Even as lawsuits threaten the contract-based employment model of companies like Uber, contract labor is the norm in the industry. But a few companies argue that paying employees well isn’t just the law — it’s good for business.

In 2011, when Maren Donovan was founding her company, Zirtual — which sets users up with remote personal assistants who perform tasks such as transcribing a phone call or making dinner reservations — hiring her employees on a contract basis seemed like the right thing to do. It's cheaper, for one, and the prevailing wisdom in the then-nascent on-demand industry was that the labor costs associated with paying employees full-time were enough to sink a new venture before it started.

But Donovan also thought that's what her employees would prefer. “We really thought people wanted the freedom and flexibility to work when they want, and make as little or as much money,” she told BuzzFeed News. But, she said, as the company grew, she came to realize that many of her employees didn't come to Zirtual for the freedom — they came for the paycheck, too. “What we heard from the people who were working for us,” she said, “is that they wanted steady work.”

So about a year ago, Donovan began phasing out 1099 workers, or independent contractors. All Zirtual employees are now full-time salaried workers with benefits, training, and holidays off.

In this, Zirtual is an anomaly in the on-demand economy, the name given to the constellation of Ubers for X and Insta-everythings that provide personal services such as meal delivery, laundry, home cleaning, and errand-running on a piecemeal basis, with the press of a button, at the hands of a sprawling contract labor force. But the company is part of a growing handful of similar labor startups that have decided their businesses are more sustainable, more innovative — and, perhaps most crucially, more legal — when the rights of their employees are protected, and are thus challenging the fundamental doctrine of a multibillion-dollar economy.

Via Zirtual / Via zirtual.com

Within the massive on-demand services industry — which is valued anywhere between $60 and $500 billion — contract labor is the norm, and the prevailing wisdom is that traditional full-time labor is an inefficient model in a technologically enabled world. As a 2014 report from the venture capital firm Sherpa Ventures — an investor in on-demand titans including Shyp, Uber, and Washio — argued, “perpetual, hourly employment is often deeply inefficient for all parties involved.”

At base, the legal distinction between a contract — or 1099, after the tax form these people fill out — laborer and a full — or W2 — employee hinges on control. A W2 employee can be told what to wear and where to go by their employer; they can be trained. A 1099 employee can't, technically, hold a contract for longer than six months, and can break that contract at any time, coming and going from various companies and labor marketplaces as they please. Essentially, 1099 employees get autonomy; W2 employees get job stability. Even as the model comes under legal fire, with some companies finding themselves on the receiving end of lawsuits for potentially misclassifying their employees as contract laborers, many observers of the on-demand economy maintain that contract labor is best for all parties involved.

Mitch Ratcliffe, a senior analyst at BIA/Kelsey and an expert on the local on-demand economy, argues that the industry simply can't survive without the massive supply of a cheap, flexible labor that it provides. “These models don't scale if you're hiring people and you're not putting them to work every minute you're paying them for,” he told BuzzFeed News. In a crowded industry with sometimes small margins and usually big ambitions, every added cost matters — and full-time labor is expensive.

Salaries, benefits, and overtime aren't the only costs, either — hiring full-time labor also means taking legal responsibility for your employees. Marcela Sapone is the founder of Alfred, a butler service that uses W2 labor. “Tech companies that want to scale quickly have looked at the liabilities involved with actually having employees,” she told BuzzFeed News. “And they say, 'Oh, we don't want that.'”

Sapone said would-be funders balked at the added cost and complication of hiring W2 labor. “When we were reaching out to potential investors,” she said, “many told us, 'That doesn't make sense. That's not a scalable business.' I said, 'It's the only scalable business.'”

The way Sapone sees it, she can't guarantee a high-quality end product for her customers using contract labor. For Alfred to be the magically predictive butler service she wants it to be, the “Alfreds” need to use their personal judgment, human intuition, and training in high-end service when performing tasks in a person's home. Alfred employees make between $25 and $30 an hour.

Managed by Q, which cleans and manages office spaces by deploying its fully employed operators via an app, is another such company. Both Daquan Gailyard, a Managed by Q “operator,” and Saman Rahamanian, the company's founder, told BuzzFeed News that they believe offering employees full benefits fosters a work environment where employees are loyal, well-trained, engaged — and happy.

Courtesy Alfred / Via helloalfred.com

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