips in 2015 to nearly 159 million trips in 2017, their rates have remained steady.

For the past two years, though, the Independent Drivers Guild, a nonprofit labor organization in New York City that advocates on behalf of for-hire vehicle drivers, has been running a campaign to change the dynamic between those four large ride-hailing companies including Uber and Lyft, and the drivers that keep them running.

The first step toward reaching the campaign’s goals came in August, when the New York City Council voted in favor of a policy that would allow the city’s Taxi and Limousine Commission to enact a formula essentially requiring app-based companies to pay their drivers more–enough that they could secure above the minimum wage of $15 per hour. New York City was the first metro area in the U.S. to take this step, says IDG founder Jim Conigliaro.

Under the new rules, drivers should be able to expect higher, consistent pay. Here’s how the IDG breaks it down:

  • The drivers are guaranteed to receive at least base hourly wage that begins at $17.22–the local minimum wage of $15, plus an additional amount for driver expenses–while they’re driving, even if they don’t have passengers in the car. Previously, drivers would take home an average of around $14 per hour.
  • Drivers are paid according to a formula that factors in the trip’s mileage, the time, and the average percentage of time a company’s drivers actually have passengers in the car (called the “utilization rate”). For a 7.5-mile, 30-minute trip for a company with a utilization rate of 58%, a driver would earn around $23 before expenses.
  • The new formula also calls for a “Shared Ride Bonus” to offset the fact that drivers that offer shared rides, like Uber Pool, still receive adequate compensation (TLC will set a specific bonus rate for each driver depending on their vehicle occupancy and how often they offer shared rides).
  • When a driver has to drop someone far outside the city, the rules will mandate that companies pay higher to compensate the driver for the return trip.

Previously, app-based vehicle drivers were paid just on the basis of how many trips with a passenger they completed, and how much time each of those trips took. Under the new rules, companies would have to compensate drivers for the total amount of time they spend driving–including waiting for passengers, or taking “deadhead,” or passenger-less, trips between pick-ups (this often happens on the way back from long trips outside the city, but applies to any lengthy driving in between trips with passengers). This new pay structure incentivizes companies to have drivers ferrying passengers most of the time, and ensures that drivers are fairly covered for both time and gas spent on drives. Currently, the average utilization rate–or the percent of time drivers are actually transporting passengers–is around 58%, which means a significant amount of previously uncompensated time on drivers’ shifts will now earn them money.

Along with the new pay rules, the city will put a one-year moratorium on new licenses for for-hire vehicle drivers in order to ensure that existing drivers can receive higher pay. Doing so could help ease congestion on the already-crowded streets, and push companies like Uber and Lyft to more efficiently manage the drivers they already have on their platforms.

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The fact that the City Council authorized the TLC to implement a pay structure was a victory in itself, says Conigliaro. After a meeting in October, the IDG pushed back against an initial proposed wage floor of $15 per hour, saying it undercounted the expenses that drivers accrue in their work. After analyzing expense data from over 500 drivers, IDG called for a pay floor that would include expenses like gas, and raise take-home pay from an average of around $11.09 per hour to $17.22 per hour–which would amount to a yearly salary increase of over $9,000 per driver.

Prepared for pushback from both riders and companies like Uber about the higher wages for drivers, TLC commissioned a study from economists at the New School and the University of California, Berkeley, who found that “the app companies could easily absorb an increase in driver pay with a minimal fare adjustment and little inconvenience to passengers.” Essentially: Companies like Uber and Lyft have become so large and have so much backing from investors that they can and should, Conigliaro says, be paying their drivers a livable wage. And doing so without raising passenger fares significantly (more than 3 to 5%) is well within the realm of possibility.

While Lyft says its supports its drivers earning a livable wage, the company balks at fully supporting the policy. “Lyft believes all drivers should earn a livable wage and we are committed to helping drivers reach their goals,” says spokesperson Campbell Matthews. “Unfortunately, the TLC’s proposed pay rules will undermine competition by allowing certain companies to pay drivers lower wages, and disincentive (sic) drivers from giving rides to and from areas outside Manhattan.” Uber’s director of public affairs Jason Post agreed that a higher wage for drivers is a necessary goal, but said the following in opposition to the proposal: “TLC’s implementation of the City Council’s legislation will lead to higher than necessary fare increases for riders while missing an opportunity to deal with congestion in Manhattan’s central business district.”

While it’s unsurprising that the companies oppose having to pay more out of their pockets to ensure drivers have enough to live on, the move to raise wages is in line with shifts in other industries: Amazon, for instance, just raised its minimum wage for all workers to $15 per hour. And the shifts that the wage policy calls for should not, Conigliaro says, dramatically alter costs for customers, and should at least slow the proliferation of vehicles clogging New York City’s busiest streets.

Conigliaro says that with New York City taking the lead on this type of policy, it shouldn’t be long before other cities begin to follow suit. There’s been momentum in Seattle, for instance, to implement a higher wage for for-hire vehicle drivers. Even though New York City is unique in that it has the TLC to oversee and push for the type of policy that will make the minimum wage hike possible, “just because an administrative body like this doesn’t exist in other cities doesn’t mean they can’t create one,” Conigliaro says. And ultimately, doing so will help drivers to organize and share data that could put more pressure on companies to pay them fairly.

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About the author

Eillie Anzilotti is an assistant editor for Fast Company's Ideas section, covering sustainability, social good, and alternative economies. Previously, she wrote for CityLab.

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