Uber Rate Cuts Leave Many Drivers Making Less Than Minimum Wage, Some Switching To Lyft

While Uber is currently the most popular ride sharing company among riders because of the low prices and quick pickup times, the drivers may be getting the short end of the stick. Over the past few years, Uber has ran numerous advertisements stating that drivers can make over $30 an hour during peak times. According to Business Insider, Uber was even advertising in 2014 that a salary of $90,000 a year in New York City was possible.

While $90,000 a year may have been possible if the driver was working 80 hours every single week under perfect circumstances, it was never realistic. For one, it did not include Uber's commission and fees. It also did not include gas and other expenses. And driving 80 hours a week is not sustainable or healthy for an entire year.

Regardless, it does not take $90,000 a year to live on, and many drivers would be more than happy to receive a reasonable salary. While Uber started off paying their drivers rates that were deemed acceptable, they have had numerous cutbacks in recent years. According to the Observer, the most recent rate cuts have slashed earnings to below minimum wage for certain drivers in select cities after expenses and gas.

The article states that rates were cut by as much as 45 percent in over 100 cities. According to numerous drivers that were quoted, the new rates are so low that it is not even worth driving anymore. Some are even switching to competitor Lyft because of the tipping option. An anonymous driver on Facebook told the Observer the full implications of the new rates.

"Yes, the rate cuts have affected my earnings. I am less motivated to go out and drive. Instead, I'm focusing more on my other business, which is already making me more money per week than I earned through Uber on New Years week. I now do not wait over five minutes for a passenger to show up when I arrive, because I get $5 for a cancel fee rather than driving them three miles to get the same $5. I stopped offering bottled water to my passengers. If the passenger did not put in the correct pickup address I won't drive unpaid miles to the correct address if they call me, I'll just collect the cancellation fee."
For a company that is trying to make it cheaper to use Uber than own a car, they are not doing themselves any favors. Lowering the rates is going to cause their best drivers to stop driving. Drivers that are now struggling to earn a decent living will no longer be able to offer common amenities such as bottled water, mints, and gum.

Uber Pay Cuts
(Photo by Bryan Bedder/Getty Images for NYCWFF)

According to Bloomberg, Uber has cut rates in Detroit so low that drivers might be losing money. Drivers now receive $0.30 for every mile driven with a passenger in the car. They also receive $0.30 for every minute driven with a passenger in the car. They receive nothing when driving to pick passengers up or when they return home.

While Uber takes a set commission percentage from every ride, usually around 20 percent, they also take a fee called the "safe rides fee." This is a set dollar amount that has been increasing over the past few years. This fee is $2.30 in Detroit. If a driver does the minimum fare of $5.30 in Detroit, Uber will take $2.30 of it for the safe rides fee. They will then take their commission. After all of the fees, the driver is left with practically nothing, and that is before adding in their gas and depreciation expenses. The Rideshare Guy provides numerous charts to show a few of the most affected cities by the recent cuts.

So what does Uber have to say about the rate cuts? In their opinion, it is a way for drivers to make more money. According to the Uber Newsroom, rate cuts are needed to stimulate more business. While there is nothing wrong with this stance, they are also claiming that drivers will make more money with decreased pay.

"Five and a half years in, we've learned that the single most effective way to boost demand during the winter slump is to cut prices for riders. Starting tomorrow—just like last year and the year before—we're cutting prices in more than 100 US and Canadian cities, giving riders one more reason to head out of the house, ditch their keys, and avoid parking. Higher demand means more time moving people, less time spent waiting around and more money for drivers. And if drivers aren't busier, prices will go back up again. In addition, we are guaranteeing earnings for drivers to ensure that no one is disadvantaged. That's 24/7 incentives to put drivers at ease."
While it is true that drivers may have more money in their pockets if they get more fares, their profit is going to be less. There is no scenario where a rate cut will lead to increased earnings for drivers. Gas and other expenses will go up with more rides, and the lower fares will not be able to offset the increased expenses. While Uber does have an hourly guarantee for drivers, many believe that the stipulations are difficult to meet.

Uber Tips
(Photo by Carl Court/Getty Images)

Another issue that is angering drivers is Uber's position on tips. While there is nowhere in the app for riders to tip, drivers are unhappy with what Uber tells riders regarding the issue. Instead of leaving it up to the rider, Uber appears to be going out of its way to discourage tipping. Here are a few replies from Uber on Twitter after riders asked about tipping.

While full fare is charged at the end of the ride, Uber is possibly leading riders into believing that full fare includes a tip. It does not. This creates a scenario that discourages tipping, which is maybe what Uber wants in the end.

In order to get Uber to change their practices such as low rates and no tipping, a website named Not Cool Uber is documenting the latest protests, rates changes, and responses from Uber.

Unless a huge number of drivers stop driving and quit, Uber is not likely to raise the rates back to their original figures in the near future. While Uber may be taking a small hit with the rate cuts, drivers are carrying the majority of the burden. Moving to Lyft is an alternative for drivers because of the tipping option in the app, but they have also lowered their rates in response to Uber.

[Photo Illustration by Pablo Blazquez Dominguez/Getty Image]