From Quartz, Marcela Sapone discusses the decision that she and Jessica Beck made to hire employees for their start-up, Alfred. She writes:
While I’m not going to weigh in on the legal and political complexities of the Uber ruling, the debate about how employees should be categorized as technology introduces new nuances into the economy, is well worth discussing. As an entrepreneur that recently raised funding to run after a service-based idea, I want to explain how we assessed this situation and how we arrived at the decision to have W-2 employees at Hello Alfred.
In September 2014, Jessica Beck and I launched our business, following graduate work at Harvard Business School. Our idea was simple: we wanted to give people back their time with the help of empathetic people and the smart use of data. With the proliferation of on-demand companies we saw an opening to become a service layer and a single point of contact to manage the available services and become a part of your home routine. We are part tech platform, and part service logistics company, integrating services in the background and then making the experience frictionless as a dedicated ‘Alfred Client Manager’ visits our members’ home each week to coordinate everything past your door. People have referred to us as the Uber for your home. We like to say Alfred is your personal butler.
It would have been logical for us to classify our growing Alfred field team as contractors. Service startups favor the use of 1099 contracts as they reduce cost and risk. The classification provides maximum flexibility to hire, fire, and change wages (independent contractors are not subject to minimum wage laws or other laws that protect employees). Companies are at arm’s length and have limited responsibility for tax withholding, benefits, insurance, and training. But the other side of the coin is that when workers are classified as contractors, companies are also legally precluded from telling them when and how to do their jobs. Central to the Uber debate is that the on-demand sector has stepped over this line, mandating rules of how work is done, but denying benefits and protections that would come with employee status.
Our decision to provide W-2 jobs ran contrary to conventional tech wisdom and was met with skepticism by the investment community. Would-be investors balked at the added cost and complication of hiring W-2 labor. Several investors we pitched said,“That doesn’t make sense. That’s not a scalable business model.”
It does of course ‘cost more’ to hire W-2 employees over contractors—by our calculation a 20-30% increase in overall cost structure. But, for certain businesses, there is a cost associated with not hiring W-2s. The place to look for this cost is the churn rate. It happens both on the supply side, when contractors come to your platform, but leave quickly, increasing recruiting costs and limiting availability of your product; and on the demand side, when customers try your product, but leave you due to inconsistent quality, often driven by lack of training.
Read the full story at The on-demand economy doesn’t have to imitate Uber to win