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7 Important Warnings Delivery Independent Contractors Absolutely Must Know

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If you listen to some, being a delivery driver for Doordash, Uber Eats, Grubhub, Instacart and other third party delivery companies seems too good to be true. I even wrote about 11 reasons that being a delivery driver is worth it.

Don't be too quick to buy into it.

At least not until you know all the drawbacks. There are a lot of cons to being a delivery driver in the gig economy. I would go so far as to say there are flat out dangers.

Absolutely do not, I repeat, DO NOT sign on with any of these delivery apps until you know exactly what you are getting yourself into.

Now, don't get me wrong: I love doing delivery. For me, it is one of the most enjoyable and profitable things I've ever taken on. I seriously believe it's a great option for someone who needs to make extra money. I did this full time for three years, so I do believe in it.

Having said all that, you absolutely MUST know what you are walking into. If you don't understand these things,

  • Being an independent contractor for Doordash, Uber Eats, Grubhub, Instacart and others can cost you more than you make
  • You run the risk into getting into some real financial trouble
  • You are far more likely to be exploited by these gig economy companies.

There are both pros and cons to delivering for these companies.

My experience is that when you truly understand what you are getting yourself into, many of these cons aren't as bad as they seem. But you have to approach it with the right mindset and attitude.

Warning sign off a mountain cliff that shows a figuring tumbling down the cliff.

The cons of being a delivery driver for Doordash, Uber Eats, Grubhub etc are summed up in one term: Independent Contractor.

As a new driver signing up for any of these apps, you MUST pay attention to one part of your agreement:

“I agree that I am performing services as an independent contractor and I am not an employee.”

You will see phrases similar to that over and over. The most important thing you can do is understand exactly what that means.

In a nutshell, none of them are hiring you as an employee. The deliveries you do for third-party apps like this are a service you are providing as a business.

Let me repeat that: You're being hired as a business, not as an employee.

Those are the terms you are agreeing to if you go forward. Before you fill out your application and have a background check performed, you must understand this. Before you complete deliveries for any of these apps it's critical that you take this to heart.

If you're going to go into this thinking it's like a job, that's when you'll really be disappointed. Doordash, Grubhub, Uber Eats, Instacart and others advertise these positions as though it's a job opening but then people find out they're not really employees.

It means you're on your own for just about everything.

There are a LOT of freedoms in being an independent contractor. Personally, I think the opportunities are greater when you embrace that role. But if you're not aware of all the things that go with being an independent contractor, you could have a lot of problems.

Remember that you're signing up to start a business. If you don't develop a business mindset and take the responsibility for yourself, it's going to hurt. The following are seven reasons delivery as an independent contractor could be a bad idea.

1. There are no guarantees.

No safety net for delivery contractors symbolized by a man walking a tight rope between buildings.

If you decide to open a store, a restaurant, or any other types of small businesses, you don't have any guarantee, right? You have no promise that customers will come. It's up to you to get them in the door. But that means you don't get minimum wage or overtime.

This is the reality as an independent contractor. You have no guarantees, no protections, nothing. You take the risk of spending all your free time and making nothing.

Business owners understand and accept that. But if you're thinking like an employee, this could be a rude awakening.

Here's the reality: No one owes you anything. None of these delivery companies have an obligation of good paying deliveries (or any deliveries at all). There is no promise.

Because this isn't a job, you don't get an hourly rate or a wage or salary. You receive payment on a delivery by delivery basis. For each delivery you'll receive a delivery fee and whatever the customer tips.

Some companies will offer some bonuses or incentives. Maybe they'll provide a peak pay bonus during peak hours where you get a little extra. Sometimes these third party apps will give you extra money for completing so many deliveries.

Some companies might offer some form of minimum amount per hour, but there are often strings attached. If you don't have a certain acceptance rating by the end of the day they can say “sorry, you don't get that bonus.”

But when all is said and done, you have no guarantees. Let's face it: as an independent contractor, you are rolling the dice.

2. You will wear your car out.

a credit card on wheels.

If you drive for your deliveries, you do so with your own car. If you're in an area where you can deliver on foot or by bicycle, this may not be as much of an issue.

A lot of people think that's not so bad. You buy a little gas, you make some extra cash.

The reality is, the miles you put on your car will catch up. It costs more than just gas to use your car. We think the IRS is pretty generous letting us claim 56 cents per mile as an expense (2021). However, the actual cost is often far closer to that than you realize.

