Grubhub new tip policy in California discourages tips to make themselves look like they are charging less

Now that Prop 22 is in play and drivers are being paid a minimum, Grubhub has responded with a new tip policy in California that charges customers extra while telling them they don't need to tip.

Under Prop 22's new minimums, gig companies have to calculate a minimum pay based on 120% of minimum wage, plus 30 cents per mile, along with their tips. Drivers that deliver for a certain number of hours have to be given allowances for certain benefits.

Grubhub's response? Charge more and implement a new policy that recommends $0 tips.

“Y'all don't need to tip now, so just send more money to us instead.”

Thanks.

Testing the new Grubhub tip policy by creating orders in California

I noticed a lot of drivers in California commenting that tips have dropped dramatically. Some said Grubhub isn't even adding a tip any longer.

Was this a new tip policy? Grubhub used to be great at setting a default tip amount. Is it possible they're doing something different in California?

I decided to give it a look. I went through the process of starting an order for where I am in Colorado, and then to a random hotel address in California. Then I chose a national chain so I could create a consistent order, and put together the same order in for both locations.

I'm not really hungry for KFC, and I don't plan on travelling to California to receive the order, so I never actually completed the order. I got as far as the checkout and then canceled.

It was a simple 8 Piece Family Fill Up at KFC.

Differences in fees and recommended tips based on the delivery address

For the Denver location, Grubhub came up with a $20 subtotal, a $3.49 delivery fee, $5.55 taxes and fees, and a default tip of $5.81 (20%).

Total cost to deliver: $34.85

That's one thing that's always made Grubhub attractive as a driver. They have always done well at recommending that people tip.

Then I picked a place I knew in California and started up an order as though it were to be delivered there. Same food, same order, different state.

And much different results.

$20 subtotal. $0.49 delivery fee, $5.69 tax and fees, and $1.50 Driver benefits fee.

And no recommended tip.

So what happened to the tip?

There's a place on the order screen where you can choose your tip. On the Colorado based order, it defaulted at 20% but gave me options to change it to 18%, 25% or 30%. The 20% tip amount was added to the order total by default.

On the California based delivery, no tip was added to the order total. The tipping option gave the option to add a tip of $0.50, $1, or $1.50. It was defaulted at $0.

If you click on the little circled i next to the “Leave an optional tip on top of Driver benefits line, you get an extra box that says “Give thanks with a tip. If you would like to tip on top of the standard Driver benefits payment, 100% of your generosity will go to the driver.”

It gets better.

If you click on the information icon next to the “Driver benefits” in the order totals, you get this message:

In support of California's Prop 22, this payment helps guarantee minimum wage and healthcare benefits for our drivers so they don't have to depend on tips.

Grubhub explanation of the Driver benefits line item for California orders.

Why is Grubhub's new policy discouraging tips?

Let's be fair. They're not telling people not to tip.

But they are essentially telling customers they don't need to tip. How else would you describe “so drivers don't have to rely on tips”?

This sounds a lot like Uber's old game of “we pay our drivers well so you don't have to tip.”

What is up with this?

My theory is that this is they think they'll avoid a backlash for raising fees that they charge customers.

Here's the thing. Like I said, Grubhub has been great at encouraging tips. They know that if their customers tip well, they can get away with paying as little as possible out of their own pockets.

Except that no longer works in California. Grubhub has to pay more because of the mandates under Proposition 22. The time and distance calculation that was the basis of the Grubhub pay model comes nowhere near minimum wage (let alone minimum wage plus 30¢ per mile).

It costs Grubhub more to deliver in California because of Prop 22.

They need to make up that money somewhere. So they added what they called a “Driver Benefits” fee.

Well, if you eliminate the driver tip, now it doesn't seem like they're charging extra, does it?

Is some of this a backlash because Grubhub didn't want Prop 22?

I'm not TOTALLY sure that Grubhub didn't want Prop 22. But unlike Doordash, Uber, Lyft and Postmates who spent millions to promote the passage of Prop 22, Grubhub was strangely silent. I haven't seen any reports of Grubhub contributing to the campaign at all, and I've speculated before that I wonder if Grubhub wanted it to fail.

It's one thing to reduce the suggested tip. But to eliminate it altogether, and to suggest that tips aren't needed? Something about that seems retaliatory, if you ask me.

Fine, we have to pay more. We'll just make sure drivers don't actually MAKE more.

And then there's this theory about Grubhub's new tip policy in California, which is truly sinister.

