Transitioning Shyp couriers to W2 employees | Hacker News Reader

Transitioning Shyp couriers to W2 employees

blog.shyp.com

89 pointsdylanpyle66 comments

Excellent.

The Lean (as in Lean Manufacturing) perspective is that you should think of people as assets, not costs. With that perspective, you start thinking: How can I invest further in these valuable assets? How can I protect that investment?

A good software example is training. One common objection to spending money on learning and training is, "What if people get better and then leave?" Not recognizing that the alternative is, "What if people stagnate and stay?"

I understand why some companies want to treat workers (programmers, customer service people, anybody) as fungible, by-the-hour machines that can be hired and fired as demand shifts. But I think that traps a lot of companies in a local maximum: there's only so far you can go without continually helping your people up their games.

I agree here - this puts pressure on the company to make sure their drivers are (1) more efficient (2) make more $$ and (3) stick around for a while which then goes back to (1) more efficient, and generates a cycle of improvement that benefits everyone. Of course this requires the company to make an upfront investment, but exactly as you said human capital is an asset, not a cost, so IMO it's a solid investment to make.

The alternative is the current uber-model which is:

(1) Focus on bringing as many people in as quickly as possible (2) try to pay them as little as possible as soon as you can which results in (3) high churn (probably disproportionately churns out the higher-quality folks who won't work for so little) and then leads you back to (1). This results in low quality and high recruitment costs and depletion of the labor pool. Uber did reach a solid state in most markets, but I would argue that they could have spent less on recruiting and retained a higher quality fleet for similar long-term costs, with the added benefit of not looking like a-holes for the past couple years.

> this puts pressure on the company to make sure their drivers are (1) more efficient (2) make more $$

Switching to W-2 doesn't necessarily imply full-time employment. In fact, it's in their interest to cap the hours at 30 to avoid the healthcare benefits. Having someone work 10 hours a week on company's schedule and then issuing a W-2 is how a bunch of part-time employers operate.

>as fungible, by-the-hour machines that can be hired and fired as demand shifts

I have no problem with a situation like this if

A: It's a small-ish minority of the economy

B: It's well known by both employer & employee from the start

C: Employees get an adequate compensation bump for the increased risk (i.e. both employer and employee benefit from the situation)

There are plenty of people who _want_ that fluidity in their lives and an economy which expects you to be employed 100% of the time between 18/22 and retirement can be stifling.

The biggest problem is that C rarely happens except for high-skilled positions.

Even then it rarely happens.

Although theoretically a contingent worker could be paid more because his employer sheds risks, practically contingent workers are often paid horribly.

Just to take an example, it is often shocking how ill-paid and overworked adjunct faculty are. Go look at at the tenured professors and you see they are well paid AND have security. If adjuncts got high pay and the tenured had security it might work out that way, but it never does.

I also have no problem with this and never understood the issue.

Certainly if being a 1099 contractor for Uber (for example) wasn't the best option for someone, they simply wouldn't do it, right? No one is forcing anyone to be a contractor so the arguments against it from the perspective of the contractor seems odd.

People will take the best employment option that works for them. If it's the difference between being a W2 McDonnald's employee or a on-demand 1099 driver, I'd take the 1099 as well.

I _do_ have a problem with employers abusing what a 1099 is.

Uber drivers don't cut it.

McDonalds employees don't cut it.

There are a list of things required for being a 1099 employee which involves a whole lot of autonomy for the contractor which are very commonly not provided.

Likewise I wouldn't believe a similar argument about employers paying minimum wages because 'nobody is forcing them'

I see that as a separate issue around why we feel the need to have rules around what it means to be a 1099.

My point is that regardless of the current legitimacy of how Uber et al are handling this, the contractors themselves have a choice to participate or not in the system as it exists today. If it works for them, why would anyone question it?

"If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees," and "If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors."

I have no argument with the law as it is. The number of rights/obligations in the employee/employer relationship goes up when the employer exerts. That is, these are rights that employees cannot give away. I am fine with this because if it didn't exist it wouldn't be a matter of 'employees choosing the level of employment they want' but 'employees not given the choice'

So you think if the rules around what it means to be 1099 were relaxed that employers would all band together to take away employee rights? Would market forces then not kick in to push up 1099 contractors rate to cover any needed expenses?

