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These Are the 3 Biggest Trends in Workforce Innovation

Keeping up with the changing world requires constant innovation — and this includes hiring. Evolving technology, the shifting generational makeup of the workforce, and a candidate-centric market[...]

February 18, 2020

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Protect Independent Contractors: MSPs Can Do It!

Independence Day, not “independent day”

With Independence Day fast approaching, it seems like an appropriate time to discuss the California Labor Commission’s recent ruling that former Uber driver Barbara Berwick is not an independent contractor, as Uber asserts. Rather, she has been deemed an employee. Berwick demanded reimbursement for expenses that Uber requires its drivers to bear, claiming that she should have been treated as an employee of the gig economy juggernaut. Officers for the commission concurred, citing the extent of control Uber exerts over its independent workforce. As staffing industry professionals understand, the issue of control is one of the main factors used by courts to determine the classification of an employee or nonemployee. Berwick is now owed restitution to the rather meager tune of $4,152.

When you consider the $27 million FedEx had to shell out last year for misclassification violations ($12 million of which went to legal fees) or Microsoft’s $97 million settlement in 2000, Uber got a tremendous break, though it still plans to appeal. And the ruling affects only one contractor. What investors are fretting over is the precedent set by this decision. The same rationale could be applied to future cases against this Wall Street darling -- or even extend to similar app-based, gig economy organizations.

The case itself came as no great surprise to anyone. Threats against gig economy enterprises have been brewing. Uber and Lyft aside, other companies capitalizing on the sharing economy have been impacted. For example, if the lawsuit filed against Handy in October 2014 blossoms into a class action, covering about 2,000 potentially misclassified workers, the $42-million company could face nearly $600 million in penalties. What makes this debate more polarizing and editorialized than the FedEx or Microsoft cases is nuance.

The multifaceted view of the sharing economy

Employers see the rising freelance economy as good for workers, who get to set their own hours and work from the comfort of their homes. Regulators say that misclassifying employees as contractors robs governments of crucial tax revenues and exploits workers, depriving them of health care and other benefits. Investors panic because they’re making small fortunes off companies like Uber -- which boasts incredible profits and low operating costs compared to other interests that have traditionally utilized independent contractors -- primarily large enterprises such as GE, FedEx and Microsoft.

Labor economists are divided. Some say forcing gig businesses to employ their freelance talent will lead to unsustainable overhead, dwindling margins and eventually unemployment. Others worry that the need for other enterprises to compete with this model will become the impetus for the abolition of employment as we know it -- culminating in a “race to the bottom.”

The media jumped into the game, too. One of Slate’s irked financial writers posted a headline calling the decision “Uber’s worst nightmare.” Time presented a dire message that the decision should strike fear in the hearts of stockholders. Editors at the Wall Street Journal accused regulators of trying to “kill” California’s “baby.”

The LA Times Editorial Board took a different tack and warned that the ruling could have detrimental consequences for workers: “These new services are more than just a cheaper alternative to traditional providers. They’re a breakthrough for people who have something to offer the public but no way to do so effectively on their own. The emergence of specialized platforms such as Uber, Taskrabbit and Instacart has drawn enough customers and providers to make it viable for people to offer a service on their own schedule, for as many or as few hours per week as they choose.”

What the LA Times does manage to accomplish in its piece is to expose the more complex nature of the gig economy. The editors acknowledge that these rules are vital when used to stop companies from misclassifying workers simply to turn a higher profit. “But with a growing number of Californians looking for part-time, temporary or entrepreneurial work,” they write, “the state can’t afford to close off opportunities for those who prize flexibility over job security, and who need the help of a platform such as Uber's to sell their services.” So the real question is how do aging labor laws fit the 21st century workplace?

A black and white ruling in a nuanced debate

On the surface, the California Labor Commission’s ruling against Uber seems very traditional. Although Uber claims it’s merely a technology provider that supplies an app for free agents to find clients, the judicial proceedings concluded that the company was doing much more than curating connections or maintaining a digital work platform. Uber vets drivers, enforces certain rules, monitors driver performance, imposes restrictions on what drivers may play on their radios, offers guidance on etiquette and delivery, and reserves the right to boot people out of the program for failing to meet performance standards.

Within the 20th century view of control, Uber certainly seems guilty of misclassifying its independent contractors. However, the federal government has not stayed abreast of the times, the laws that govern the modern workplace or new personnel issues. Until this month, the last comprehensive tally of independent workers took place in 2005. So there exist no contemporary policies to address the dynamic shifts in the nature of work and the preference of new generations of talent -- especially where the freelance movement is concerned.

Speaking before the New America Foundation, Sen. Mark Warner (D-Va.) declared: “It’s fairly stunning to me that this much transformation has already taken place but virtually nobody in Washington is starting to ask policy questions.”