It started out as a theory that I threw out a couple of times. After reading in the LA Times that Grubhub's response is that drivers are already making 20% more under Prop 22, it makes even more sense.

Grubhub doesn't want drivers to make more.

They don't WANT you to tip their drivers in California.

Here's why.

Delivery fees to drivers are up under Prop 22. If tips are the same, drivers make more. And that's a problem for Grubhub.

Why is it a problem?

Because if drivers are making more money, delivery driving is more appealing.

When delivery becomes more appealing, more drivers think that doing this full time makes sense.

And there's your problem. It's all about Prop 22. Because under Prop 22, if you drive 15 hours per week for any particular app, they have to provide a stipend for healthcare. At 25 hours per week, they have to cover you 100%.

The other thing about Prop 22: Drivers are still independent contractors. Grubhub cannot control schedules, they cannot tell drivers not to drive.

But they can tell customers they don't need to tip.

Are Doordash and Uber Eats doing the same thing?

Business Insider reported that Doordash and Uber Eats will charge more as a result of the increased costs of Prop 22.

So, I did the same experiment. In fact, all three companies deliver from KFC, so I started the order process for Doordash and Uber Eats.

What I saw was that they seem to be doing something similar, but not nearly to the extent that Grubhub is.

Doordash is recommending a lower tip amount than in Colorado.

When I went through the order process on Doordash, with the order for the same exact items from the same exact stores, the delivery charges were nearly identical except for the recommended tip.

In Colorado, Doordash defaulted to a $6 tip. In California they defaulted to $3. Both locations waived the $3.99 delivery fee. Colorado had a $4.77 Fees and Estimated Tax charge, while California's was $4.80.

Unfortunately I have no information to gauge whether or not Doordash has always recommended a lower tip amount in that area.

The Business Insider article indicated that Doordash would just increase their service fee. Again, I have nothing to compare with, so I don't know if the “Fees & Estimated Tax” in California would have been lower prior to Prop 22's implementation.

It's possible the fees were higher in Denver prior to Prop 22, because Denver puts a 15% cap on Delivery commissions. Again, without a ‘before' for California, it's hard to say.

Uber Eats is showing an additional fee and a slightly lower tip amount in California.

Same process, same restaurant, same order.

Uber Eats adds a $2 “CA Driver Benefits fee, which looks very similar to Grubhub's fee. But they still have a default tip amount listed. On the California order, it was at 15% compared to 18% in Denver.

Again, I don't know if that's normal that they have a different default tip percent in different states. That said, it looks like they did something similar to Grubhub, in that they lowered the tip amount a little, added the extra fee, so in the end it doesn't feel like it's costing dramatically less.

Grubhub doesn't seem to be doing this new tip policy on every order

For fun, I tried out different restaurants, all with the same address. On some orders, Grubhub suggested a 15% tip. On others, they did the same thing they're doing here.

Overall, three out of the five restaurants I looked at had Grubhub suggesting no tip at all.

I have no idea why they do this on some and not on others. I don't know if it's that they haven't fully implemented the charge or what it is.

How does fewer tips under this Grubhub policy impact driver pay?

The best thing I can think of is to compare to some of my own deliveries.

I looked at a random month of Grubhub deliveries. In that month I drove 1,244 miles, and was on active deliveries for 84.02 hours (I actually track my time and miles for every delivery, so I have that data).

I made $783 in delivery fees and $1,309 in tips for that month.

I ran the numbers. If I were paid under Prop 22, I would have made nearly $900 more in delivery fees than what I did earn.

I still would have needed to make $409 in tips to break even with what I earned.

I could have had a 50% reduction in tips under Prop 22 and still have been ahead.

However, a total elimination of tips would have cost me about 20% of what I made that month.

What's the fallout going to be with Grubhub pulling this new tip policy?

That will be interesting to watch.

Drivers are noticing. I'm already seeing it discussed in forums.

I work with multiple apps. If I'm seeing several offers coming in on Grubhub with no tips, and all the others are offering tips, how long do you think I'll stay with Grubhub?

Maybe that's what they want. I wonder if that's their end game: Weed out the cherry pickers.

Now that there's a minimum wage, maybe they think they can get enough people who will take everything.

I'm glad I'm not in California. But even in Colorado I have to tell you I'm seriously re-thinking my relationship with Grubhub, with what they're pulling in California.

For them to tell customers they don't need to tip is not acceptable. Anywhere.