New York’s TLC Proposes Minimum Pay for Uber Drivers

New York City is on the verge of becoming the first city in the nation to set a minimum pay floor for its more than 80,000 app-based ride share drivers.   In New York, this would include four ride shares companies; Uber, Lyft, Juno and Via.

The New York Taxi & Limousine Commission (TLC) has put forth an aggressive proposal that, if put into law, would force Uber, Lyft, Juno and Via, to set a floor on driver pay, which would mean an immediate pay increase for most drivers.

In a massive study commissioned by the TLC, it was found that drivers make less than $15 an hour and far less after expenses.  The study also found that major changes need to be made so drivers can earn a living wage.  If the recommendations of the study are approved by the TLC, it would become law and mean major changes for the four major ride share companies operating in New York City.

It is also a move that could be followed by other cities around the country.  The New York TLC report will be studied everywhere.  And New York’s results will be closely monitored by other cities.

While a few other cities, like Seattle, have passed various laws regarding driver conditions, New York is the first major city to move on regulating driver pay.

The report is notable because in New York the ride share companies are mandated by law to hand over all trip data to the TLC.  So, the TLC knows exactly how much New York City drivers are really making.  And it’s far less than the $90,000 a year Uber once told us they made a few years ago.

New York Drivers Are Different from the Rest of the Country

New York drivers are demographically quite different from drivers in the rest of the country.  They are younger, less well educated, more likely to be the primary provider of a family with children and more likely to be on some form of government assistance.

Fifty percent of New York drivers are under 44 years old.  In the rest of the country a majority of drivers are over 50.  In New York 56% of drivers only have a high school education or less.  In the rest of the country far more drivers have a college education or greater.  In New York only 17% of drivers have completed college.

The TLC also noted in its report that 40% of New York drivers are on Medicaid, 4% Medicare and 16% are uninsured.  That’s 60% of drivers who are either uninsured or on some form of government assistance for health care.  Also half of New York drivers have children.

According to the report, “New York City’s taxi and FHV (For-Hire Vehicle) drivers, most of whom are now app drivers, include a large share of relatively young immigrants with comparatively low education levels who provide primary support for their families. Drivers concentrate more heavily in these groups than does the city’s workforce as a whole. These patterns contrast sharply with those reported in Hall and Krueger (2018), who found that Uber drivers in 2015 in a sample of U.S. cities closely resemble the overall workforce in their cities.”

Driver Earnings Declined Dramatically Between 2014 and 2017

In one of the first independent looks at Uber driver earnings using real data from Uber, the TLC found that driver earnings decreased substantially between 2014 and 2017.  For the hardest working drivers, those who worked 50 hours a week or more, earnings dropped 30%.

In 2014, Uber drivers who drove 50+ hours a week earned 30.60 per hour (Gross).  In 2017 that plummeted to $21.30 (Gross).  In net terms, that comes to approximately $20.65 net to the drivers in 2014 and $14.38 net to the drivers in 2017.

Uber takes out approximately 32.5% from driver’s gross earnings, some of which goes to city and state taxes and other mandated fees.

In 2014, an Uber driver working 50 hours a week would bring in $1,032 net after Uber’s fees.  In 2017, that same driver working the same number of hours would only bring in $718 a week.   The TLC pegs 2017 median driver earnings at $14.25 an hour.  Median earnings means that half of all drivers earn more than $14.25 an hour and half of drivers earn less.

Two thirds of the drivers who earn more than this average, drive premium vehicles that qualify for higher paying services than uberX.  These could be uberXL, uberBLACK and uberSUV vehicles.  In New York, a large portion of the premium vehicles are luxury SUVs.

The TLC has done a detailed study of driver costs in New York City and they have concluded it costs $0.58 per mile on average for New York drivers, which is very close to the IRS’s estimate of $0.545 per mile.

The TLC’s Proposal

The TLC believes that drivers should earn at least $17.22 per hour at a bare minimum.  They say this will give drivers a $15 per hour minimum wage which is what the minimum wage in New York City will rise to as of December 31, 2018.

Plus, it includes $0.90 per hour that will accumulate to give drivers an amount they can use for paid time off. And it includes an extra $1.32 an hour to account for the employer share of the payroll tax on $17.22 in earnings.

The proposal also includes a $1 bonus per shared trip pickup above the minimum pay standard to encourage drivers to accept requests for shared rides.

