Uber’s Hidden Cost: The Surprising Truth Behind Tipping and Driver Pay

When Travis Kalanick left Uber, and Expedia’s CEO took over, one of the first moves was to introduce tipping of drivers. Kalanick had opposed tipping because he wanted the experience to be seamless – no extra clicks or decisions, just get out of the car.

People generally applauded the change as being good for drivers, because they do not understand how tipping works. It doesn’t mean higher pay.

The CEO of one hotel ownership group actually said the quiet part out loud. Hotels encourage tipping housekeepers because it means hotels can pay the housekeepers less or at least avoid paying them more.

There’s a wage that’s necessary to attract enough workers. Whether that wage is coming from the guest or from the hotel doesn’t matter. If more comes from the guest, the hotel doesn’t need to pay as much to fully staff the department. For instance,

  • A worker might accept employment with an expectation of making $20 per hour.

  • It doesn’t matter if that’s $20 from the employer, or $15 from the employer and $5 (on average) from guests.

  • However the lack of certainty in tipping might mean they’d need $6 or $7 from guests to consider it break-even. But that still lets the hotel pay $3 or $4 less.

That’s exactly what’s happened at Uber. They introduced tipping, and Uber pays their drivers less. They can get enough drivers on the road precisely because drivers expect that while Uber doesn’t pay as much, the customer might make it up with a tip.

What’s happening, though, is that Uber is paying drivers less and people are tipping less than drivers have expected. That’s reduced driver pay, which encourages better drivers with other opportunities to leave the platform. They’re replaced by different drivers, and often less expensive, older, and less well-maintained vehicles. It’s one reason that the overall Uber experience has gotten so much worse.

According to the new Gridwise Gig Mobility Report. It contains interesting nuggets like,

  • Business travel may not be what it used to be, but the most airport dropoffs are still on Monday mornings, and pickups peak Sunday evenings (when people return from weekend trips, and some business travelers head out).

  • The most expensive rideshare trip for last year cost $1,277.45 from Los Angeles to Vegas. One customer tipped $176.68 on a $688 fare. The longest trip was 562 miles from Knoxville to Chicago.

  • One Kansas Uber driver did 72 trips in a day, and a DoorDash driver made 85 deliveries in one day in Anchorage.

However what’s really interesting is data that sheds light on driver pay and tipping behavior. They found that Uber drivers made 17.1% less in 2023 than the year before.

51% of food and grocery driver income comes from tips. This figure is just 10% for rideshare drivers, in part because expected tipping isn’t happening – only 28.3% of rides earn tips (compared to 88.5% of grocery deliveries and 74.5% of food orders).

Now, I tip service workers with tough jobs and low wages. It supports a system that’s bad for workers, but I don’t want to stick it to the individual employee on a given day.

Of course you should never tip a Hong Kong-based investment group that owns your hotel and you shouldn’t tip the online travel agency website where you booked your hotel. And as a general principle: you should not give tips to a computer, such as a self-checkout kiosk.

I have to remind myself how bad taxis were (and are) because Uber is so frustrating. Taxis were always limited in number by regulation, so there were never enough. They were hard to get. You’d spend time flagging them down on the street (in the rain and cold) and then they might not even want to go where you were going. Once you got one the car was invariably in poor condition, because they earned the same amount whether it was well-maintained or not.

Uber is great compared to taxis but that’s something they accomplished a decade ago. Uber changed on-demand ground transportation but then it settled. For all of its sins, it used to be an innovative company and now it’s not. That’s bad for customers and for drivers, but they’re also not burning investor cash the way they used to. Since the company is living off of past innovations it’s had to improve its financials by squeezing both sides of the platform, drivers and customers, instead of growing into profitability.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. A bit different but all of these deliveries, food or just people, services end up adding layers of fees, sometimes hidden from the casual user, that I avoid them as much as possible.

    During covid I was looking at the fees for getting food delivered and I could understand:
    1. Pay for the food
    2. Pay a small fee that the company gets
    3. Tip a driver

    But often there are other fees AND the food is marked up. Got to the point where it was better for me to do a pickup from Longhorn Steakhouse (an upper midrange place) than get 2 firehouse subs delivered.

    Companies get greedy, especially post IPO and it is never enough money. So I can’t recall getting anything delivered via a 3rd party in years. And with Uber drivers playing games with accept drives but then never show up, waiting for you to cancel and get charged a fee, I haven’t used them in many years either.

    Its unfortunate but that is life around here.