It seems we're intervening with the free market where it's not needed.

No conspiracy needed. Especially for lower level more unskilled jobs – if employers aren't motivated to give more benefits to employees through regulation, they simply won't. The employer who does will be at a competitive disadvantage and will have a fiduciary duty to investors to get workers as cheaply as possible.

In the unskilled end of the economy there are far more job seekers than employers seeking workers – if the only way you can keep a job is to accept less, then you accept less. That's not a free market.

A free market doesn't have regulation by definition.

Employers need to at least pay their workers enough to survive otherwise they won't have workers.

I also don't think there's such a thing as a truly unskilled job. There will be competition for workers at some level.

Is a "free market" for employment really free?

It generally devolves into a huge power imbalance between employers and employees and then the only freedom is the freedom of those with the existing power. Take a look at the early stages of industrialization – the late 19th early 20th century in the US/England or today in any place cheap consumer goods are manufactured. The situation in these 'free markets' is universally worker-absuse and wage slavery charactarized by poor working conditions, child labor, violent unsafe and low pay environments. Where is the freedom in that?

Actual freedom comes from fair regulation of both employers and employees. Though if you believe in the religion of the 'free market' then likely no thought or reason will change any of your opinions (like any religion).

This is a really important point, and I think it derives from a fundamental asymmetry. Employees have ~1 job, but employers have lots of employees. The end of an employee-employer relationship is necessarily way harder on the employee than the employer. Employers can cause way more trouble for employees than vice versa. And employers can amortize the cost of trickery.

A good example is contract negotiation. Employers can sneak in terms that many employees won't understand. The ones who do understand have a much harder time fighting, and pay a much higher proportional cost to do so. Hiring a good employment lawyer to help negotiate could easily cost 10% of a median employee's annual salary, and a lawsuit could cost 5-10x a median salary. (For lower-paid workers, it's proportionally even worse.) But those same costs for employers are generally negligible.

Market outcomes are much more likely to be optimal when you have many agents of approximately equal power. As you move toward strong power asymmetries (that is, toward monopolies and monopsonies) you get much lower odds of optimal outcomes.

So the common counter to this is where employees band together to negotiate as a unit: unions. And regulations let us rule out things that it's basically a waste of time for everybody to negotiate, or where allowing negotiation will lead to systemically poor outcomes. For example, CA basically forbids noncompete clauses in worker contracts. This is possibly bad for individual employers, but it's way better for employees and employers as a whole, because it increases innovation and therefore total wealth.

> Certainly if being a 1099 contractor for Uber (for example) wasn't the best option for someone, they simply wouldn't do it, right?

So if I understand you rightly, you have never known anyone who has done something that they later turned out to regret? You have personally never regretted a choice? And you have never seen rational individual choices that add up to a bad systemic result?

So if I understand you correctly we should limit individual freedom because people may do something they regret? I'll pass, I can make my own mistakes.

> One common objection to spending money on learning and training is, "What if people get better and then leave?" Not recognizing that the alternative is, "What if people stagnate and stay?"

it's interesting how many business fallacies boil down to optimizing for pathological cases

W2 employees are considerably more expensive than 1099 contractors, which is why so many companies ride the edge of 1099 vs. W2. In this case though, using the IRS' 20-factor test[0], I'm sure Shyp could have kept their couriers as 1099 from a legal standpoint. I buy that they are genuinely doing this for the reasons stated.

So that's great and very feel-good (don't we all want to give our employees additional training and benefits?), but I'm surprised to see it happen in what I presume is a pretty low-margin business. Benefits are expensive!

[0] http://www.twc.state.tx.us/files/businesses/form-c-8-employm...

You're only accounting for one kind of expense here: short-term, visible payroll costs. But Shyp's whole goal here is to create a brand built on amazing customer service. That's determined by things that are much harder to measure.

Making decisions based only on the most visible numbers is a business version of the Streetlight Effect[1]. If we want to do this right, we also have to ask things like: What's the expense of increased turnover? Of lower morale? Of poorly trained employees? Of decreased service quality? Of worse word-of-mouth advertising? Of increased advertising budgets needed to compensate?