The TLC had considered simply mandating a fixed rate that Uber and the other companies would have to charge – and it would be higher than the rate they charge now.  Drivers would be paid a fixed percentage of whatever the passenger paid.  In addition to this they considered limiting the number of new licensed drivers that the ride share companies could bring on.

However, they don’t have the authority to mandate these things.  Only the New York City Council has that authority.  So they have come up with this innovative plan that takes free market principles into consideration as well as considerations for how any price increases to passengers might negatively affect the business.

They realized that if they mandated the companies to raise their rates, that that could have all kinds of unexpected consequences.  For instance, it could mean fewer people would use the services and then drivers would suffer by not having enough trips to keep them busy.

In a move to align the companies’ interests with the drivers’ interests, the TLC has come up with a creative plan that will not necessitate a fare increase on passengers, and that will put it in the economic interests of the companies to limit the number of cars on the road.  Which in turn will increase the time each driver’s car is “utilized” by a passenger, making it possible for each driver to earn even more than the minimum wage they will set.

Up until now, these companies have had no economic incentive whatsoever to limit the number of drivers.  In fact, the economic incentive has always been to get more drivers on the road.  That’s because it costs the company nothing to have a driver available and ready to go.  The driver could sit there for an hour, empty, waiting for a call and it didn’t cost the companies a dime.  It cost the drivers plenty though.  But it didn’t cost Uber or Lyft a single dime.

The more drivers they have on the road the less time passengers have to wait for a pickup.  So from the companies’ point of view, the more the merrier.  In fact, there was no such thing as too many drivers!

By mandating that the companies pay drivers a fixed minimum amount per hour though, the TLC would give the companies just that incentive.  If the companies have to make up the deficit between what drivers make and what the City of New York mandates that they must make, you can bet, they’re not going to have a bunch of idle drivers sitting around anymore!  Now, that idle driver who has been waiting for a call, will have just cost the company $17.22 for every hour he sits empty.

If this proposal becomes law, it will align the companies’ best interests with the drivers’ best interests – for the first time.

They will then have an incentive to get rid of any excess vehicles that aren’t being fully utilized.  It will be in their interests, for the first time ever, to make sure each driver stays busy.  Because a busy driver means the companies won’t have to subsidize their earnings to bring them up to the $17.22 minimum per hour.  If they’re busy, they’ll earn more than that on their own.  And the companies won’t have to put in any additional money.

For drivers that don’t stay busy and don’t earn the $17.22 an hour, the companies will have to make up the difference.  So, they’ll definitely be motivated to get rid of excess drivers.  And that’s good for drivers, it’s good for the community, it’s good for traffic and it’s good for the environment.

It will mean slightly longer wait times for passengers, but the TLC study estimates that increase in wait time will be counted in mere seconds, not minutes.

My Personal Impressions

As a New York driver, I have listened in on several of the TLC hearings where drivers were invited to come speak and relate to the Commissioners stories of their struggles and hardships.  And I am amazed at how well the TLC has listened and heard what drivers had to say.

In their report, they have documented in detail how the companies are treating drivers unfairly.  They have really taken all the major driver complaints and hardships into consideration in this plan.

Also, their study on driver expenses was extremely accurate.  They didn’t miss a thing.  Even noting that SUV drivers had much higher expenses than uberX drivers.

I know the New York drivers are going to be very happy that the TLC at least listened and is making an effort to help them make a living wage in this business.

My only worry is that the companies will attempt to balance the ratio of drivers to passengers in such a way that ultimately no driver will be able to make any more than the $17.22 minimum.  It seems likely that that minimum may also become the maximum.  That is obviously not what the TLC intends, but it sure seems like what the ride share companies will do if they can.  They may very well look at a minimum wage as the wage they can legally get away with paying.  It’s also troublesome that this is coming down to an hourly pay question.

In the past drivers made money based not just on time but on distance as well.  They were able to make far more than the minimum wage – which is right when you consider they’re bringing a $20,000 – $50,000 piece of equipment to the job.  They are in essence loaning that equipment out to Uber, Lyft, Juno and Via.  The typical minimum wage employee is not required to bring anything to the job – much less a $20,000 – $50,000 vehicle.  So, because of their capital investment, they deserve more than just the minimum wage.

While $17.22 an hour is some 22% higher than the average New York driver is making now, if that ends up being the most they can make, it will still be a very tough way to make a living and provide for a family.

And by the way, if you haven’t seen a copy of the report, you should take a look.  It’s filled with interesting information and great insights into the business!