Amazon Raises Minimum Pay for Everyone—Except These Workers
(Bloomberg) -- After finishing up his day job at a charter school, Sherwin Karunungan heads to a nondescript warehouse in San Francisco that serves as a shipment hub for Amazon.com Inc. In a windowless breakroom, Karunungan presses a single button on his phone, over and over, to request a gig through Amazon Flex. The program lets anyone sign up to shuttle packages for the world’s largest online store using their own cars and get paid by the delivery. But first, they need to score some actual work. On a recent Tuesday night, a crowd of other workers are hunched nearby with their phones, all furiously tapping and swiping to refresh a sparse page of job offers.
“Yes! Bayview,” Karunungan shouts. His assignment is about three miles away. “Less driving is good. So, more money for me,” he says. Because workers rely on their own vehicle, pay for their own gas and tolls, and sometimes need to return to the warehouse at the end of the day, a Flex job can feel a bit like playing the slots. And because they’re required to make the deliveries in a narrow window of time, Karunungan jumps up from his chair and hurries to retrieve his orders and load them into his car.
Amazon depends on a patchwork of government postal workers, international shipment operators like UPS and FedEx, local carriers and its own armada of warehouses, planes and trucks to deliver packages as quickly as possible to customers. Amazon Flex is one of the newest and largely unseen additions to this network, but it already has people in more than 50 U.S. cities handling packages in their spare time. The company’s sprawl and its relentless drive for efficiency—sometimes at the expense of its own labor force—make it a target for critics. Beating up on Amazon is one of the few bipartisan platforms in American politics, drawing the ire of both President Donald Trump and Senator Bernie Sanders.
On Thursday, Amazon is raising the minimum wage for all U.S. employees to $15 an hour, a move that was seen as a response to political pressures. The company said it’s also giving raises to every operations and customer service employee in hourly jobs, including part-time and temps. Flex workers are not eligible because they’re contractors.
Amazon advertises an hourly rate of $18 to $25 for Flex. But interviews with Flex drivers and research by financial analysts at Bernstein indicate the net pay is much less when accounting for essential, on-the-job expenses. Actual earnings are $5 or $11 an hour, depending on what a worker chooses to deduct, Bernstein found. The calculation assumes a driver makes tips and records certain work-related costs, such as fuel and tolls. Two drivers say their pay fell within that range. Seven others who spoke to Bloomberg say they never bothered to do the math. “Most of these Flex drivers have no idea—they do not realize that they’re making considerably less and working considerably more than what Amazon quotes in the app,” says David Vernon, an analyst at Bernstein who worked on the report.
An Amazon spokeswoman disputed the findings by Bernstein, which the firm distributed to hedge funds and other clients in May. The study relies on “flawed assumptions and anecdotes versus real data,” the spokeswoman wrote in an email. “Their narrative does not accurately reflect the experience or earnings of the overwhelming majority of independent contractors who deliver packages with Amazon Flex.” She says the average driver makes more than $20 an hour but declined to provide an estimate that accounts for expenses.
When things go smoothly, Amazon Flex is a novel and enjoyable way to make some extra cash, drivers say. But they also describe the job as demanding and wildly inconsistent. The process for applying and acquiring assignments is time-consuming and some days results in no work at all. Telephone support representatives are tough to reach and often unhelpful. Package runs are timed, and workers are kicked off the system for missing delivery windows, which creates an incentive to run red lights, double-park and go over the speed limit, drivers say. After an assignment, Flex workers are sometimes required to bring goods they were unable to deliver back to the warehouse. The trip is unpaid and can take an hour or more but is necessary to stay in good standing with the company.
Amazon suggests it leaves drivers plenty of time to complete their routes safely. The company says more than half of Flex workers finish their assignments with at least an hour to spare, including those who need to return undelivered packages to the station.
While shuttling a parcel of laundry detergent, kale chips and LaCroix in his Honda Civic, Karunungan offers some tips he’s picked up from his time on the road. Amazon asks Flex drivers to deliver groceries from Whole Foods and meals from restaurants, but he usually picks orders from the warehouse because he says they pay more. Above all else, he says, Flex drivers need to move fast. “The delivery windows are really, really tight, so you have to hustle,” Karunungan says. “You’re not an Amazon driver if you haven’t run a stop sign.”