That's not to say that cheap is never the way to go. But if we're going to use numbers, we should use them well.

[1] https://en.wikipedia.org/wiki/Streetlight_effect

  What's the expense of [...] decreased service quality?

This is particularly important for Shyp.

If I order a parcel from Amazon and my delivery driver's bad, it's unlikely I could get Amazon to change couriers. But if I request a pickup from Shyp and the pick up driver's bad, I can change couriers tomorrow.

Keep in mind, being an employee doesn't automatically entail the "benefits" people think of (e.g. health insurance). Instacart is only allowing their in-store employees to work up to 30hrs/week, since that's the cutoff for having to provide health insurance.

The real costs are (1) employer's share of FICA taxes (7.5%) and (2) workers compensation (which can get expensive in certain industries, though likely not outrageous for delivery).

On-demands who are classifying drivers as employees: Instacart, Shyp, Munchery. On-demands who are not: Uber, Lyft, Postmates, Doordash (not exhaustive, just the big ones that come to mind).

One thing I noticed - 2/3 of the big YC companies have gone the way of employee. If Doordash makes the switch in the coming weeks, I'll assume that YC companies are (1) getting legal advice from similar sources and (2) are more inclined to "do the right thing" (at least the right thing according to pro-labor folks...).

Lyft probably has much more backing for "our drivers are contractors" than Uber does. The relationship seems to be different in a few critical ways.

How are they different?

Just to clarify: only Instacart's in-store shoppers are employees (and only in a few cities right now), since most of those are shift based roles ('shifts' screams employees under the law). I wouldn't be surprised if they shifted delivers to employees too though, since:

1. It's going to be incredibly difficult to maintain two worker systems (I imagine this played into Shyp's decision as well).

2. They probably have enough volume/data to figure out their busy times, so can get close enough to matching supply/demand. Vs. ridesharing, where demand is too sporadic (e.g. weather, events, etc) and surge pricing is better at finding market equilibrium.

This story obviously becomes a proxy for "what to do with uber / sharing economy employees" given the recent labor commission ruling in the favor of a plantiff (1)

I think that the current "one size fits all" thinking is wrong here.

If you look at the actual hour distribution of drivers, self published by Uber (2), you'll see data emerge that is backed up by my personal interactions with uber / lyft / etc drivers:

Category One - Probably Contractors - In my experience a large percentage of drivers are using uber as a stop-gap for other income. Or they are retired. Or are small biz owners etc. They are happy to use uber to pay for weekend gas, insurance, whatever. They work when they want, how they want.

Category Two - Probably Part Time Employees - Drivers that have another part-time job, and use uber as the other "half" of their income. The measure for a "part time employee" is quantified as 1 - 34 hours. But I'd say the more fair measure is 20 hrs.

Category Three - Probably Full Time Employees - Drivers that are working in excess of 40 hours and provide HUGE benefit to uber by being always on, more "professional", and are the backbone to their service model. It also seems like just a sound biz strategy to wrap up your MVPs as employees

When I compare these observations to the data they released last Dec it seems to support those general categories.

And probably each of those levels needs different protections and categorizations in the sharing-economy.

(1) http://recode.net/2015/06/17/uber-drivers-are-employees-not-...

(2) http://newsroom.uber.com/nyc/2014/12/what-does-a-typical-new...

(3) http://www.paychex.com/articles/employee-benefits/5-things-a...

Agree; I've had a driver dressed in a suit driving a brand-new blacked-out Tahoe (obviously a professional driver), and a college kid in a sweatshirt driving a Corolla talking about spring break. One-size-fits-all doesn't make sense.

Interesting, I've had the opposite experience. Most of the Lyft / Uber drivers I've met work MORE than 40 hours a week and are utilizing it for their full time employment. I found out though that I believe for Lyft, if you work more than x hours, they take a smaller cut of your earnings.

Uber also does this now, where they take a lower commission to encourage driving more hours.

Not sure how many hours truckers are allowed to drive, but in a city you have way more things that can go wrong. People should not be allowed to drive past their limits.

There are many more things that can go wrong, but you're driving a much smaller vehicle at much lower speeds so the odds of surviving an accident will be a lot higher.

