We've been hearing so much about the "new" economy where companies use freelancers and independent contractors to build a flexible workforce. But as the New York Times reports, some tech companies and startups are opting for a more traditional approach – they're actually hiring employees.
What's behind this reversal from the freelance revolution? Here are few reasons:
- A recent California court ruling required Uber to classify one of its former CA drivers as an employee (and offer her benefits).
- An improving economy means businesses have to compete and offer more benefits to hire better employees.
- Employers have more control over how employees work and can deliver better service to their customers.
All the above points to a potential shift in the freelance or "gig" economy. Let's see what this means for the IT business owner.
The Uber Problem: Choosing Between Employee and Contractor
Some startups are worried that they'll face the same problem Uber is currently dealing with – they'll hire a bunch of contractors only to have a court rule that these contractors should be treated like employees. As an employer, you would owe your staff unpaid overtime and other benefits. That's potentially thousands of dollars for each employee.
CBS News reports that grocery delivery startup Instacart is making the shift from relying on independent contractors to hiring and training employees in order to avoid the Uber headache. Though employees cost more, Instacart's executives think they'll be able to deliver better service. And that, they hope, will pay off in the long run.
Now, this entire ruckus doesn't mean that you can't hire independent contractors. Countless businesses use that model (there are still 53 million freelancers). But this uncertainty highlights there's risk in any employment agreement, whether it's for an employee or contractor.
What's the Difference? Defining Your Workers
If you're deciding between hiring an employee and using a contractor, remember that an IT business will have different liabilities for each. Keep these things in mind:
- Employers have to pay taxes for employees.
- Your state may require you to have Workers' Compensation Insurance to cover employee injuries.
- If you hire contractors, their work might not be covered by your Professional Liability Insurance / Errors and Omissions Insurance. You may have to add them as an additional insured to your policy, or require the contractor to carry their own coverage.
A Final Note: Technology vs. Regulation
Technology often moves a few steps ahead of regulations and lawmakers. Uber skirted taxi regulation and avoided scrutiny about its independent contractor workforce.
Eventually, lawmakers catch up to innovation, which can mean a lot of uncertainty for tech businesses and the freelance economy. While there are 53 million freelancers in the country, there are a lot of questions about what employers need to do to protect their business from potential lawsuits and employee or contractor misclassification.
As always, it's best to play it safe:
- Consult with lawyers about your liability.
- Invest in small business insurance to help cover your financial risks.
- Review the work classification distinction between employees and contractors.
If this is your first business, be sure to check out our insurance fundamentals, which highlight the things you need to know about risk management.
