There is no question that the confluence of digital payments and mobile apps has transformed how we think about working and doing business. What we know as the gig economy, for example, was virtually unimaginable before personal transportation services such as Lyft and Uber started operating years ago; nevertheless, thousands of American these days work as independent contractors for these companies.
Under the flexible rules of the gig economy, Uber and Lyft drivers are not hired or paid as regular employees. The way they make a living is different than the way millions of Americans are used to, but this business model is being challenged by the California legislature. The recent passing of Assembly Bill 5 would result in changes to the way gig economy workers are managed; the idea is to make them more like 9-to-5 employees in terms of salaries, scheduling, paid time off, and benefits.
Enactment of AB5 in the Golden State is still subject to a referendum plus legal challenges that gig economy companies are likely to file in court; in the meantime, however, independent contractors who drive for Lyft and Uber still need to figure out how they can maximize their efforts under this business model. According to a recent article published by Marketplace.org, Lyft drivers in California are not entirely convinced that the company’s bonus programs will translate into higher earnings.
A few years ago, Lyft rolled out a program designed to entice drivers to provide services in areas of high demand during rush hour; the bonus was similar to the time-and-a-half overtime rule adopted by many states. The company decided to change the program, which was renamed to Personal Power Zones so that drivers could earn a flat $4 bonus when driving in these areas. For the most part, drivers are making less with this new bonus scheme, and this is in line with the company’s efforts to become profitable and appeal to shareholders.
Despite more riders using Lyft to get around California, analysts who follow the company have noticed that drivers are making about 8% less than they did a couple of years ago. Lyft has explained that there is greater pressure on becoming a profitable company, and this has proven to be difficult. Now that AB5 is looming, companies such as Lyft will likely have an even bigger obstacle to surmount since managing a large payroll and workforce is something that will surely increase their operational expenses, thus making the gig economy less attractive to Wall Street investors.
Dil Bole Oberoi
