Contractor Versus Employee

Not every company in the sharing economy treats its workers as Uber-ish freelancers.

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Nancy Cook
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Nancy Cook
July 22, 2015, 4:30 a.m.

The “shar­ing” eco­nomy, as it’s called, got a nasty shock this week when Home­joy, a na­tion­al home-clean­ing com­pany, an­nounced it was shut­ting down at month’s end. The cause? Be­cause it faced four law­suits over clas­si­fy­ing its clean­ers as con­tract work­ers in­stead of as em­ploy­ees, CEO Ad­ora Ch­eung ex­plained, the com­pany could no longer raise money from in­vestors.

Uber faces a sim­il­ar ex­ist­en­tial threat. In June, the Cali­for­nia Labor Com­mis­sion ruled that an Uber taxi driver is really an em­ploy­ee not a freel­ance driver. This has con­trib­uted to pres­sure with­in the shar­ing eco­nomy, which re­lies heav­ily on con­tract em­ploy­ees, to think dif­fer­ently about its work­force. CEO Ron John­son of the star­tup En­joy, a web­site that sells high-tech gad­gets, re­cently told The New York Times he thought it most sens­ible for his com­pany’s bot­tom line to con­sider all work­ers to be em­ploy­ees not con­tract­ors. “I’d rather be tak­ing the high road from day one,” the former Apple and J.C. Pen­ney ex­ec­ut­ive said, “and not be sub­ject to that busi­ness risk” as­so­ci­ated with the pos­sib­il­ity of reg­u­la­tion.

A com­pany that’s already an ex­pert in this de­bate is an of­fice-clean­ing star­tup called Man­aged by Q. Launched just 15 months ago, the com­pany de­cided early on to hire its jan­it­ori­al em­ploy­ees as salar­ied work­ers, with the same ac­cess to be­ne­fits as the com­pany’s en­gin­eers, who keep of­fice-clean­ers (“op­er­at­ors,” in the com­pany’s par­lance) in touch with build­ing man­agers. Cur­rently, Man­aged by Q — named for the char­ac­ter in the James Bond ad­ven­tures who helps spy mis­sions from be­hind the scenes — em­ploys roughly 200 work­ers. It has raised more than $17 mil­lion in star­tup fund­ing and of­fers clean­ing and oth­er build­ing-main­ten­ance ser­vices in New York, Chica­go, and San Fran­cisco.

Na­tion­al Journ­al re­cently spoke with Man­aged by Q co-founder Dan Ter­an, a former Bal­timore com­munity or­gan­izer and product de­sign­er, about the com­pany’s de­cision to hire all of its work­ers as em­ploy­ees and the im­plic­a­tions for this grow­ing sec­tor of the U.S. eco­nomy. Ed­ited ex­cerpts:

NJ: How did you de­cide to make your work­ers em­ploy­ees in­stead of con­tract­ors, like so many com­pan­ies in the shar­ing eco­nomy?

Ter­an: It was a de­cision made in the fall of last year. We real­ized that the Uber mod­el would not be the right one for us, so I star­ted look­ing at com­pan­ies like Star­bucks and Trader Joe’s — places that his­tor­ic­ally have been good em­ploy­ers. It be­came clear that, to be suc­cess­ful in the long run, we needed to not have a di­vi­sion between people who work in the field and people who work in the of­fice, and to be able to cre­ate ca­reer paths and op­por­tun­it­ies to fuse the two. That boils down to how we re­cruit, train, and think about people’s ca­reers. It is a huge pri­or­ity, es­pe­cially now as we start to scale, to make it an en­dur­ing and sus­tain­able com­pany.

NJ: Why would the Uber mod­el not work for Man­aged by Q?

Ter­an: When you’re deal­ing with con­tract­ors, you can’t sched­ule them for re­oc­cur­ring work. And, for us, it is so much about the re­la­tion­ship between the op­er­at­or and the out­put. The op­er­at­or really be­comes the care­taker of the space. There is a con­stant flow of in­form­a­tion back and forth between the [of­fice-clean­er] and the people who are there dur­ing the day, which his­tor­ic­ally has not ex­is­ted.

