Dive Brief:

• Instacart has once again modified shopper pay and tipping policy. Under the prior payment structure, which was announced last fall, Instacart included customer tips in its $10 minimum compensation for its workers —which the company calls "shoppers" — prompting an outcry from its shoppers and workers' rights groups. In one instance, a worker received a "batch payment" from Instacart of just 80 cents after a customer tipped $10, bringing the total payment to $10.80.
• Under the new policy, announced yesterday by CEO Apoorva Mehta, Instacart shoppers’ tips will be separate from the company's contribution and all orders will have a higher minimum wage of between $7 to $10 for full-service orders, depending on the customer’s geographic location, and $5 for delivery-only orders. Instacart will also reimburse shoppers whose tips were included in the prior payment structure.
• “These changes will increase Instacart’s overall contribution to our shopper’s earnings and we believe that the change in tip structure will separate Instacart from an industry standard that’s no longer working for our shoppers and our customers,” Mehta wrote in a blog post.

Dive Insight:

After major blowback over its latest tipping and payment policy, which had been introduced gradually but fully took effect this year, Instacart has stepped up to mend its relationship with shoppers. But considering this isn’t the first time the two sides have clashed over payments, the impact to worker morale — and to the company's bottom line — may linger.

When Instacart quietly slashed its membership and delivery fees back in November, observers noted the move would help the company stay competitive by lowering a major obstacle to adoption for consumers. But the ensuing changes to worker compensation, first announced a month earlier, stirred unrest that eventually reached full boil, including calls for a boycott and a protest that saw workers request a 22-cent tip from customers. Last week, the company also faced a class-action lawsuit from shoppers in California.

Hundreds of Instacart’s 70,000 workers posted screenshots and reports of their earnings to Reddit and other online forums that showed the company using customer tips to subsidize shoppers’ base pay. Shoppers said this has taken a significant toll on their earnings, with one Seattle shopper telling Business Insider he made twice as much before the policy was enforced.

Before its new payment system took effect last fall, Instacart determined payment through an algorithm that factored in a fixed base rate, the number of items delivered and additional tasks like traveling long distances. The company's updated policy then guaranteed a $10 minimum payment for workers but factored in customer tips — a standard practice for gig-economy companies, Mehta noted, but not an ethical one for the growing company.

DoorDash, which delivers groceries for Walmart, has also landed in hot water for combining base pay and tips into worker minimums. The company has not announced any changes to its payment policy.

Instacart's new policy separates tips from the company's contribution, which means Instacart will have to increase payouts while bringing in lower fees than it used to. This puts pressure on the company to add more customers. On the worker side, meanwhile, there is a chance they will make less than the previously guaranteed $10, if for instance a shopper making the $5 minimum gets a low tip or no tip. Instacart sets a 5% default tip for orders, but customers can increase or decrease that amount as they see fit.

Prior to this dispute, Instacart has had conflicts with shoppers over earnings before. In 2016, the company completely removed its tipping option and restored it after an outcry from its workers. Soon after, Instacart was accused of withholding tips.

In addition to its issues with shoppers, Instacart has been grappling with growing competition. In December, Instacart and Whole Foods parted ways, and although this was expected due to Whole Foods’ acquisition by Amazon, it could portend future developments as more e-commerce services enter the fray and retailers weigh investing in their own fulfillment operations. A negative perception of Instacart due to frayed worker relations certainly won't help its case.