That said, I still agree with you that rest ought to be enforced just as it is for truckers.

Companies should provide an option.

Let's SWOT this thing.

1099 contractor:

* gets paid per ride

* road wear, maintenance and mileage is tax-deductible

* number of working hours is not capped

* open schedule

* specific geography (mainly airport, mainly residential, mainly events) is up to the contractor

Employee:

* gets paid a set rate per hour

* no car expense is tax-deductible

* number of working hours is capped at 30

* schedule is set by employer

* potential pickup destinations are now more controlled by employer, the app could now demand an employee be at a certain place at a certain time (large sporting event ended, busy hour at the airport, surge in demand in some areas).

The way I see it employee status would be beneficial for some, and contractor status for others. Common assumption in such debate, since that one California driver sued Uber, is that everybody wants to be an employee, meanwhile my UberX conversations with drivers regarding their backgrounds suggest that's not the case, with ability to set their own hours being the key.

Why must an employee get a set hourly rate?

Car expenses are deductible if they are non-commute miles that are required for employment and that are not reimbursed by the employer.

30 hour / week cap? Uh, where?

Why must employer set schedule?

Other companies do the 30/hr/wk thing because of benefit payouts.

http://cnsnews.com/news/article/obamacare-mandate-anyone-who...

They don't have to, yet if they don't, they open themselves to larger liabilities (30 hour/week requirement alone will land them into buying medical benefits).

Thanks for the correction on mileage deduction, I looked into this, and it turns out mileage is not deductible if the vehicle is being used "for hire" http://www.irs.gov/uac/Car-and-Truck-Expense-Deduction-Remin... But that covers both scenarios (1099 or W-2), which makes it a non-point.

> Why must employer set schedule?

I believe that follows from the Uber argument that cheaper prices increase the usage of the service (and hence surge pricing is beneficial to neither consumer nor Uber). Previously lack of supply was only correctable via surge pricing (which would bring more potential drivers on the road), but now a second corrective mechanism opens up - requiring certain number of vehicles to be present at certain location at certain time.

This is pretty interesting, especially when you compare the reasons to other companies who are using contractors over employees, such as Uber.

I would be interested to know more about the financial implications of this. Not living in the US, and never having directly employed someone, I don't know what sort of taxes are involved, and what happens to the labour costs overall.

The tax differences aren't huge. There is a 7.65% tax that would switch from being paid by the contractor to paid by the employer, and likely some kind of state unemployment tax, which is often industry dependent.

The biggest difference is in benefits (mostly healthcare) costs.

IANALL (labor lawyer): This is a very rough estimate, but I think of a W2 employee as about 20% more expensive than a 1099 contractor:

+7% Social Security

+2% Medicare

+1% Unemployment

+5% Works comp (this varies though)

+5% Medical benefits (varies a LOT)

If someone is better informed than I, please let me know :)

Social Security is 6.2% and Medicare is 1.45%. However, these taxes are currently being paid for by the contractors in the form of self employment tax, so it's not really a huge change there though.

Worker's comp is going to range depending on the industry, I doubt the courier's would have especially high workers comp numbers

That's right - one thing I would add that is actually very non-negligible for on-demand logistics are (1) reimbursement for mileage (2) more robust insurance policies.

IRS calls for $0.56/mile - if you assume an average delivery in SF is around 2 miles, that throws an additional $1+ per delivery cost to the business.

For insurance, I know that Lyft currently charges about $1.50 for a "safety fee" which I would assume covers their insurances. However, those insurance policies are still built on the gray contractor status and probably depend to a certain extent on driver's having personal insurance (which is a fraught relationship - most personal insurance has a commercial use exception, which means driving for work is not covered). I would assume that when they re-classify, the insurance providers will use it as an excuse to push premiums up. There's also a chance that the clarify will bring premiums down (volatility = risk, and the current classification is highly volatile), so that may be a possibility as well. Most likely though, you give an insurance company a reason to charge more and they'll take it =)

The IRS safe harbor rate ($0.575/mile for 2015) is just the maximum that can be reimbursed tax free. It isn't meant to be a recommended amount to reimburse drivers, and it does not take a driver's actual costs into account.