Amazon Flex arrives in a city practically overnight, with little notice or fanfare. When Karunungan found Flex—after his daughter’s interest in medical school inspired him to look for extra work—he was drawn to the prospect of making as much as $25 an hour. “It pays so well, and I don’t have to deal with passengers,” says the 49-year-old. “Packages don’t talk back. They don’t ask you to change the radio station. They don’t mess up your car.”
Applicants must download an app, submit to a background check and watch 19 instructional videos explaining what to do if you’re given an incorrect address or damaged package. Nowhere in the lengthy training does Amazon provide guidance on expenses or taxes, according to nine drivers who went through the curriculum. “It’s outrageous that a company like Amazon requires these contractors to sit, unpaid, to watch detailed videos on how to make deliveries, on how to scan packages at every step of the process, but does not give some simple guidance on how to account for expenses,” says Veena Dubal, an associate professor at University of California Hastings College of the Law who specializes in employment issues and the gig economy.
After a waiting period that can last weeks, Amazon emails a welcome letter to those who pass the test. Getting work is a whole other challenge. With Uber, Lyft or other on-demand services, drivers can log on and get to work right away or idle near home until a gig is available. Amazon asks Flex workers to pick the jobs that suit them from a list in the app and tap a button to refresh if the options aren’t to their liking. Oftentimes, the page is empty. So, they tap and swipe to refresh. And tap again.
Eric Carter Jr., an Amazon Flex driver from San Jose, California, says he has more luck during off hours. He wakes up at 3 a.m. to get ahead of the day’s shifts—or “blocks,” in Flex parlance, because Amazon pays per block of time. “Everyone else is trying to get blocks, too, so you have to tap a lot and just hope that you get one,” he says. “It’s very competitive.”
Many drivers say they suspect the odds of getting a shift are higher if they wait in the warehouse. Amazon can track their location using the phone’s GPS and should reward people ready to work, they reason. At Amazon’s San Francisco location, a wall close to where drivers hang out features a large mural of a tree with the phrase, “Work Hard. Have Fun. Make History. Amazon.” They’re not paid for time spent waiting for an assignment. Amazon says Flex workers in some cities can avoid trips to the warehouse by picking food or grocery orders.
When the Flex app finally returns job offers, Karunungan has to ignore some of them because the destinations are too far away or set at inconvenient times. He refers to this exercise as “fishing.” On a good day, he guesses his net hourly pay is $20 after expenses but admits to not keeping tabs on what he spends. This Monday, however, was not a good day. “There are times when you’re just staring at and refreshing your phone forever, just trying to get that shift,” Karunungan says. “We joke here that we’re going to get carpal tunnel tapping so much.”
Some drivers say they had to buy a second cell phone for Flex, so that they could communicate with family while also searching for work. Others have resorted to purchasing devices known as “block grabbers” or “tappers.” These crude mechanical tools, which resemble an earbud attached to a guitar tuner, attempt to mimic the tap of a finger on a smartphone screen. The Pro Flexer E is one of the more popular models. It promises 800 swipes per minute on a Samsung or iPhone and sells for about $199. The products can be found on EBay or specialty online stores that cater to Flex workers. They aren’t sold on Amazon.
Delivering packages is traditionally a pretty good way to make a living in America. United Parcel Service Inc. pays about $36 an hour on average, with transportation, gas and tolls covered, according to the Teamsters, a union that represents some 260,000 UPS workers. The American Postal Workers Union says employees make about $75,000 a year, well over the median U.S. income. Yet, even at the high end of Amazon’s advertised rate, Flex workers would make far less than that and get no employment benefits. Seven of the nine Flex drivers who spoke to Bloomberg estimate their net income at $20 to $25 an hour but say they don’t give much attention to expenses. The other two drivers, who say they do track spending, report earnings below minimum wage.
In its study, Bernstein found that most Flex jobs are at the bottom of the $18 to $25 pay range Amazon advertises and that drivers will occasionally receive tips from customers when making restaurant or grocery runs. (Tips aren’t available for standard package deliveries.) Vernon, the analyst, says his research was based on interviews with drivers, most of whom delivered boxes, as well as information collected from online chatrooms, forums and other posts.
The study says that within a four-hour block, workers can expect to spend more than an hour going back and forth to the warehouse picking up boxes or returning undelivered ones. This contrasts with other on-demand contract work like ride-hailing, where drivers start and stop the clock anytime and from practically anywhere. When factoring in this unpaid time with Amazon Flex, as well as the full gamut of expenses associated with the job, including vehicle depreciation, insurance, maintenance, mobile phone fees, fuel and tolls, net earnings can approach $5 an hour on average, Bernstein says. Only deducting for gas, tolls, and half their insurance and maintenance costs, hourly pay works out to $11, the study says.
