That said, in the name of innovation and satisfying consumer demands, a 21st century set of companies that seek to provide "on-demand" services is challenging some of these basic legal rights. By classifying the people who clean houses, ship packages, ferry passengers around town, and deliver food as independent contractors instead of employees, these companies are skirting the basic protections that separate our labor market today (problematic though it is) from that of 100 years ago.
As Wash Cycle Laundry has grown and raised capital, a number of potential investors have asked why we classify our cyclists as employees instead of contractors, and in doing so, take on the burden of having to pay for:
- employer payroll taxes (about 7% of wages)
- workers' comp (another 8%)
- unemployment insurance (about 3.5%)
- compliance with the Affordable Care Act (around 15-20% of wages for qualifying employees)
- the requirement to pay overtime for people who work over 40 hours per week (50% of wages)
- an increased scope of compliance for HR-related rules (e.g., EEOC record-keeping, etc.)
For me, there are a few reasons.
- First and foremost is the knowledge that if any of Wash Cycle Laundry's employees are hurt on the job, neither they nor the company has to worry about medical bills. I'm no insurance expert, but I don't believe that there's any other type of insurance that accomplishes this goal -- just because a company is "insured" with a general liability policy doesn't mean that its contractors have a right to seek emergency care at the cost of the company without a contested claims process.
- With employees, we are able to train our staff -- a part of Wash Cycle Laundry's fabric that enables us to work with adults who may have been off the job market for some time, and teach them new skills. This keeps our team with us longer, empowers us to promote from within our front line team, and leads to growth of the company. When working with independent contractors, a company simply cannot provide training.
- Finally, the notion of everybody as an independent contractor is currently being challenged in court. Early indications are that many states may begin clamping down on the misclassification of workers as independent contractors. Seems that this whole trend may remembered as another excess of a tech bubble.