NJ: What is the av­er­age start­ing wage for an of­fice-clean­er?

Ter­an: In New York City, it is $12.50 an hour. As­sum­ing someone works more than 30 hours a week, they are con­sidered full-time. They have full health be­ne­fits, 100 per­cent covered by the com­pany, and ac­cess to the com­pany 401(k). The plans that are avail­able to the clean­ers are identic­al to the ones the en­gin­eers get.

NJ: How do clean­ers move up in the com­pany? It seems like there would be a big di­vide between be­ing a clean­er and be­ing an en­gin­eer.

Ter­an: It is one thing we are work­ing on now. People come in­to the com­pany as a train­ee, and then they be­come an op­er­at­or and have their own ac­counts. From there, they can be­come a seni­or op­er­at­or. Then we have ment­ors, who have their own ac­counts, but they’re sent train­ees as part of the train­ing sys­tem, so it is the next level of re­spons­ib­il­ity. Then, you get pro­moted to be­ing a su­per­visor, where you’re do­ing qual­ity-as­sur­ance checks throughout the night — es­sen­tially mov­ing in­to a man­age­ment role. No one wants to walk in­to a dead-end job that is labeled as a dead-end job. So cre­at­ing op­por­tun­it­ies for ad­vance­ment is huge.

We are do­ing lead­er­ship train­ing and con­flict-res­ol­u­tion train­ing for people who have very low edu­ca­tion levels, em­pir­ic­ally speak­ing. But, they have huge po­ten­tial, so it is on us to be able to bring out the best in every­one. It is a lot easi­er to train and to hire in­tern­ally than it is to try to find people to come in from the out­side who don’t un­der­stand the cul­ture.

NJ: Some ex­ec­ut­ives with­in the shar­ing eco­nomy ar­gue that hir­ing work­ers as em­ploy­ees would im­pede the com­pan­ies’ growth. Is that your ex­per­i­ence?

Ter­an: We’re hav­ing an easi­er time at­tract­ing tal­ent than people who do not do this. What you es­sen­tially do when you hire con­tract work­ers is that you ex­tern­al­ize the com­plex­ity of the work­ers, and so you’re not re­spons­ible for any­thing for them ex­cept for a rate [of pay]. When you take them on as true em­ploy­ees, you’re re­spons­ible for a lot more — wheth­er it is health in­sur­ance or un­em­ploy­ment or dis­ab­il­ity, your con­tri­bu­tion to taxes. And so, build­ing the in­fra­struc­ture to be able to handle all of that is def­in­itely a lift. It’s not in­sur­mount­able.

NJ: As the founder of a shar­ing-eco­nomy com­pany, what do you see as the fu­ture of that sec­tor — es­pe­cially for its work­ers?

Ter­an: Be­cause the on-de­mand eco­nomy was born in the worst eco­nomy in any­one’s memory, now we are reach­ing much high­er em­ploy­ment levels, and it is just harder to get good people. You have to get com­pet­it­ive. On-de­mand em­ploy­ers can claim to be com­pet­it­ive be­cause of flex­ib­il­ity, but we also al­low flex­ib­il­ity. So, my hope is that — fin­gers crossed — as em­ploy­ment rises, that em­ploy­ers will have to be more com­pet­it­ive, and it will end up be­ne­fit­ing work­ers.

Also, peppered in there is some reg­u­lat­ory stuff. The Cali­for­nia Labor Com­mis­sion rul­ing about Uber was kind of like the shot heard around the world, and so, since then, nu­mer­ous oth­er com­pan­ies have made the shift.

NJ: And what do you want to do next with Man­aged by Q?

Ter­an: Saman [Rah­mani­an, the com­pany’s oth­er co-founder] and I are both product de­sign­ers by back­ground, and we’re both very fo­cused on build­ing the best products in the world, and that in­cludes our work­force. The trick isn’t to do it with 50 people. The trick is to do it with 5,000 people. Can we be the best em­ploy­er and then scale it to new mar­kets?

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