What that means ultimately is, you are making less than you think you are. Often a LOT less.

Put it this way: Your car is a credit card on wheels. Every mile you drive means that certain maintenance things will happen that much sooner. From oil changes to timing belt changes to new tires. Every mile you drive means you will get less money for that car when the time comes to sell it or trade it in. In fact, loss of value in your car because of the miles can often be a greater expense than your fuel.

I don't care what model car you have. Whether it's a Toyota or a Honda or a Volvo, the additional miles take a toll. The nameplate on your car doesn't prevent your tires from wearing out. At some point, if you drive much for deliveries, you'll have to shell out some big bucks to keep that car running.

3. You probably aren't insured while delivering.

Think about that. it's a big deal. Most personal insurance policies have an exclusion written in that specifically states that they will not cover any claim that results from using your car to transport goods or passengers for hire.

In fact, if they find out you are so much as logged in and available for delivery on any of these delivery platforms when the accident happens, they will deny the claim.

If you get into an accident while delivering, you're on your own.

Do you have the money to personally pay for repairs to that other car if you were at fault? Do you still have a loan on your car? How ready are you to pay that loan off, in full, and not have a car to show for it?

The typical food delivery driver has no idea this is even an issue. After all, the third party delivery services tend to ask for your insurance when you are signing up, right? So you'd think you were covered, wouldn't you?

Worse yet, only one major food delivery app (Uber Eats) actually provides any true insurance for you while you're delivering. This is why I recommend starting with Uber Eats if you're just giving delivery a try. None of the others provide coverage for you or your car.

What that means is, if you are going to do this, you need to make sure you are covered. Usually that means either getting an addition to your policy if available, and if not available getting commercial insurance or switching to a policy that will cover you.

You are probably looking at increased insurance costs if you are going to do delivery. Be aware of that.

4. You are on your own for taxes

No one is withholding taxes for you. Grubhub, Doordash, Uber Eats, Instacart and any third party delivery apps simply drop payment into your bank account via direct deposit. There's no paycheck. No paystub. No money is held out for you.

But you still have to pay taxes on your earnings.

And we're not just talking income tax. There's this thing called self employment tax. It's the business owner's version of FICA/Medicare/Social Security.

The thing is, full-time employees (or part timers) don't typically think about taxes. You just fill out your forms, give them your social security number, and your employer sets the money aside for you. At the end of the year you just fill out your tax form and collect a refund.

The first time you do taxes as an independent contractor, it can be a shock. Especially when you realize that no one was withholding money for you. It's a great way to trigger a panic, isn't it?

This is a common issue for first-time contractors especially in the United States. They had no idea they needed to put money aside for taxes.

That's part of the territory when you are your own boss. The only way to stay out of trouble is to do your own withholding.

There is good news though. You don't pay tax on every dollar you get. Taxes are only based on profits (what's left over after expenses). What that means for you is that you must treat this like a business and keep track of your expenses – especially your miles. You can get more information on how taxes work and what you can do with our online tax guide.

5. You get no benefits

There is no vacation pay. You don't get any sick days or paid time off. A self employed person gets no unemployment insurance or workers compensation. There is no company provided health insurance or 401K plan.

You CAN have benefits, but you have to give them to yourself. After all, you are your own employer. It's up to you.

The COVID-19 Coronavirus pandemic has exposed what a major issue this can be. If you were an Uber or Lyft driver you may especially have noticed this. The good news during the pandemic was the delivery industry boomed with new customers and more business.

However, that doesn't do much for you if you needed to stay home because of safety concerns, or you were quarantined while family suffered. Or if you had it yourself.

There's no safety net.

There were aspects of the economic stimulus programs that did help contractors. That's rare. .Usually we're on our own.

The bottom line: We don't have a lot of the protections that many employees do. If you rely heavily on this income, you need to create your own.

What this ultimately means is, if you want to compare this to employment, it means you're not making as much as you think you are. In order to compare to a W2 job, you have to take into account things like vacation time, unemployment insurance, workers compensation, all those things we don't get when we are contractors.

6. These delivery companies won't have your back

executive for a third party delivery app making a promise with fingers crossed behind his back.

As someone who's delivered for more than three years I can say one thing with certainty:

Never trust third-party delivery apps. How do you know if they're lying? Their lips are moving.