Amazon says it covers Flex drivers who hold personal auto insurance under a commercial insurance policy. It also says most deliveries are completed on the first attempt and that less than a quarter of drivers are required to bring items back to the warehouse.
The acquisition of Whole Foods last year for $13.7 billion gave Amazon more than 470 additional stores from which it can stow, package and deliver goods to online shoppers. It has already begun to leverage parts of that logistics opportunity this year. Bernstein says Amazon is building infrastructure to route 5 percent to 15 percent of all packages through a Flex driver. The company declined to comment on the size of its contract workforce.
Stephen Anthony left his job as a data specialist for T-Mobile in Renton, Washington, for Amazon Flex because it allows him to spend more time with his daughter. He drops her off at his in-laws’ house on the way to the warehouse and works fewer hours than before. The financial costs of the work aren’t a major concern for him right now. “I think I’ll figure all that stuff out when I do my taxes,” Anthony says. “It definitely seems like you’re making more than you are. But if I really just concentrate on it and budget, then I’m sure it will all work out in the end. I hope.”
Most participants in the gig economy underestimate or ignore costs associated with their jobs, says David Weil, a former administrator for the U.S. Labor Department. “Countless studies and basic behavioral economics tell us that workers tend to gauge immediate gains more heavily than long-term costs,” says Weil, now the dean of the Heller School for Social Policy and Management at Brandeis University. “Our brains are wired to focus on the incoming amount, not the outgoing costs, and large companies using gig workers are taking advantage of that.”
Amazon pays Flex workers twice a week via direct deposit to their bank accounts. Jodi Lynn Reeves signed up for Amazon Flex in Kansas City, Missouri, after she left her job at a company that collects coins from laundromats and struggled to find steady employment. She says she’d get a buzz when the money from Amazon would appear in her checking account every few days. “Through Amazon, I felt so blessed,” she says. “More than the money, I loved seeing the sunsets while I was driving. I lost weight lifting all those heavy packages and getting my steps in looking for the doors.”
But after two months, Lynn Reeves realized she was earning just $5.50 an hour driving long distances and paying tolls to deliver packages in her Ford Expedition, which gets about 13 miles per gallon. She estimates her fuel and tolls cost $50 for a four-hour shift and pushed her net income well below the U.S. minimum wage for employees, which is $7.25. “I kept track of everything and realized it was all a loss in the end,” she says. “You work to make money, not to lose money.”
Many Flex workers say they have no better alternative. They’re willing to take risks to avoid getting kicked off the app. Some say they’ve parked illegally or ran red lights to make their deliveries in time. Drivers who develop a habit of being late are removed from the labor pool. Amazon may also take action against people who repeatedly fail to return undelivered packages, drivers say. Two workers say they’re asked to make returns to the warehouse every four or five shifts.
Bryan Sharp says he fell into a depression after Amazon kicked him off Flex for failing to make his shifts on time. He tried contacting the company to explain that he had misread the time he was expected to start working. In response, he got a form letter and remains blacklisted. “It shocked me for a couple of weeks,” he says. “I wish I had the job back, but there’s nothing I can do.”
Shauna Roeder, a 40-year-old Flex driver and mother of three in rural Pennsylvania, says Amazon is sometimes difficult to communicate with: “You’re kind of stranded out there on your own.” Roeder says she began more closely scrutinizing her relationship with Amazon in December after she noticed her bank account had less than she expected. She tallied her expenses and was surprised by what she discovered. “I came to realize I was making about $6 an hour,” she says.
Last winter, Roeder says she had to temporarily stop delivering for Amazon after she slipped on a patch of ice while carrying a package. “I hit the ground really hard in the middle of a delivery run,” she says. “Luckily, my dad came and found me, and he was able to take me to urgent care. But first, we brought the packages back to Amazon, so I didn’t get dinged.”
Despite all this, Roeder says she’s going to stick with Amazon. She hasn’t been able to find work elsewhere and likes that she can bring her children in the car when she can’t find a sitter. “I found something that I really, really, really like doing. I don’t have to deal with people. I’m by myself,” Roeder says. “I also like organizing all the packages in the car. It’s like a puzzle.” Something about the work makes her insistent on pleasing Amazon, she says: “You want to do a good job, so you just do whatever you can to make sure they get delivered—even if you’re not getting paid for it.”
©2018 Bloomberg L.P.