What Seattle’s Minimum Wage Law For Gig Workers Means For Employers

Technology has drastically changed the U.S. labor force. This can be seen in the staggering rise of the gig economy — which consists of independent contractors or freelancers. A study by Mastercard found that the gig economy is expected to grow 17% by 2023. Moreover, the United States has the biggest labor market for gig workers.

While there’s been a lack of legal protections for gig workers, things are slowly changing. A key development is the recent passage of Seattle’s minimum wage law for app-based delivery drivers. Seattle is the first city to establish a minimum wage for this workforce demographic.

Highlights of Seattle’s minimum wage law for gig workers

On May 31, 2022, the Seattle City Council unanimously passed a minimum wage ordinance for over 40,000 app-based delivery drivers in Seattle.

Highlights of the bill

• The new bill stems from the “PayUp” policy package, introduced by Seattle Councilmembers Lisa Herbold and Andrew Lewis.
• PayUp requires businesses to pay covered app-based workers in Seattle no less than the equivalent of Seattle’s minimum wage, which is $17.27 per hour in 2022.
• The legislation applies to gig workers who take jobs on delivery apps like DoorDash, Instacart, Uber Eats, and Amazon Flex.
• According to Axios Seattle, PayUp does not cover “workers who take jobs on apps such as Rover or TaskRabbit.”
• PayUp does not cover drivers for ride-sharing apps like Uber and Lyft. Seattle-based drivers for these apps already have minimum wage coverage under different legislation enacted by Washington state in 2020.
• Businesses that hire covered app-based workers must inform them upfront about the pay, tips, and details of the job and give them a pay stub after completing each assignment.
• Covered app-based workers have the right to freely choose jobs and their work hours. They must also be allowed to reject job offers without penalty.

The Seattle Times reports that PayUp’s minimum wage requirement will take effect in 2023.

Why PayUp matters

According to Lisa Herbold, who co-sponsored the bill, “While many app-based workers are making less than minimum wage, app-based companies are making record profits. It’s past time we give app-based workers the respect and protections that every other worker in Seattle is afforded. This #MayDay, it’s time to pass PayUp.”

By relying on the independent contractor model, network companies create barriers for app-based workers — such as no minimum wage, unemployment benefits, or workers’ compensation protections.

The PayUp legislation cites several concerns, including the following:

• App-based workers offer valuable services that the community relies on. Network companies often promise them good earnings but instead pay them subminimum wages.
• Despite the broad legal definitions of “employee” and “employer,” network companies depend on business models that treat app-based workers as independent contractors.
• By relying on the independent contractor model, network companies create barriers for app-based workers — such as no minimum wage, unemployment benefits, or workers’ compensation protections.
• Black and Latinx workers account for nearly 42% of app-based workers but less than 29% of the overall labor force.
• BIPOC workers are disproportionately impacted when deprived of core employment protections. They are often forced to accept low wages and unsafe working conditions.

The legislation makes clear that “the City intends to ensure that all workers can benefit from the protections of Seattle’s labor standards.”

Per-minute rate for app-based delivery workers in Seattle

The legislation says that for each minute of engaged time, covered app-based workers should receive the following:

• The equivalent of the minimum wage multiplied by
• Associated cost factor multiplied by
• Associated time factor

The administering agency is responsible for establishing the annual per-minute amount.

• For 2022, the minimum equivalent rate is $0.288 ($17.27 / 60 minutes)
• The associated cost factor is 1.12.
• The associated time factor is 1.17.

This means that for 2022, the per-minute rate is $0.38 ($0.288 x 1.12 x 1.17).

The per-minute rate will be adjusted yearly to reflect changes in the minimum wage equivalent, associated cost factor, and time factor.

What are the associated cost and time factors?

“Associated cost factor” is an extra amount that reasonably compensates app-based workers for non-mileage expenses, such as:

• Business taxes and employer payroll taxes that app-based workers must pay
• Cost of workers’ compensation insurance
• Expenses associated with paid family and medical leave
• The requirement to pay state unemployment insurance
• Business licensing fees
• Cost of miscellaneous expenses like cell phones and work equipment

“Associated time factor” is an extra amount that reasonably compensates app-based workers for time spent working or waiting to be engaged for work. This includes time spent:

• Reviewing work offers
• Communicating with the app-based company and its customers
• Performing administrative tasks
• Taking rest breaks
• Relocating for the purpose of future work

Response from app-based delivery companies

App-based delivery companies like DoorDash, Instacart, and Uber are not taking the news well.

A DoorDash spokesperson said, “Seattle City Council refused to hear from community members — from restaurants to customers, to faith leaders, to communities of color — who opposed this extreme policy that will dramatically increase customer costs, reduce orders for merchants, and threaten earnings for Dashers.”

An Uber spokesperson said, “While we support efforts to improve earnings, the city council’s bill will likely result in less work for couriers, fewer orders for local restaurants, and price increases for Seattleites in a time of near-record inflation.”

An Instacart spokesperson said the bill would “jeopardize earning opportunities” for the over 12,000 customers who utilize its platform.

Considerations for employers

App-based delivery companies that hire gig workers in Seattle should:

• Confer with legal counsel to determine whether they are required to comply with the new law.
• Begin preparing now to ensure compliance by the deadline (if required to comply).
• Monitor developments (regarding gig workers) at the federal, state, and local levels.
• Make sure your gig workers are correctly classified. Noncompliance can be costly. For example, DoorDash was ordered to pay over $5 million for misclassifying workers as independent contractors instead of employees.

App-based delivery companies that are not required to comply with PayUp should consider reviewing their approach to hiring gig workers. Eliminate any labor practices that could be construed as unfair, unsafe, or exploitative.

For example:

• Offer fair pay. Studies reveal that 14% of gig workers earned less than the federal minimum wage, and 29% earned less than the state minimum wage.
• Consider giving your gig workers a pay stub even if you’re not legally required to.
• Make sure your digital platforms promote productivity. Studies found that gig workers frequently report losing earnings due to technical problems with app-based platforms.

In general, employers can expect more legislative action from states and localities.

Where states and localities stand on gig workers

States and cities are increasingly adopting labor protections for gig workers. For example:

• Seattle passed legislation requiring paid sick and safe time leave for gig workers during the COVID-19 emergency.
• Philadelphia extended the city’s COVID-19 paid sick leave to include low-wage workers and gig workers.
• California’s AB5 law aims to combat the misclassification of gig workers.
• New York City has introduced laws establishing protections for third-party couriers and food delivery workers.

Know the rules for hiring gig workers

Governments are stepping up their efforts to protect gig workers across the U.S. Seattle’s PayUp legislation is the first of its kind, but states and other cities may decide to follow suit. If your workforce includes gig workers, make sure you know your legal obligations.

Consider using a platform like Zenefits to streamline contractor administration and boost compliance.