Uber and DoorDash are hiking food delivery and rideshare prices for Californians to pay for new driver benefits

• Uber and DoorDash are raising prices on customers in California in order to pay for new driver benefits guaranteed under Proposition 22.
• Uber will introduce a flat fee between $0.30 and $2, while DoorDash will slightly increase its service fees.
• Drivers will still receive substantially fewer benefits under Prop 22 — a law written and bankrolled by Uber, DoorDash, and other gig companies — than they would have been under the state's gig work law, AB-5.
• As a result, the companies' labor costs won't increase as much, meaning they likely won't increase prices as much for consumers, at least initially.

Uber and DoorDash are raising prices for customers in California in order to pay for new benefits guaranteed to rideshare drivers and food delivery couriers under a new statewide law that's set to go into effect this week.

Uber said Monday it's introducing a flat fee per purchase that will vary based on customers' location and the service - between $0.30 to $1.50 for rides and between $0.99 and $2 for Uber Eats deliveries.

DoorDash, rather than a flat fee, will roll out slightly higher service fees starting Wednesday, and may adjust certain promotions, such as DashPass, that could also lead to higher prices, a spokesperson told Business Insider.

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The surcharges are intended to help cover the costs of minimum earnings, per-mile expenses, healthcare stipends, accident insurance, and other benefits that rideshare and food delivery companies will soon be required to pay workers.

Those perks became enshrined in California law after voters in November passed Proposition 22 - a controversial law that Uber, DoorDash, Lyft, Instacart, GrubHub, and Postmates authored and spent more than $200 million trying to pass.

The law exempts companies from having to provide rideshare and food delivery drivers with basic employment benefits guaranteed to other Californians under the state's gig work law, AB-5, and denies certain labor protections to those workers.

Read more: California voters approved Proposition 22, keeping ride-share and food delivery drivers as contractors - here's what that means for companies like Uber, Lyft, Instacart, DoorDash and their workers

That's a major victory for rideshare and food delivery companies, which were facing substantially higher labor costs under AB-5 - Uber and Lyft gained a combined $13 billion in market value following Prop 22's passage. Under Prop 22, those companies are required to provide a smaller array of benefits and often at a lower cost than what they would have had to under existing laws.

For example, drivers will soon be guaranteed 120% of the minimum hourly wage, but they are only paid for "engaged" hours when they have an active ride or delivery, not the hours they spend returning from long trips or waiting for Uber or DoorDash to match them with a job. According to one study, that could result in drivers not being paid for up to a third of their day.

Drivers will also be compensated $0.30 per-mile for vehicle expenses during engaged time, just half of the $0.58 that the IRS estimates it costs to operate a vehicle per mile. Healthcare subsidies are similarly tied to engaged time and lack significant benefits that come with typical employer-based healthcare.

After AB-5 went into effect this year, Uber, Lyft, and other companies refused to reclassify drivers as employees as required by the law, meaning they never provided the benefits it guaranteed.

As a result, while the partial benefits guaranteed by Prop 22 will cost companies less than those guaranteed under AB-5, they are nonetheless new costs the companies hadn't previously incorporated into their pricing - thus, the new surcharges from Uber and DoorDash.

Uber has yet to turn a profit in its more than 10-year history, and while DoorDash turned a surprise $23 million profit during the second quarter of 2020, the company said that it expected costs to increase and that it "may not be able to maintain or increase profitability in the future," which may help explain why the companies are passing off part of these new costs to customers.