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How much do you know about the “sharing economy?” Also known as the “mesh” economy, it is an umbrella encompassing a variety of systems which enable the sharing of human and physical resources and services. It is a complex socio-economic force at work in shaping the future of the larger economy. And, perhaps most importantly, it is growing rapidly.

One system that will almost certainly affect you and the way you recruit is the peer-to-peer (P2P) marketplace. Some examples of P2P services include Uber Technologies Inc., CrowdFlower, and TaskRabbit. These services allow the end-user to order up a human service provider such as a driver, data entry person, or errand runner (respectively) through a smartphone app. The technology interface handles the scheduling of these jobs with on-demand freelance workers, often referred to as “micro-entrepreneurs” by those who run the companies.

At first glance, these services seem to offer a win-win proposition: the end-user gets quick, painless access to a service he needs performed, while the micro-entrepreneur can work flexibly on the jobs he chooses. However, as The Wall Street Journal points out, “App-enabled workers don’t fit neatly into a regulatory landscape that recognizes only two types of worker: [W-2] employees in traditional work relationships and [1099] independent contractors.” Let’s take a look at the growing pains that on-demand workers and P2P service providers are experiencing as the sharing economy matures.

 

On-Demand Workers: Micro-Entrepreneurs or Misclassified W-2 Employees?

According to The Wall Street Journal, many workers have feelings of ambivalence toward the platforms through which they work. They want to be liberated by the income and flexibility on-demand work allows, but simultaneously feel isolated and confused about their roles with the companies. There are several cons for workers in these arrangements.

For one thing, most on-demand work platforms grant the on-demand worker little control over the terms of their labor. Some end up in a grey area with their behavior, work guidelines, and even wardrobe defined by the platform. They are effectively employees, yet none of the traditional W-2 employee protections or benefits apply to them. Moreover, on-demand workers must accept a contract to work with a service platform. The terms of these contracts typically saddle them with all of the risk and liability of independence from a traditional employment situation, but none of the potential rewards of true entrepreneurship. It is clear that a compromise must be found between the platforms and their workers.

 

 P2P Service Providers: Innovators in an Unclearly Defined Landscape

As with any innovation, the P2P service providers at the forefront of the sharing economy are operating in unchartered territory. They understandably tend to favor the 1099 independent contractor (IC) model of freelance labor, since it saves cost and keeps them unencumbered by employer tax obligations and legal liabilities. However, their on-demand workers may not be correctly classified as ICs. For example, a recent ruling against FedEx Corporation determined that delivery-truck drivers who were required to wear FedEx uniforms, follow standard grooming rules, and use company-owned vehicles were incorrectly classified as ICs. Many P2P service providers are facing similar suits due to the control they exert over their workers’ schedules, work, behavior, and even wardrobe.

The proliferation of P2P services will eventually force the regulatory bodies to adjust, but those adjustments may be a long while off. Meanwhile, their business models have sparked a debate in courts as to whether on-demand workers should be considered W-2 employees. Unfortunately, this discussion often comes as a result of lawsuits leveled by the disgruntled would-be employees. These on-demand workers, since they do not have the autonomy and control over their work that would classify them as true ICs, maintain that they are entitled to the traditional protections and benefits of a W-2 employee.

The law seems to agree. On its website, the IRS states definitively: “You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done).” Based on these clear rules, experts predict many of the lawsuits will be successful. It is unlikely that this will put an end to the sharing economy, which has been further legitimized by Amazon’s recent announcement of its own addition to the P2P marketplace, called “Home Services.” However, it seems likely that P2P service providers will either have to bring their on-demand workers on as true W-2 employees, give up control over them and their work, or find another solution.

 

Contract Staffing: A Potential Solution to Level the Sharing Economy Labor Landscape

Through a third-party back-office service like FoxHire, LLC., these P2P service providers can outsource the W-2 employment of their on-demand workers. They remain free of employer liability and tax obligations because the back-office becomes the legal W-2 employer of record. The P2P service provider pays a flat hourly rate for each on-demand worker, just as they would with an IC. This solution also benefits the on-demand workers, relieving them of the liabilities and financial risks they run without a traditional employer-employee relationship. At the same time, they will maintain the scheduling flexibility that first attracted them to on-demand work.

The “sharing economy” presents a host of challenges, but it is also opening up new opportunities for recruiters. By positioning yourself to help solve the problems these fledgling companies are experiencing, you can benefit in the changing landscape.

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