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The Problem With Employee Regulations in the Sharing Economy

 

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The numerous lawsuits against companies like Uber and Homejoy (which actually recently forced them to liquidate as a result) have spurred a political debate around the sharing/on-demand economy and employee classification and protection.
The arguments against companies operating in this space are mainly that they disguise employees as independent contractors, therefore resulting in loss of protection for the workers and — more to the point — less tax income for the IRS. I think this argument is very skewed and, in fact, hypocritical.

Firstly, tax income is the real concern for the government — not worker protection. Yet, it is subtly forgotten in the debate. Secondly, in a nation that thrives due to people’s appetite for risk with the inevitable loss of protection for the pursuit of upside, it is too populist. Why do we celebrate and praise entrepreneurs yet pity the “solopreneur” and want to protect them? Both people choose to forego the perks of a secure job for the freedom to work for themselves, determining their own times and patterns of work and, in many cases, earning more.

For example, over 80 percent of over 1 million freelancers on my company site, PeoplePerHour.com, polled said they would never go back to secure employment. Our top earners make north of $10,000 per month in net earnings, which (in most cases) exceeds what they made or still make in their 9-to-5 job. Numerous conversations I have had with Uber drivers testify to the same. I have recently met someone who made so much money renting out his place on Airbnb that he quit his job and turned it into a business.

Contract Worker or Company Employee?

However, there are unquestionably some edge-cases where companies force this “contractor” engagement on workers while stripping them of the freedom to dictate their own work conditions. In these cases, the argument that they are, in essence, employees in disguise stands correct. FedEx was one such example, losing a long-standing suit instigated by its drivers and was settled in 2014, forcing it to reclassify their workers as employees.

The distinction needs to be understood, though. There is a big difference between an employer dictating when you show up at work, what you wear (in this case, a uniform), the hours you work and how you perform your duties. These are the elements that define the level of control an organization exerts on the worker. Ask yourself how different it would be if that person were an employee. If the answer is “not materially different,” then it is employment in disguise.

The answer is different for most participants of the tech-powered on-demand economy today because technology empowers workers to be independent. I structure my two companies, PeoplePerHour and SuperTasker, so that freelancers can choose: when to work, for whom, their work location, how often they work and for what rate. In fact, nearly all our freelancers work remotely, and the lack of physical dependency means that they can also be performing multiple jobs simultaneously (while a cleaner for Homejoy or a FedEx driver cannot be at 2 places at once).

Uber arguably dictates the “where” by routing drivers to a specific location, but we forget that the drivers choose when to toggle in and out of the network. They have that self-chosen freedom.

Some regulation is definitely needed to monitor and prevent these edge-cases from going mainstream and protecting workers’ rights (and Uncle Sam’s coffers), but they should not be misunderstood as being the norm, or we run the risk of over-regulating a growing and very promising market, destroying healthy businesses and limiting choice for the consumer.

The sharing economy is not a fad. It is a truly revolutionary movement that unlocks waste in an economy or “spare capacity” — be it people’s skills, time, spare bedroom or unused car or closet. It is putting idle resources back to good use for the benefit of society. I often think of the sharing economy as “Recycling 2.0.” What recycling did for physical consumables is now — unbeknown to most — generating a hugely profitable economy and touching everyone’s lives. Plus, it makes the world a better place (out of what would have been just trash).

The sharing economy has the potential to do exactly the same for intangibles and physical assets. What machines did for trash, the Internet and software is doing for almost everything that surrounds us — and that will certainly make the world a better place.

 


 

 

The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

Image credit: CC by Bureau of Safetyand Environmental Enforcement BSEE

About the author: Xenios Thrasyvoulou

Xenios Thrasyvoulou is a passionate PPHer, avid blogger, lover of art, design and all things quirky and minimal—words in particular. He’s also a fan of the uncommon and unconventional and a vintage fanatic who specializes in poking the fire and stirring things up. He suffers from an overly curious mind. Thrasyvoulou is the accidental founder of, and now fully and truly wed to, PeoplePerHour.

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