I would also add administration and execution cost - this is a LOT of paperwork to file. There are businesses the help you do this, but for now it's pretty expensive.

Should also take into account that the different employee types might be paid differently. For example, W2 employees might get paid flat minimum wage instead of trip-based and thus actually could be _less_ expensive.

You'd need to also take out surge pricing when riding in a W2 vehicle.

The passenger would still pay surge pricing. W2 employees would be giving up inflated fares for steady work & benefits at a fixed (low) wage.

Ok, but then what is the justification for increasing the fares? So Uber can further pad their marketing budget?

Draw out the contractors and decrease demand.

> +5% Medical benefits (varies a LOT)

That's for a full-time gig, what of this applies if you cap the working hours at 30 a week to comply with Obamacare requirements?

The key quote:

<< After careful consideration, we've decided to transition Shyp couriers, the individuals who complete pickups at our customers' homes and offices, to W2 employees. This move is an investment in a longer-term relationship with our couriers, which we believe will ultimately create the best experience for our customers.

Here at Shyp, we have three different roles that make up the workforce that creates the awesome Shyp experience that we’ve become known for. We have couriers (handle pickups), satellite van drivers (take items to warehouse) and those in the warehouse (handle packing and shipping, etc.). This move does not impact our satellite drivers or warehouse employees, who have been classified as W2 since Shyp launched in March of 2014, due to the specific responsibilities of their role. >>

I always find these discussions around contractor or employee rather lacking in context of other businesses that have operated similarly (i.e. using contractors) for decades. The obvious example to me is Landstar Systems [0], which uses the term owner operator and emphasizes the fact that drivers do not operate on 'forced dispatch.' Of course, they usually neglect to mention that Landstar handles the insurance for their owner operators (the company self-insures), and the drivers can't drive for any other company on that insurance policy. So, in effect, these drivers don't work for any other freight provider.

[0]https://en.wikipedia.org/wiki/Landstar_System

I think people are mostly hoping that Uber gets nailed somehow.

Perhaps the fact that Landstar is B2B vs. most/all of these startups in the spotlight are primarily B2C has something to do with it? We're more mindful of it because we're more exposed to it?

IRS guidance on worker classification in the limousine industry:

[pdf] http://www.irs.gov/pub/irs-utl/limo.pdf

I think the Ninth Circuit laid the smack down on FedEx for them classifying their drivers as contractors in a decision last year.

Classifying people and their labor gets complex.

"This is an operational decision based on our interest in owning the entire, end-to-end Shyp experience; it is not in response to recent lawsuits against other technology companies. "

Yeah, right.

A company blog with no link back to the company's main site? Why do I see this mistake on so many of these?

Now I'm waiting for Shyp to fail as they run out of money, and then pivot to HR software designed to make it easy for companies to manage thousands of employees.

So now what's the difference between Shyp and any other delivery company?

Shyp picks up and packages the stuff for you, not delivers to you.

In cities that they've launched they're also able to sometimes offer cheaper rate for shipping (including the $5 pickup fee) than you'd get by driving to a UPS Store / FedEx Office, because they enjoy a heavy discount due to volume.

Awesome, props to Kevin and the Shyp team for making this happen.

this is encouraging and I hope the trend continues in this direction. employees are a company's operational lifeblood. neglect them at your own peril.

This is one time when having the actual headline on the article can be misleading. The first thing I think when I see "A note from [company]'s CEO" is that the company is going out of business. My second guess would be announcing a funding round.

How about something like "Shyp Transitions Couriers to W2 Employees"?

This also encourages people to submit paywalled articles because they have better headlines, when (I assume) most of us would prefer to read it from the source.

Yep, even from an SEO standpoint this is not a very good title to have indexed by robots.

Maybe your notion of what "A note from [company]'s CEO" can mean is too specific.

It is the original title, it is a note and it's from the CEO. I think speaking and taking things literally should be the default.

This is like arguing that every brand of cereal should be labeled "Box of Cereal" because it is a box that contains cereal. It's possible for a label to be completely true and completely uninformative at the same time.

I tried taking things literally, but the store called the police and they put me in jail.

When a particular pattern is constantly used for only a small number of circumstances, it's perfectly reasonable to assume that an instance of that phrase indicates one of those circumstances.

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