  2. There are so many factors here that it is hard to really know what to believe based on some of these individual nuggets. For example while there was a 17% reduction in earnings there was also a 3% reduction in hours. Obviously the earnings outpaced the hours but they were both at least trending the same direction. Then you get into costs. Gas has gone down by more than 17% this year. I wonder what the bottom line is per mile or per hour for a driver. That doesn’t get into what Uber is charging customers either. Are they pocketing the difference or are they actually taking in less gross revenue per ride? I personally have seen less insane surge prices in the last year than before.

  3. Taxis were TERRIBLE. You think your barista gave you a dirty look this morning on your coffee tip? Try a cab driver who thought you hadn’t tipped him enough!

    But it was an economic inevitability that Uber prices would rise closer to taxi prices. A driver gives up time to take you somewhere, and that cost will be fairly constant in an area. An Uber driver in NYC pays the same for food and rent as a cab driver. We can raise the cab driver’s pay some through government intervention, but the Uber driver has to eat as well.

  4. I have not used Uber extensively and have used taxis more often. The Uber rides I have had have been in decent cars with decent drivers. I tip the drivers as I would tip a taxi driver.

  5. @AdamH … gas prices went down because the politicians want to be re-elected , so they are draining our strategic reserves , not importing more oil nor building more refineries . After the election , gas prices will go up again .

  6. Greedflation.

    It’s what we do here. It’s baked in and COVID showed just how we ugly it could be.

    I canceled WasteManagement as my trash service for a smaller local company, as 1) the misc fees for WM service kept going up every billing cycle, and 2) the WM CEO pay was over $15 million per year.

    Services should be services (and run as a non profit), but capitalism demands quarterly profits that increase quarter-over-quarter earnings.

  7. Tipping for food delivery is stupid. How exactly does one provide great service? Just deliver my food. Rideshare could potentially offer great service, but being fake nice just for an extra few dollars is annoying, I much preferred the previous system. Uber gives drivers a guaranteed amount regardless of tip, so I basically tip $1 for food delivery, and might tip $2 for a ride afterwards if driver was not a POS, and that’s it. If you want to make more money then learn some job skills and do something aside from unskilled labor, you entitled lazy slob.

  8. If I dont have any dollar bills or a 5 dollar bill for a longer ride, then I tip in the app. For Uber Eats, I never pay more with the cash tip included than what the meal would cost me if I picked up that same meal myself at the restaurant. This is typically only possible with a max $15 Uber Eats emailed discount AND my $10 AMEX Gold credit applied. As a result I only do Uber Eats delivery once per month.

  9. Always tip Uber drivers in cash. There’s no reason for Uber to have any data on what I tipped the driver. However, I think cash tipping may be rare, because most drivers seem shocked when I hand it to them.

  10. @sammons: Rarely do I see an Uber price that would be less than the taxi fare for the same ride. Sometimes it’s worth it, though; I’m paying for the convenience of knowing that an Uber will actually show up and take me to my destination, rather than having to wait an indeterminate amount of time for a taxi, or, even less convenient, having to phone a taxi company for a pickup.

  11. I drive Uber and Lyft. Lyft pays substantially less than Uber on most trips and less than they paid previously. I only accept Lyft trips if I see I can make money on the trip.

    Tips are an important income source.

  12. Who benefits from surge pricing ? If the ride went from $50 to $90 who benefits, the driver? and the 15% tip is then greater as well ??

  13. @john
    The driver gets some of the surge pricing. I do not know what percentage. I just see the amount I receive. I would guess the 15% tip would include the surge.

  14. I always tip Uber and Lyft drivers. But I am more likely to take a taxi now if I have the choice, or just contract with private car service.

    Companies that shaft workers are ones I try to avoid.

  15. I want Uber and Lyft to pay me $5 when their driver cancels my ride, which happens half the time late evenings at the airport. I have to pay them $5 when I cancel, so it’s only fair. Currently, you can’t even file a complaint because the ride did not happen.

  16. Why tip a delivery person? Why tip anyone? Taking an order at a restaurant or parking my car at the valet requires no real skills. Do I tip the waitress lady more because she’s attractive or showing her midriff or tip the valet boy because he flatters me? I’m all for not tipping. I’m in favor of an employer paying employees a fair wage.

  17. My gripe with Uber dates back to the Kalanick days when he had the attitude of “You just don’t understand – your rules/laws/policies/whatever do not apply to me or my company.” About the only thing we would use that kind of service for would be to go to the airport (we live in suburban Seattle), and we have my wife’s daughter who can give us a ride, or we just drive there ourselves and park – even if we are parked for a week it’s little more than a round-trip taxi or ride share cost.

    If I lived in a place like New York I would just take the subway.

