Ride-hailing startup offers W-2 employment alternative to app-based drivers

Expanding ride-hailing startup Alto offers unique W-2 employment to its drivers, marking a different approach from giants Uber and Lyft.

The 2018 startup launched in Dallas but has since expanded to Houston, Los Angeles, Miami, Washington, D.C., and San Francisco. Alto recently completed its millionth ride and employs about 2,000 drivers with hourly pay and health benefits, unlike Uber and Lyft, which classify drivers as independent contractors paid per minute and per mile. Most app-based ride-hailing drivers are responsible for their vehicles, while Alto provides drivers with a branded fleet vehicle.

While W-2 employment offers the protections and benefits that advocates and ride-hailing drivers say they need, it doesn't include the flexibility of app-based driving, which is an attractive part of the work, advocates say.

CEO and co-founder Will Coleman said Alto was created as a solution to the challenges riders and drivers face with commonly used apps such as Uber and Lyft.

"Some of the decisions that they had made around structuring their business left passengers and drivers, investors and cities really looking for a better solution and I wanted to create that solution," Coleman said.

Drivers face uncertain wages, a lack of safety and inconsistency, Coleman said. Riders face similar issues, he said.

Riders "are forced to choose between two commodities, two apps, that have the exact same product that's inconsistent," Coleman said.

Alto's employment model "boils down to a single point, which is control," Coleman said. Alto can maintain its vehicles and interview, select and train its drivers, he said. That means the company can offer a better, more consistent experience, he said. W-2 employment also means drivers are certain of their pay, access to health care and benefits, and workers compensation.

Managing its own fleet also has benefits, Coleman said.

"As a fleet operator, we can acquire and dispose of vehicles much more efficiently than individuals can," Coleman said.

Coleman said Alto's unique employment model also gives the company pricing power.

"We're able to charge more and our customers are willing to pay more for that differentiated product," Coleman said, adding that Alto is comparably priced.

Customers don't have to play "rideshare roulette," which is how Coleman describes the loading screen as a ride-hailing app populates a driver and pickup time. At Alto, the rider can expect the same clean car with a uniformed employee that will arrive in 10 to 15 minutes every time. In most locations, a rider must be an Alto member to hail a ride. A monthly subscription costs about $13 per month and gives members priority and ride discounts of about 30 percent, per Alto's website.

Opportunities for W-2 employment are helpful, but they're not a full-proof solution to the challenges faced by ride-hailing drivers, according to Nicole Moore, president of Rideshare Drivers United, a driver-led advocacy group with more than 20,000 members in California.

A majority of drivers don't want to sacrifice their flexibility for a 9-to-5, but they need the labor rights, like a minimum wage, unemployment insurance and workers' compensation, that go along with W-2 employment, said Moore, a ride-hailing driver of seven years. Many drivers also balance full-time jobs or other commitments, Moore said.

When they gained popularity around 2016, "everybody and their uncle started working for Uber and Lyft just for the fact that both companies did an amazing job marketing themselves as 'Yeah, put your side hustle on,' " said Sergio Avedian, senior contributor at The Rideshare Guy.

Avedian said his per-minute and per-mile earnings have been cut in half since he began ride-hailing driving seven years ago. In the meantime, vehicle maintenance costs and gas prices have continued to rise, he said. It's nearly impossible to be profitable, Avedian told Automotive News.

Uber and Lyft pay varies depending on location and ride demand, per the company's websites. The companies classify drivers as independent contractors, but both Moore and Avedian disagree with that status.

Ride-hailing drivers don't set the price for their service and, for the most part, they don't get a say in which jobs they complete, Avedian said. He likened it to calling a plumber, but refusing to tell them what service you need, as app-based drivers can't see their riders' destination in advance. Moore mentioned a plumber can raise rates as gas prices and inflation rise, but she has no control over ride-hailing pricing.

Both advocates argue that legislation regulating pay for app-based drivers is needed.