The Next Economy
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How Do We Compensate Contractors in the 1099 Economy?

Facebook announced new benefits for its contract workers this week; the company will require contractors to pay employees a $15 minimum wage and provide benefits, including 15 paid days off and $4,000 paid parental leave.

“Taking these steps is the right thing to do for our business and our community,” COO Sheryl Sandberg wrote in the post.

Facebook’s decision is indicative of two important trends affecting the modern workplace: the proliferation of the 1099 economy and the growing pressure on companies to better compensate contractors.

Independent contractors (ICs) are an obvious bargain for employers; they must only be paid for the hours they provide services – lunch breaks, vacations, commutes and healthcare are outside the deal. The absence of these items represents significant savings for companies, and a significant tradeoff for workers who forgo the title of official employee.

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Recent estimates suggest that 53 million Americans are engaged in freelance work. By 2020, over 40 percent of the workforce will be composed of contingent workers, according to a 2010 Intuit report. In response, companies such as Zen99 and Peers have formed to offer structured guidance to contractors on managing their taxes, expenses and insurance.

This 1099 trend is perhaps clearest among tech companies powering the gig economy, in which workers can choose to perform an endless array of one-off tasks: renting their bedrooms (Airbnb), transporting people (Uber and Lyft), delivering goods (Postmates, Instacart), dogsitting (DogVacay), cooking dinner (Kitchensurfing), serving as a personal assistant (Zirtual), cleaning (Handy, HomeJoy), performing miscellaneous tasks (Fiverr, TaskRabbit), among others.

While this emergent breed of worker can clock in whenever they want and often wherever they want, it remains challenging to make a living wage, even if you’re a hustler. Gross income disparity separates the “non core” workers on contracts with tech companies from the well-compensated employees within them.

Companies claim their technology platforms empower workers to design their own schedules, develop as entrepreneurs and build their own businesses. "We don't want [contractors] to be TaskRabbit employees. It's good for them to have the autonomy and the drive to do what they want, when they want, for the price that they want,” TaskRabbit CEO Leah Busque said last fall.

Uber says its drivers make more than traditional cabbies, but exact figures are difficult to verify because the company does not reimburse drivers for expenses such as gas, maintenance and insurance. Former Secretary of Labor Robert Reich writes that this is a way to unduly shift risks onto workers while corporations that own the algorithms cash in on their labor – and handsomely (consider Uber’s recent estimated valuation of $50 billion.).

Several companies are facing resistance to their business models from contractors seeking employee status. Class action lawsuits are cropping up with increasing frequency, pushing the debate over the impact of these new economies further into public discourse. Are contractors emboldened by their autonomy? Or, as Reich suggests, does circumstance bind them to an undesirable ‘share-the-scraps’ economy?

As wage disparity continues to grow in Silicon Valley, companies are starting to respond to displays of public unrest, beginning with the behemoths. Facebook’s decision to raise contractor compensation follows the unionization of the company’s shuttle bus drivers earlier this year, which provides them with starting salaries already exceeding $15 an hour. Google and Apple raised wages for their contracted bus drivers in March, and both companies also agreed to directly hire previously contracted security guards (with access to benefits) after workers threatened to protest.

Moves by these big companies could set a precedent for others to follow suit. If not, impassioned critics may achieve change in the courtroom. Recent lawsuits against Uber and Lyft reveal the difficulty in classifying the new breed of workers – neither clearly employees nor ICs under law.

Companies in the gig economy claim they are merely digital middlemen offering access to their software; ICs retain autonomy and are not employees. However, many of these companies reserve the right to terminate contractors if they receive low customer ratings, or for no reason at all. And many provide specific guidelines (e.g., Uber’s “Driver Handbook”) governing the manner in which work should be conducted — an important indicator of an employment relationship, according to recent judge rulings.

The sharing economy is likely here to stay, and the jury is out (literally) on the workplace protections of those we may rely on to drive, unpack, pick up and shop for us. Labor laws must be updated to create a more navigable and just path for this growing swath of workers. Until then, I’ll be perusing Zen99’s website.

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