We operate in a tax and employment environment that was created in the days before the gig economy represented more than 35 percent of the U.S. workforce. Today, workers are lumped into one of two employment classifications – 1099 independent contractor or W2 employees.
This worked when you’d hire the occasional worker to help with a one-off task. But what happens when an independent contractor begins to become a valued team member and is logging consistent hours and providing a highly specialized service?
This is often what’s happening when integrators are looking for skilled workers versus gig workers. Skilled workers have a very specific skill set and often years of training. More often than not, these workers use this expertise to make a living as an independent contractor.
As opposed to some members of the skilled economy who may be driving for multiple ride-sharing companies and delivering food for multiple restaurants, these skilled technicians are typically committed to a specific craft but appreciate the flexibility to design their own hours and schedule.
The economic impact we’re seeing from freelancers is at an all-time high – with nearly 16 percent of the U.S. population participating in the gig economy. That’s up more than 50 percent from just 10 years ago.
The premise was originally based on the idea of a flexible working arrangement and earning some extra income, which lured nearly 68 million people seeking a better work-life balance. For those less fortunate (approximately 20 million people), the gig economy is viewed as an alternative to full-time employment that is borne out of necessity because workers can't find better work or pay.
The growth in the desire for a flexible work schedule has created two major issues the industry didn’t predict:
- Compensation in an independent contractor environment has always been hourly or project-based, with no attention paid to what happens if weekly hours near that of a full-time employee.
- There is a lack of attention or understanding (maybe both) being given to those with highly skilled backgrounds who cannot be classified as members of the “gig economy” but do not desire full-time employment. This group is traditionally searching for a way to leverage their skill set, but also reap the benefits of a flexible work schedule and benefits.
The results of such issues are well reported and over the past few years we’ve seen these negative side effects surrounding compensation bubble up in the form of lawsuits, boycotts and strikes. Additionally, we’ve seen brands getting in hot water over overtime issues and benefit concerns.
Unfortunately, these won’t end without a change from those creating the problem – the tech industry. It obviously wasn’t with malicious intention, but now that the problems have been identified, it’s time we rethink how we’re classifying these employees and consider new and different ways that make life better for everyone.
What Can Integrators Do?
While regulatory change is most certainly in the future of the industry, and the case law will continue to develop, in the short-term integrators must examine the long term feasibility of the gig economy with a more critical eye.
Currently, most gig economy businesses are characterized by extremely low margins and close to no control over supply chain. Consequently, it’s impossible for most gig economy companies to pay contractors a livable wage and offer benefits. As a result, churn is high and many people are becoming completely disenfranchised by the original proposition of the gig economy. This is how a brilliant business concept and service delivery strategy gets a bad rap.
How might we create a system that will allow every freelancer to earn a livable wage in a standard 40-hour work week while having the opportunity to participate in a community, if they so choose? In my opinion, the only way to do this is to have more control over the service you offer, which poses a big challenge for companies that have zero control over the supply chain.
Consider the majority of food delivery services. For most of these organizations, the only levers to pull to positively affect profitability are delivery fees and driver compensation. This can quickly become a recipe for unhappy suppliers or unhappy customers – it’s difficult to keep both sides happy.
classification of employment for skilled freelance laborers is a must.”
In my own experience, the effectiveness of this vertically integrated model has been obvious… at Puls, our team member tenure is above industry standard, compared that of the average 4 percent annual retention of rideshare drivers, and our technicians are earning sometimes 20 percent to 30 percent more per hour than they would in a full-time role.
At the same time, our profitability is exponentially higher than traditional on-demand service companies. How is this possible? It all stems from owning the supply chain. In doing so, we’re able to provide a better service at a lower price while paying our workers more. Everybody wins.
Whether it’s on-demand driving, repairs, or pickup and delivery, developing a classification of employment for skilled freelance laborers is a must. Everyone deserves an opportunity to earn a comfortable wage and it’s on us to ensure it happens. At the end of the day, the only thing our workforce should be considering is how they will complete the task at hand while effectively representing our brands, not “am I going to earn enough to pay rent.”
Itai Hirsch is president and co-founder of Puls, a contract labor installation service for the smart home industry.