Doordash, Uber Eats, Grubhub, Instacart: They are scum. They will exploit you if given the chance. Grubhub will dangle incentives but word it in such a way that they're not promising anything. Doordash will try to sneak things in. Uber Eats could care less about you.

I see it in the promises and the spin. When they change up the pay model in a way that slashes your payments, they'll state “we're improving the way you are paid.”

Many companies promised they would pay drivers who had to stay home due to the COVID-19 pandemic, but many drivers are reporting denials of claims even when the documentation they provide is everything the companies ask for.

I see it when the weather is bad or when couriers think they'll get ‘hazard pay' for delivering in a pandemic. The truth is none of these companies will ‘do the right thing' in regard to things like that. When they pay extra, it's only an incentive to get more drivers out there. It's never about taking care of drivers.

The thing you need to know going into this: You don't matter to Doordash, Grubhub, Uber Eats, Instacart or any of the many smaller platforms. All you are is someone to take the next new order. They chose specifically to contract you as an independent contractor instead of an employee so that they don't have to provide the protections they would need to if you were an employee.

7. The whole opportunity could disappear

Paper sign on a business billboard that says closed out of business.

Despite the downfalls that I list, I would much rather be a contractor for these companies than an employee. However, I'm not sure how long that will be an option.

I see this as a great opportunity overall that outweighs the downfalls (more on that in a bit). But, it's an opportunity that may not last so long.

In other words, never put all your eggs into this basket.

Gig economy companies have long flirted with the line between employees and contractors. They want to pay less for contractors but have those contractors act like employees. Because of that, there's more pressure than ever to take that option away.

California passed AB5 into law in 2019. It was legislation that was designed to better define when a company could and could not use independent contractors. If not for the passage of Prop 22, delivery gig companies would have been forced to hire employees if they wanted to do business in California.

More recently, the current administration wants to adopt parts of California's law into federal law. Federal legislation like Pro Act would make it harder for these companies to continue to use contractors.

I'm also not sure these companies can survive on the current business model. It's not profitable and it's not efficient. I speculated towards the end of 2019 that the industry could be headed for a fall and I believe to this day that the only reason it hasn't collapsed is because of the pandemic. Continued horrible service over a long time is not something that's sustainable.

The bottom line is, there is a potential that this whole business opportunity could disappear within a matter of months or years. If you go into this, you need to have a backup plan because of that.

Does this mean you shouldn't do delivery?

No. Not at all.

I know all these things and yet I still deliver.

But that's the thing about being the boss (which you are when you run your own company) – it's up to you to counter these things or work around them.

These issues are all very real. To me they are not deal breakers.

What's most important is what it means to you. Are you willing to work around all this garbage?

Why these aren't deal breakers to me.

Because I look at this as a business.

And that means I look at Doordash as my customer. Same with Grubhub, Uber Eats and any of the others.

It's a completely different outlook and it really sets up the mindset in a different way.

Think about it this way: If you opened a restaurant, are you promised a minimum wage? Is your customer responsible for looking out for you? Do the people who eat at local restaurants like yours have to take care of your Social Security for you?

Here's what it really boils down to: Your mindset.

What it really means is that if you're walking into this with an employee mindset, where the different apps are supposed to take care of you like you are an employee, you're going to be miserable.

But if you develop a business mindset, where you're the boss, and you are responsible for taking care of yourself, these things don't really matter.

  • You don't have guarantees, but the opportunities are higher. You're not limited to only the doordash driver app or uber eats delivery orders. You get to explore all the options.
  • While you may wear your car out, as a business owner your car is just a tool, and you are planning for that expense.
  • Having the right insurance is just a business responsibility.
  • A business owner is always on their own for taxes, and plans accordingly.
  • You create your own benefits.
  • Your customers don't have your back – but it's never the customer's job, is it?
  • Just like any business, markets change and opportunities go away.

It's up to you. Is it worth it?

My purpose here isn't to talk you out of delivering. Neither is it to talk you into delivering. My purpose is to help you see the pros and cons. To make sure you know ahead of time what you are walking into.

I think you need to know these things because when you embrace the reality of what you are doing, and take control of it for yourself, you have a better chance of thriving within that environment.

For me, it's been far more than worth it. If I had to do it all over again I'd make the same decision, time and time again.

But I can't decide for you.

At this point in time, third party is, in my opinion, a fantastic opportunity. The best way to really seize that opportunity is to understand what you're getting into, go in eyes wide open, and then treat this like a business.

Could this help someone else? Please share it.

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