Uber Is Limiting The Amount Of Tips Drivers Receive

Of all things… from the company that just can’t seem to get anything right. Ridester has learned that Uber has put a limit on the amount customers can tip drivers!

cNet tells the story of a Los Angeles Uber rider who took a 90-minute, multiple-stop ride with a driver.  The man was so appreciative of his driver, Denise, because she had been so nice to him during the trip even though he knew she was making next to nothing.

The trip ended up being only 35 miles and the rider knows that drivers make most of their money on distance.  So, he felt bad for her that he had taken up so much of her time but not gone very far.  He knew on this kind of trip that drivers barely make anything.

Related: How much do Uber drivers make in 2018?

He wanted to give her a nice earnings-boosting $20 tip to thank her for her efforts.  So, while he was still in the car with the driver, he opened up the app, left the driver a rating and then tapped the $20 tip into the app and then, he exclaimed, “You gotta be kidding me.  It’s saying it’s over the limit!”

Over the Limit

The app refused to allow Denise’s passenger to tip $20 and of course the rider didn’t have any cash on him.  So, he ended up giving her the most Uber would allow – which was $14.80!

In the middle of last year, when Uber first introduced tipping, they didn’t say a thing to anyone about there being any kind of limit to the amount a rider could leave as a tip!  They surely didn’t inform drivers of this.  And they didn’t inform riders either.

The scandal-plagued company made a big effort last year to make up for its past sins and redeem itself in the eyes of drivers.  But it seems they just can’t get it right.

It seems they’re just not capable of doing anything good – in the right way.  Something about doing the right thing alludes this company.  Even when they try to do the right thing, they figure out a way to do it wrong.

In driver forums, drivers were furious when they started finding out about this.

What is the tip limit and why is there one?

The tip limit set by Uber is either 200% of the fare or $100 maximum.  No tip can go over $100.

Now you might be wondering, who would leave a $100 tip anyway?  Well… there are people who do.  I had a guy give me a $140 cash tip one time on a $120 trip.  It happens especially often if you drive for the higher-end services, like uberBlack or Lyft Lux.  And with those services, tips are frequently more than 200% of the fare.

To calculate 200% of a fare easily in your head, just double the fare.  For example, if you do a $24 trip, 200% of that would be $48.

Running up against the 200% limit happens quite frequently actually.  A driver might get stuck in traffic with a passenger on a short 5 mile trip that ends up taking 45 minutes.  If the driver strikes up a nice conversation with the passenger, the passenger might be feeling generous towards the end of the trip and appreciate the driver’s patience and goodwill despite the traffic and throw in an additional $25 on a $10 fare.  But, he wouldn’t be able to.  He’d only be able to leave a maximum of $20.

Uber says they’ve imposed these limits to prevent riders from accidentally typing in too many zeroes.  But what they should have done instead of putting a cap on the amount of tips, is they should have designed the app to ask for extra permissions when tips exceed these limits. This could work similar to how they verify the request when SURGE pricing is enabled.

In other words, if a rider leaves a tip that exceeds either 200% of the fare or $100 – all Uber would have to do is add a couple of confirmation screens making sure the rider is aware of how much they’re leaving.

The confirmation process could go something like this:

  • Rider leaves 300% tip
  • Confirmation screen pops up that says, “You are leaving a 300% tip… Confirm or Cancel”
  • Rider presses “Confirm” then they could have another screen confirmation pop up that says, “Are you sure you want to leave a 300% tip – this is higher than average… Confirm or Cancel”

If the rider confirms twice, then that means they really intended to leave that much – so Uber should let them do it.

In the old days – by which I mean about five or six years ago – drivers made really decent money.  And part of the reason was, no one put a limit on tips.  Almost all tips were in cash and almost all riders tipped.  And every now and then – by which I mean several times a week – a rider would leave an extra large tip.

Even cab drivers got in on this.  They knew if you hang out at bars late at night, you’ll get a bunch of drunk passengers.  And they also knew, if you can make a drunk passenger laugh or feel good during the course of the ride, there would be a good chance they’d throw a large wad of cash your way as they got out of the car!

Would they regret it the next day?  Most likely they would – if they remembered doing it.  But if they regretted it – there wasn’t much they could do about it.  The tip was in cash and the driver was long gone!  There was pretty much no way in those days for riders to ever know which cab they took.  So if they gave the driver too big a tip – there was no way they’d ever be able to get it back.

And that’s a good thing.  Drivers work really hard and are grossly underpaid most of the time.

They rely on the generosity (and sometimes drunken stupidity) of their passengers to make ends meet.  It was a big part of the business.  And if a drunk passenger left too big a tip – it was a good thing that they couldn’t get it back the next day if they had any regrets.

Lyft is in on it too

Oh, and if you thought Uber’s good twin Lyft wasn’t in on this – think again.  They are.  Lyft’s maximum tip limit is even lower than Uber’s!  Lyft allows up to 200% to a maximum of just $50.  So, no Lyft tip can ever be more than $50.

Some people think there might be another reason these two companies are limiting tips.  And it has something to do with the 3% (or so) fee they have to pay to the credit card companies for each charge they make to a customer.

They’ve promised to pay drivers 100% of the tips they earn.  But, they still have to pay a small percentage in transaction fees to process the credit card charges for the tip amount.  Usually those fees are in the range of 3%.  But imagine if most riders left a $3-$5 tip.  That would cost these companies millions of dollars a month in additional transaction fees.

And that might explain the reason Uber has always been so anti-tipping.  It might also explain why still today, Uber has hidden the tipping option in the app, making it as difficult as they possibly could for riders to get to it!

In order to tip, Uber makes you rate the driver first.  But they know that only about 10%-15% of riders ever bother to rate their drivers.  So they know around 90% of riders are never going to get to the tipping option.

Sometimes when dealing with small numbers, it’s hard to imagine it adds up to anything.  But imagine this.  Imagine an Uber trip that cost the passenger $14.  On this, Uber stands to make about $3.50.

Now, let’s say the passenger decided to leave a $20 tip.  Uber would have to pay approximately $0.60 in banking transaction fees to process the charge for the $20 tip.  $0.60 doesn’t sound like much when you’re talking about $20.  And in fact, it isn’t much – it’s just 3%.

BUT… Uber has promised to give 100% of the $20 to the driver.  But they’re only taking in $19.40.  So they’re fronting 60 cents to the driver.

Still, it doesn’t sound like much, but remember, Uber’s whole take on this trip was just $3.50.  So that 60 cents is actually a rather sizable portion of the $3.50.  It’s 17% to be exact.  So 17% of their net profit on this trip was just taken away.  And that’s a lot of money to be losing on tips – when you’re a company that’s already losing a billion dollars a quarter!

Of course there is a way around this.  Instead of limiting tips, they could just inform drivers that if a tip exceeded 200% of the fare or was more than $100 – they would deduct 3% from the amount that went over those limits.  So, if a driver gets a $120 tip they would take $0.60 out.  I’m sure drivers would rather get $119.40 than to be limited to $100.  I think we’d take that deal.

Outside of that solution, when you look at the economics of in-app tipping, you can expect to see these companies keep the limits in place and you can expect to see Uber make no changes to the app that would make it easier for passengers to give tips.

What do you think of Uber and Lyft limiting the tips drivers receive? Is it fair? How has it affected you? Let us know in the comments below!