As Uber and other Silicon Valley startups come under legal pressure for employing an army of full-time freelancers, a well-funded new startup has decided to completely switch its workforce to staffed employees with full benefits (“W2” workers).
Shyp, a hot new startup that recently raised $50M, is an on-demand shipping company that allows users to call a courier to pick up and drop off packages for a low price each trip (usually $5).
“We surveyed our couriers before making this move and the vast majority of them wanted this,” Shyp spokesman, Jonathan Brackett, tells The Ferenstein Wire.
“Newly classified W2 couriers will now get workers’ compensation, and we will pay for their vehicle expenses, in addition to their unemployment, Social Security, and Medicare taxes, just like we do for our satellite drivers and warehouse employees,” explained the CEO in a blog post.
Like Uber, Lyft, TaskRabbit, and other on-demand startups, Shyp was relying on a legal grey area of full-time 1099 workers (freelancers) to quickly grow their ranks for little cost. 1099 workers don’t get the same kinds of benefits, even though they work full-time hours. Recently, a California court ruled that Uber would have to pay benefits to one of its drivers, a precedent that could ripple throughout the entire nascent on-demand industry.
Shyp maintains that its decision has little to do with the recent controversy. “It enables us to provide the training that we feel is essential to improve our user experience. Long term, this will positively effect our bottom line and our investors are very much on board,” says Brackett
Couriers are the customer touch point, so putting more resources toward training and company loyalty may ultimately pay off in better customer service.
One of the main benefits of the freelance workforce is it allows a lot of employee flexibility and also allows the company to hire more workers. Many Lyft and Uber drivers are part-time workers, who quickly sign up to earn much-needed extra cash. What freelancers sacrifice in benefits, they make up for in flexibility and greater total employment.
Will moving to a W2 workforce limit how many employees Shyp can hire?
“It doesn’t limit the amount we can hire and it will of course increase retention as they will now be offered benefits,” argues Brackett.
Shyp’s experiment could prove that the full-time freelancers Uber and other companies rely on may just be an inefficient strategy, considering the high turnover and mediocre training. Should it prove profitable, the business case alone could preempt any need to force a transition from freelancers through the courts.
For more stories, subscribe to the Ferenstein Wire newsletter here.