Companies Need an Option Between Contractor and Employee

intermediate view via Andrei HagiuFrom Harvard Business Review, Andrei Hagiu discusses the problems with only having two choices (employee or independent contractor) and that in an ideal world, there would be a range of choices but that such an ideal is impossible from a practical point of view.  For the time being, he proposes an intermediate step — a dependent contractor.  Andrei writes:

First, given the multiple dimensions of control described above, any attempt to draw a single bright line between independent contractors and employees seems arbitrary and impossible to do in a consistent way. This will inevitably lead to different and subjective interpretations from one industry to the next.

The second and more serious problem is that only allowing for two categories induces firms to run for the corners (pure marketplace or pure employer) in order to avoid getting caught in the uncertain middle. There is evidence that this trend is already underway: In the past two months, several firms (e.g., Luxe, Shyp, Sprig) have announced that they are converting all their workers from independent contractors into employees. This will likely eliminate many intermediate business models, which might be more efficient.

In an ideal world, firms would be able to choose among all possible intermediate steps between pure marketplace and pure employer — subject to the constraint that their costs will increase relative to some aggregate measure of the control exerted.

Needless to say, this is not practically feasible: There are just too many possible intermediate configurations, and it would be prohibitively complex to assign a different legal status to each of them.  But it is not too much to ask for the introduction of at least one intermediate step such as “dependent contractors” for whom firms would cover some costs (e.g., expenses) but not others (e.g., social security). 

Yes, there would still be the problem of drawing the boundaries between this status and the other two. Nevertheless, this would be a big step forward in terms of freeing firms to explore a variety of intermediate business models and arrangements with their workers.


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