As part of the management team at a labor-intensive service company, you undoubtedly know—at any given time—how many employees are working at the business. Or do you?
Strictly speaking, it’s not difficult to delineate what qualifies a worker to be classified as an “employee”—someone who not only gets paid for contributing to the business, but also receives specific benefits (including workers’ compensation coverage, unemployment insurance and protection under anti-discrimination laws). Independent contractors, by contrast, have the freedom to work for multiple clients and to set their own schedules. “They can work when they want and if they want. Nobody is controlling all of their time,” says Robert Alessandrini, CFO of The Judge Group, a staffing and IT consulting firm with nearly $500 million in annual revenue. “Nobody barks orders at them, and nobody is reviewing their performance at the end of the year.”
True enough, although independent contractors such as Uber drivers are subject to customer ratings, as Alessandrini notes. “That helps promote their business,” he adds. Still, drivers provide their own cars, and shell out for gas as well as upkeep. In an on-demand economy, populated by such upstarts as ride-sharing companies Uber and Lyft —not to mention countless other similarly shaped business models—the line between employees and independent contractors is blurring faster than a windshield in a snow squall.
Last July, for example, a U.S. Court of Appeals agreed with a Kansas Supreme Court ruling that Federal Express drivers, which the overnight deliverer classifies as independent contractors, qualify for employee status. The Department of Labor has also weighed in on the subject, sternly reminding companies that simply labelling workers as “independent contractors” has no bearing on their legal status. In Seattle, the city council recently passed a bill allowing for-hire drivers to unionize, thereby requiring their employers to engage in collective bargaining.
Should the law ever go into effect, it would certainly have an impact on other independent contractors. Even if it succumbs to forthcoming challenges, it raises issues that aren’t going anywhere: Just how independent are independent contractors? And what obligations should be required of any businesses they toil for? Shouldn’t those companies be allowed to avoid the overhead associated with full-time salaried employees? “Employees are expensive,” notes Alessandrini, who adds that “the sharing economy is here to stay.”
If so, there may need to be new laws that govern how such quasi-employees are treated. Then again, maybe the hype surrounding such business models will run out of gas as the economy revs up, leaving them with a circumscribed niche to occupy. “If you’ve got a car, and can’t find a job, a company like Uber gives you an opportunity you didn’t have before to earn money,” says Alessandrini. “Those who don’t like it can get another job.”