  18. @Alert – the strategic petroleum reserves were drawn down in 2022 to counter the effect of a big spike in oil prices when Russia invaded Ukraine. That drawdown is now being replenished and the federal government is paying $20/barrel less for that oil than they received for the oil they sold in 2022. I’d call that pretty good fiscal management and if helps this administration get re-elected, that’s fine by me.

    From a Reuters story in December 2023:
    “The administration of President Joe Biden last year conducted the largest sale ever from the SPR of 180 million barrels in an effort to fight rising oil prices after Russia’s invasion of Ukraine in February 2022.
    Since the beginning of 2023, the department said it has now bought back nearly 9 million barrels at an average price of $75 a barrel, about $20 lower than the $95 average price for last year’s emergency sales. The return from the exchange means more than 12 million barrels will have been bought or returned through February, it said.

  19. @FrequentWanderer, I almost always tip drivers cash, too. It is cash that I have paid taxes on so it is up to the driver to determine if he or she wants to give the government another cut of it. Also, I don’t worry about the company taking some of the tip for their cut. To them it looks like just another passenger leaving no tip. It is not my problem to worry about the company getting enough to pay their CEO.

  20. I’m a former driver. If you tip in cash, you’re shooting yourselves in the foot unless you put a tip in the app upfront, then take it away and give it in cash instead. Otherwise, a driver might see an ‘opportunity’ that pays $1.50-$3.00 to drive eight miles and wait 30 minutes for a McDonald’s order (drivers see the base rate+expected tip in the app). You’re not going to get a good driver quickly if you do that. Nobody can afford to drive for $10 an hour before expenses.

    Of course, the problem with taking off your tip and giving it in cash instead is that you could be flagged for tip-baiting.

    That said, after more than 3000 deliveries, I received cash three times. Three! So it’s really surprising to read that so many people are ostensibly tipping in cash.

  21. If a restaurant or deliver service charges a mandatory service or delivery fee, I do not tip anything further

    If drivers or servers have an issue with that they should take it up with their employers.

  22. Uber’s transparency on tipping and driver pay sheds light on an important aspect of the gig economy. While tipping may seem like a small gesture, it plays a significant role in supporting drivers who often rely on these earnings to make ends meet. Understanding the hidden costs allows us to appreciate the hard work of drivers and the impact of our contributions, ultimately fostering a fairer and more sustainable ride-sharing ecosystem.

  23. What is the difference in profitability between transporting people versus Uber Eats? I wonder if that has an impact.

  24. Be like the 80% and please STOP tipping. By tipping you ARE sticking to the individual, you’re clearly saying I support the system and I am contributing to make sure you will never be paid a living wage.

    Not tipping (except in sit down restaurants in North America) is the only moral, correct thing to do.

    It’s no different than buying shoes made by child labor. You don’t buy them, because by not buying.thrm it’s the only way the companies will stop using child labor; buying them because “I don’t want to stick it to the child that made them” is the very wrong way to go at things — you become part of the problem, not of the solution.

  25. I wish Uber would publish the average tip left by clients. I tip 20% 100% of the time, but get no boost in service. If the drivers could see my record, I would get top-tier service!

  26. No tips, anywhere. Period. During 26 years as an adjunct at a Texas university, I received exactly $0.00 in tips. My final 9-month contract for a full-time teaching job was $27,500 (with free medical care). If I didn’t like the pay, I could have quit. I enjoyed teaching, so I stayed. If all those folks in the service industry expect tips and don’t get them from me (and, it appears, quite a few like-minded people), then get out of whatever it is that you are doing.

  27. @Mets Fan in NC, you do realize that 100 percent of app based delivery services rely on independent contractors for delivery, right? So they are essentially self employed. They get offered an amount to deliver, and they can accept or decline that. If you don’t tip, no driver will likely accept your food delivery order. However, after some set period of time, the apps will kick in some money in addition to what they started at so eventually you get your food. However, they don’t like to do that and DoorDash has come out and said tip if you don’t tip you food will be cold.

  28. @JH your logic is flawed. It’s not customary to tip adjunct professors. Even before the days of app based delivery, it was customary to tip food delivery from a restaurant. Now the working conditions are worse, because when employees were restaurant employees they got a company provided car or mileage reimbursement. But even for those employees, they are/were eligible for the lower tip based wage in states that have one because it’s assumed they will make a lot in tips. Now with app based delivery they pay self employment tax, have to provide their own vehicle, and are only partially insured. It’s easy to say people, should get out what they are doing, but that’s easy for you to say as an adjunct professor. Most people do app based ridesharing or food delivery because they don’t other good options. It’s the same deranged logic of people who don’t tip at restaurants.

  29. @Mantis – what is “fake nice?” While I don’t look at tips and I genuinely enjoy passengers, how do you determine a driver isn’t being genuine?

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