Prior to the last 10 years, upticks in “alternate work arrangements” and “involuntary part-time” talent were generally the byproducts of economic instability. Yet as the most recent Government Accountability Office (GAO) data show, the desire for flexibility, self-employment, on-call arrangements, supplemental income opportunities and overall independence from traditional management structures are new factors -- new nuances -- in the conversation. A deeper dive into the data reveals that 86 percent of independent contractors and contingent workers are not only satisfied with their roles, they would never think of returning to traditional employment.

Today’s free agents, unlike those of the past, tell success stories of working harder, earning more, controlling their own destinies and being more fulfilled. And this is the precise nuance that Sen. Warner and others are invoking when they question the Uber ruling: what about all the talent who no longer want to be employees of a company?

Solutions for those seeking independence

One glaring revelation in the GAO report is that it illustrates how much we don’t really know about the independent workforce in the United States. In fact, despite the figures trotted out by industry associations and analysts, no definitive number exists. And with increasing frequency, independent talent fall further into a rabbit hole of older labor regulations that may or may not apply today. In addressing the time-honored argument about control, the Supreme Court observed that it’s not a clear test in this century. The line between employment and independent contracting can be easily manipulated by either party. More often than not, it’s a “very poor proxy for the interests at stake,” the Court said.

Yes, Uber imposes certain standards to maintain its brand, which independent drivers are representing in exchange for the service. And the drivers -- all there willingly and voluntarily, with complete foreknowledge of the nature of their employment status -- exert control over their hours, their work, their dress, their vehicles and more. Uber could simply drop its rules over acceptable radio stations, performance monitoring, handing out business cards and so forth. Yet it’s not the black and white situation of decades ago. It’s become quite a gray area, which countries such as Canada and Sweden have already conquered. And we can take a lesson from them.

In those countries, a new class of worker exists -- the “dependent contractor.” As Alan Hyde of Rutgers University points out: “Such workers are self-employed for some purposes, say tax administration. But if their livelihood depends on the richer entity that hires them, then that entity is bound by labor laws when it administers tips or compensation.”

This concept is gaining traction. Enthusiastic technology leaders are already beginning to create the foundations of this labor category for state legislators and Congress to consider. A dependent contractor status would empower talent seeking independence while preventing organizations from taking advantage of that relationship.

Expand the role of MSPs

Proposing new laws and waiting for lawmakers to institute them is a slow process. A more immediate solution could easily come from MSPs willing to expand their roles and their domains. As the workforce becomes more blended, more nuanced and more shaped by talent who want their independence, MSPs could prove instrumental as shepherds of these large, diverse flocks. They have the experience, resources, tools and best practices needed to identify new needs across the enterprise, access and entice the right talent, maintain compliance among all the different contingent categories, ensure operational and cost efficiencies, and champion the autonomy today’s freedom-loving talent want.

MSPs already have years of expertise designing and overseeing independent contractor engagements, including onboarding, ongoing administration processes, billing and invoicing, and mitigating clients’ exposure to compliance risks. They handle performance in the same way they would with any outsourced service provider or supplier -- in relation to agreed upon contractual obligations and service level agreements. MSPs:

  • Design an environment for independent contracting that focuses on standardization, consistency and compliance.
  • Build document management portals, maintained in a controlled environment.
  • Limit any perceived managerial roles with independent talent:
    • Administration and onboarding procedures are performed by the MSP.
    • Regular communication occurs between the independent service providers and the MSP, only in relation to contractually bound and scheduled milestones, deliverables and Statement of Work (SOW) commitments -- not employee related issues such as attendance, timekeeping, hourly productivity checks, etc.
  • Act as a payment processing agent between the independent and the client, with terms that are clearly outlined upfront in Professional Services Agreements (PSA) and SOWs. The billing structures are negotiated to ensure that financial control factors are adhered to.
  • Restrict the inclusion of independent contractors in company functions unless absolutely necessary to the performance of the work as contractually stated.
  • Direct all HR related information to the independent contractors.
  • Reassess independent talent who remain on projects longer than a predetermined amount of time, addressing red flags.   
  • Ensure that the utilization of independents occurs for specific, specialized work only, such as projects with established start and end dates that full service employees are not performing.

As America celebrates 239 years of independence, we in the workforce industry must work to preserve and champion the independence for which many of today’s talent are fighting. And we have the know-how, the expertise and the voices to do so while protecting the independence and security of the organizations we -- and our talent -- support.

Sunil Bagai
Sunil Bagai
Sunil is a Silicon Valley entrepreneur, thought leader and influencer who is transforming the way companies think about and acquire talent. Blending vision, technology and business skills honed in the most innovative corporate environments, he has launched a new model for recruitment called Crowdstaffing which is being tapped successfully top global brands. Sunil is passionate about building a company that provides value to the complete staffing ecosystem including clients, candidates and recruiters.
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