How Might NYC’s New Ride-Hailing Minimum Wage Change Things?

The new year will bring a minimum wage for Uber and Lyft drivers in New York City — that much is clear, even if the new rules on payments are a bit complicated. And while it is also clear that those pay rules will have a wider impact on the ride-hailing ecosystem, what exactly will happen is not yet certain, thought certain possibilities can be put forth.

The move — the first time that drivers who work via ride-hailing apps have won the right to a minimum wage, according to the Independent Drivers Guild —  could also send ripples through the larger gig economy (more about that later).

Here’s the news: On Tuesday (Dec. 4), New York City’s Taxi and Limousine Commission voted to set a minimum wage for ride-sharing drivers. Starting on Jan. 1, drivers working in the five boroughs will earn at least $26.51 per hour in gross pay, which comes to $17.66 after expenses. The city has a general minimum wage of $15 per hour, and the level set for drivers is reportedly “considered equivalent because drivers are independent contractors.”

According to the Taxi and Limousine Commission, 85 percent of the estimated 80,000 ride-hailing drivers in the city make less than the minimum wage, with the average driver making $11.90 per hour. The new pay requirement will result in average annual raises of more than $6,000 for drivers.

Other Rules

But that’s not all that’s happening with the NYC ride-hailing pay decision. Ride-hailing drivers are paid according to complex formulas that account for downtime and other factors.

“When a driver has to drop someone far outside the city, the (new) rules will mandate that companies pay higher to compensate the driver for the return trip,” reads an analysis from Fast Company. That rule, in turn, “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.” According to figures from the Taxi and Limousine Commission, Uber and Lyft drivers, on average, are transporting passengers about 58 percent of the time while on duty. That downtime will earn those drivers more money.

New York City also put a one-year moratorium on granting licenses for ride-hailing drivers. The official idea is to keep control of congestion — recent subway woes in New York City have reportedly led to more overall traffic there, and more use of ride-hailing services, one factor mixed into all of these changes — and also encourage Uber and Lyft to manage drivers more efficiently, which, of course, could save those companies some labor costs.

Tips and Bonuses

As PYMNTS readers can probably imagine, Uber and Lyft were not exactly jazzed about the new payment rules in New York City, where officials had previously put pressure on Uber over driver tips. The ride-hailing providers warned of higher costs coming for riders. Uber released a statement that also said the city’s new pay rules “do not take into account incentives or bonuses forcing companies to raise rates even higher. Companies use incentives and bonuses as part of driver earnings to ensure reliability citywide by providing a monetary incentive to drivers to complete trips in areas that need them the most (such as outside of Manhattan).”

So, how much might prices rise, at least in New York City? Fare increases of 3 percent to 5 percent are possible, according to a study commissioned by the Taxi and Limousine Commission.

It is hard to say exactly how the new pay rules in New York City might change the way that companies such as Uber and Lyft do business — at least beyond trying to ensure that drivers are busier, with more passengers in their vehicles at more times, which seems an almost certain and immediate outcome. And, according to observers’ early reactions to the Tuesday vote, wait times for Uber and Lyft rides are likely to increase, something that Taxi and Limousine CEO and Commission Chair Meera Joshi acknowledged.

Outside of NYC

No doubt ride-hailing workers in other areas of the country — including in cities and states that are relatively friendly toward labor — will seek similar raises mandated by government officials. But New York City is New York City — ride-hailing drivers (along with cabbies, who have competing interests) tend to be much more organized, and able to speak with a single powerful political voice, than drivers in other parts of country, even in solidly Democratic Chicago and other densely populated areas where unions retain meaningful sway.

New York City is its own ride-hailing creature in another way. According to Bloomberg, 60 percent of the city’s Uber drivers work full-time at that job, compared to an average of no more than 35 hours a week in the company’s 20 largest national markets. In New York City, “ride-hailing drivers also hold commercial drivers’ licenses, in contrast to many other large cities. This gives New York’s TLC more power to regulate ride-hailing than most cities.”

Rise of Gig Work

The new pay rules come as gig work — not just Uber and Lyft drivers, but the larger population of that labor pool — becomes more mainstream. According to the PYMNTS/Hyperwallet Gig Economy Index, 35 percent of today’s workforce participates in what is now commonly called the gig economy. That fact is driving marketplace and payment innovation (including fast payments).

The pay rules also come as the long-term outlook would seem to favor ride-hailing via autonomous cars and trucks, though that future is years away, at the very least. Uber, for instance, is reportedly mulling bringing on a minority investor to help bankroll its self-driving unit. The move could reportedly be part of Uber’s preparation to go public via an initial public offering (IPO). Uber is expected to tap the public markets in 2019.

For now, New Yorkers can expect higher ride-hailing prices, along with increased driver pay and longer wait times, combined with more time spent with passengers instead of empty back seats, according to the experts.