A new kind of worker needs a new kind of employer

Over the past few years, the explosive growth of the freelance economy through platforms like Uber and Instacart has fueled debate around worker classification in the United States and abroad. These platforms are predominantly powered by contract workers who are exempt from many of the protections afforded to traditional employees. However, mounting legal challenges around the world argue that gig and on-demand companies should be required to meet similar employment standards as organizations employing full-time workers: things like paying a minimum wage, providing health insurance, and covering business expenses. 

Some freelance platforms, such as Austin-based Favor, have taken the initiative by offering guaranteed wages. But the challenge of worker classification has been further compounded by the growing popularity of contract workers with enterprise businesses. A report from the Oxford Internet Institute revealed that the number of projects sourced through freelancing platforms by Fortune 500 companies grew 26 percent from 2016 to 2017. Right now, most gig work is service-based. Could it really be sustained at a large scale for higher-paying, professional positions?

A New Paradigm of Work

Part of the problem is that the legal framework for classifying workers is wildly out of date and ill-equipped to handle this new kind of independent worker. Tristan Zier, writing for Fast Company, explains: Right now in the US, workers are bucketed into either the employee or contractor category. But these distinctions were made in a pre-internet era: the IRSs 20-point test to determine if a worker is an employee or contractor is from 1987. (Its worth noting that the IRS has since published a tax resource page for sharing economy workers.) This problem has led some to suggest the creation of a new worker class—one with greater protections for the dependent contractors of the evolving freelance economy.

And theres no doubt: improving legal classifications to better address the needs of independent workers is essential, but theres two sides to this coin. The emergence of platform-enabled freelancing is really a paradigm shift in the employer-employee relationship, and for it to work, companies need to rethink how freelancers fit into their organizational model. Its not enough to ensure that independent workers make minimum wage, especially as the gig economy begins to eat away at middle-class, salaried roles. What we really need (even if not in a legal sense) is a new kind of hybrid employer—one that merges the advantages of freelancing and traditional employment to the benefit of everyone involved.

The Hybrid Employer

The motivations for enterprise businesses to recruit online freelancers are obvious: organizations can more nimbly respond to fluctuations in workload and find the best talent regardless of location. On the other hand, full-time employees provide stability and organizational knowledge, reduce the resources a company needs to devote to training, and are easy to monitor and incentivize. For workers, freelancing offers more flexibility (both in where and when one works), greater work/life balance, and increased autonomy—but it lacks the security and benefits enjoyed by traditional employees. Obviously, theres incentive for these two sides to come together and figure out a new employment arrangement. But what might this theoretical hybrid employer look like?

If its going to be successful, any hybrid model will need to include some key elements:

Stability

Creating some level of stability—both for workers and their employer—is crucial to the success of this model. Its a point that some gig economy companies have already recognized: for example, Uber has started offering bonuses to drivers that complete at least X number of rides or hours driving within a set period of time, hoping the extra cash will help keep users dedicated to the platform. A hybrid employer would institute minimum hour commitments—not a 40-hour work week, but enough to weed out any casual participants. 

The gig worker also wants stability in terms of their payments. A potential solution could be guaranteeing a minimum income for delivering a certain quantity of resources to the platform. In order to do so, employers will need to provide a payout mechanism that isnt exclusively tied to a credit card transaction—they should be able to provide one-time bonuses or guaranteed incomes. 

Flexibility

This is about more than just the worker getting to choose where or when to work—its also about flexibility for the company. Hybrid employers will use overtime and bonuses to incentivize work during times of high demand, similar to the surge pricing structure utilized by gig economy companies. These companies benefit from having labor specifically when they need it, and workers benefit from increased earnings. Similarly, hybrid employees would want flexibility in terms of how they receive their wages: directly to a bank account, to a digital wallet, to a prepaid card, or even in cryptocurrency. 

Predictability

Regular employees can count on receiving their earnings in a specific amount at a specific time, but freelancers rarely have that luxury. A hybrid employer will help workers better predict their earnings, offering greater transparency and control throughout the payment process—say, by letting them choose when and (by what method) they get paid. Employers will need to ensure that they have a predictable payment cycle and offer full transparency into how wages are calculated and the current status of any given payment. 

Sustainability

Theres a reason traditional employers offer benefits: theyre important to the well-being of employees and encourage worker loyalty to the company. It might not be feasible for hybrid employers to provide all of the same benefits as their 20th century counterparts, but it would be simple to offer things like discounted access to health insurance, support for 1099 tax filing, and integrated rewards programs. Hybrid employers would need to tie these rewards with their payment providers. 

Solving the Future of Work 

Of course, the hybrid employer doesnt make sense in all circumstances. Jobs that demand significant prior knowledge or training, or require cross-organizational cooperation arent well-suited to the model. A good analogy might be the difference between hosting technology solutions on-premises vs. in the cloud: there are always going to be certain tools that you want to have on-site so that you know theyre secure and available when you need them most; other, less critical functions can be safely outsourced to the cloud. Both solutions offer value, depending on the problem at hand.

With a hybrid model, companies get the advantage of scaling costs with demand, while workers maintain the flexibility of freelancing with many of the benefits of traditional employment. Amidst growing concerns around job insecurity and shrinking incomes in the gig economy, this arrangement proves ideal in many cases for both employers and employees. At the very least, its an important step towards a more balanced and equitable future of work.

About Simran Singh

Simran Singh is the Director of Business Development and Strategy at Hyperwallet. Simran has more than five years of experience in the on-demand economy and graduated as a Palmer Scholar from Wharton School of Business. He also holds an undergrad degree in Computer Science and Mathematics from the Indian Institute of Technology, Delhi.

 About Hyperwallet

Hyperwallet’s payout technology provides two-sided marketplaces and digital platforms with a frictionless, transparent, and reliable way to manage global payouts and enhance their sellers’ experience. With Hyperwallet, platforms can offer payout optionality across multiple currencies, enable financial management tools for their sellers, and streamline identity verification and compliance screenings – all through a single integration. Hyperwallet has offices in San Francisco, Austin, Sydney, London, and Vancouver. You can learn more at www.hyperwallet.com.