TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-comm TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow the company on Twitter.
Labor trends come and go. Occasionally, they come back again.
Earlier in American history — especially during the Industrial Revolution — piecework was a common labor practice across all fields of work. Workers were paid on a per-piece basis, and this offered a high level of flexibility to employers and incentives to good employees.
But as time went on and industries continued to develop, piecework fell by the wayside and was replaced by the salaried 9-to-5 positions we are all too familiar with.
Today, however, with technology powering the modern sharing economy, we’re experiencing a rampant resurgence of independent contractors — 1099 workers, those who are paid via 1099 forms, not W-2s, to do contract work.
These workers differ from employees because only the outcome of their work is controlled, not the methods they use to do it. More and more companies, especially small businesses and startups, are returning to this low-risk, high-reward option.
Labor on Demand
From on-demand manufacturing to just-in-time inventory, the modern economy is constantly finding new ways to become more agile and less wasteful.
1099 workers are the bread and butter of the sharing economy and fall right into this trend. They’re free agents who can work whenever and wherever they want. Consider them your source of on-demand labor. The busiest ones take temp jobs during the week, participate in rideshare communities in the evening, and do freelance work on the weekends — all through different companies.
In 2005, the Bureau of Labor Statistics estimated that as much as 14.8 percent of the workforce was comprised of what it considered contingent or “alternative arrangement” workers, freelancers, temps, and contractors.
And as businesses continue to seek more efficiency, agility, and flexibility, Intuit estimates that the number will surpass 40 percent by 2020.
Enabling 1099 Through Platform Technology
In utilizing independent contractors rather than traditional employees, the companies helping grow the on-demand economy represent a new kind of corporate structure. They serve as platforms that connect consumers looking for a particular service with workers who are willing and able to provide that service.
The operative term here is “willing,” as 1099 workers have the freedom to choose whether or not to engage with specific opportunities. The platforms themselves do not mandate schedules, durations of work, or specific tasks. Instead, the terms are at the contract worker’s discretion, which presents him with a highly flexible alternative to full or part-time employment.
Platform technology is making it possible for the sharing economy to scale. The cost of connecting contract workers with consumer demand is very low, and the platforms have few liability concerns, are not required to pay a minimum salary, and are also not responsible for providing any benefit plans to their 1099 workers.
Brands are now celebrating a healthy infrastructure of reputation and reliability that has inspired unprecedented growth in consumer demand for contracted labor. Through ratings systems and reviews, platforms like Airbnb and Uber are experiencing consumer confidence in freelance labor that we’ve never seen before. And as consumer demand shifts away from traditional institutions and toward platforms, supply has certainly grown to match it.
1099 From the Workers’ Perspective
While the 1099 movement has clearly been a success for companies and consumers, its impact on the workforce itself is a bit more complicated.
The current average hourly wage for 1099 workers is pretty solid. A Request for Startups study shows that contract employees typically make around $18 per hour, which competes with even the most robust local living wage ordinances. Zooming in on the rideshare industry, you’ll see that 1099 drivers make around $25 per hour — which is more than double the average traditional taxi driver’s wage.
While the wages are impressive, there are also downsides to being a 1099 worker. In addition to the fact that companies aren’t required to provide benefits or pay a minimum salary, the lack of employer liability can really backfire on these workers.
Who pays for the damages when a passenger is injured in an Uber car? What happens when a handyman is injured during a TaskRabbit job?
These dynamics are not yet well understood by workers or consumers, and they represent a potential imbalance of risk that will likely lead to increased consumer protection legislation as these platforms become more ubiquitous.
Right now, the most important task for companies is to create a system that allows their 1099 workers to feel fairly compensated, protected, and able to succeed.
Supporting 1099 Workers
While many 1099 speed bumps haven’t been smoothed out, some platform companies are leading the way in ensuring a happy and healthy 1099 workforce. Here are two noteworthy businesses:
- Zen99: This company created an all-in-one dashboard that helps 1099 workers keep track of finances, taxes, and any insurance policies they may be enrolled in. On-demand economy giants like Uber and Postmates refer their employees to Zen99, so it’s safe to say that it’s an invaluable resource.
- DogVacay: The canine version of Airbnb, DogVacay offers a number of resources for its contracted hosts, such as taxation policies, a 24/7 support center, and insurance options that cover dogs if they get sick or injured while in your custody. DogVacay has recently experienced tremendous growth and boasts very impressive consumer satisfaction numbers.
It’s clear that our current labor structure is in flux, and “going to work” no longer means driving to an office or a factory for a set amount of time. The traditional 40-hour workweek is experiencing an overhaul, and it will continue to evolve as new on-demand service platforms rise up to meet consumer demands.
The challenges of the on-demand economy are not impossible to overcome. Best practices, legislation, and court precedents will eventually establish proper consumer and worker protections in this growing space. Before we know it, “1099” will indeed be the most important number in the sharing economy.
Read Next: The sharing economy is here to stay
Image credit: Unsplash, Shutterstock
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