L&T might not be in the business of independent contractors, but that doesn’t mean we’re not concerned with their place in today’s increasingly tech-driven economy. So we let our own Ryan Mach delve deep in the weeds. And as we’d expect, he came out smelling like roses.

No one can deny that the on-demand economy has lent itself to the use of independent contractors, as New York Magazine emphasizes — a reliance on everyday people looking for flexible, part-time work. The use of independent contractors is a great strategy for getting as many workers out and on the street as possible, since managing a full-time staff tightens up schedules and depletes company resources.

It also makes staff management more flexible and efficient: instead of hiring and firing employees, which can involve costly processes, contractors are simply added to or removed from the company’s network.

That being said, the on-demand economy has spawned an often pejorative synonym: “the 1099 economy.” Companies that employ huge numbers of independent contractors don’t always foster company loyalty. The fact that workers can be let go at a moment’s notice and typically receive no special benefits does little to establish a sense of trust or respect for the business’s goals or values.

This can lead to varied and sometimes unsatisfying customer experiences of the company’s services. For startup companies that want to deliver a strong, consistent product and prove that they’re just as professional and reliable as more traditional competitors, this can be biggest drawback of the contractor model.

Exactly how well this business model works for your company depends on a variety of factors, but getting a reliably excellent performance from independent contractors undoubtedly necessitates that you make them feel valued despite their absence on the payroll. It also means recognizing the border between your contract and their independence.

If businesses attempt to exert a level of control over people they don’t formally employ, directing their work habits or requiring they wear uniforms, they could be hit with worker misclassification lawsuits or back taxes.

The Perks and Plight of Non-Employment

Casual

Sonny Abesamis/flickr

Of course, lawsuits from former workers are less likely when those workers generally feel comfortable with their job, which is common in the startup world. Startup tech businesses tend to establish relaxed relationships with their workers, so open animosity isn’t usually the problem.

Perks like casual dress, free food (and sometimes booze), and the option to choose your own shifts can make it tougher to actively hate the company you work for.

But contractors tend to persistently express ambivalence, especially with delivery work, when the pay, required labor, and quality of customer interactions can vary so widely. Glassdoor reviews of companies like Postmates, an all-purpose delivery service that uses relationships with urban vendors and couriers to bring any product to customers’ doors within an hour, tend to be mixed.

Yes, the perks are nice, but many workers feel that they’re being labeled “independent contractors” merely to justify wages that, depending on the number of jobs completed, often amount to somewhere below minimum wage.

“The biggest downside of working for Postmates is a serious lack of motivation, at least on my part,” writes one Glassdoor reviewer. “If I do a great job handling a task, I never hear anything positive back, nor is there any monetary incentive for doing better work.” Attitudes like these lay bare the disconnect that leads to less-than-stellar customer experiences: ambitious companies are leaving customer interactions in the hands of unambitious and uninspired workers.

Without first establishing a closer working relationship with management or the brand as a whole, every company employing independent contractors is running the risk of losing control over their customer experience.

Cutting out the middleman is one thing, but a complete absence of middle management is another. Uber’s reliance on its “partner” driver companies for management may prove inconsistent at times, but at least it’s a system, according to Forbes.

Delivering a reliable and consistent customer experience means investment in your contractors — tasking a company manager with reviewing and rewarding good performance from delivery people, giving high-performing contract workers a real shot at growth within the company. Free Friday beers and a shuffleboard table might be enough to keep people from suing you, but if you want contractors to value their performance for your company, you’ll have to show that you value them, too.

Handy and Misclassification

One incredibly important aspect of providing on-demand services is establishing trust with customers. When you’re handling sensitive or important possessions for your clients, you don’t want it handled by just anyone — you want to work with someone with a real business behind them, someone who makes fulfilling your needs a professional concern.

That’s why most companies require that their service workers wear uniforms and name tags, hoping to build a consistent, recognizable brand worthy of consumers’ trust.

But when you’re operating with contractors, this kind of branding becomes tricky. The handyman and cleaning service provider Handy was recently sued by two of its former workers for being misclassified as contract workers rather than employees, citing an inappropriate level of control the company exerted over the workers’ performance.

Sure enough, the court found that telling its contracted workers to wear uniforms and clean or fix things in certain ways violated their independence from the company, making them eligible for benefits like overtime and coverage for injuries sustained on the job, according to another Forbes article.

This kind of legal action poses a serious problem for startups — companies that have yet to build up recognition with the wider consumer population (though the same thing can happen to big companies, too, as SF Gate reports). Although a lot of the branding can be done on the apps that many of these companies rely on, having your groceries delivered by a person who looks just like anyone on the street can amount to a disconcerting user experience.

Distributed Operational Prowess

Randi Hausken/flickr The on-demand economy requires a constantly changing web of connections.

Randi Hausken/flickr — The on-demand economy requires a constantly changing web of work connections.

Then again, the contract worker model isn’t just about saving costs — it’s about injecting fluidity and flexibility into business models. For all the downsides of contractor work, the on-demand economy seems to have proven that it creates effective, constantly moving networks. Most importantly, it enables distributed operational prowess.

That prowess refers to a single company’s ability to dispatch a nearby worker quickly and efficiently, meeting the demands of consumers in real-time. Independent contractors may not always be the most motivated or consistent workers, but the best companies in the on-demand economy will seek to build loyalty among their workforces. The sheer volume and scale of labor adequately compensates for the shortcomings of an individual worker.

That immense team of service providers is exactly what it takes to move the instant gratification of the Internet into the real world. Managing those networks is difficult and has its pitfalls, including excessive delegation and public scrutiny, but for now, it’s what makes the on-demand economy function.

How this model will continue to work in the future hinges on a number of things, including any changes to labor laws and regulations that lawsuits might eventually bring. While there are certainly spaces in which many of these companies could improve their model, though, the government would do well to consider a delicate approach to such regulation.

There is a way to value and encourage contract workers while still enabling fledgling companies to make inroads in markets with entrenched players or inefficient market dynamics. Given how much the on-demand economy has already changed the way we live, it would be a shame to see that progress suddenly cut short.

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(Main image credit: CWCS Managed Hosting/flickr)

Author Ryan Mach

As his title suggests, Ryan is L&T’s top creative mind and voice, supervising editorial quality and the on-boarding of new content experts and brand journalists. He’s also responsible for the production of high-profile content initiatives, ranging from industry white papers to expert commentaries for top digital publications like Inc and TechCrunch. Also a graduate of Kenyon College, Ryan previously served on the editorial board of the political magazine, the Kenyon Observer, and co-founded the Fabulist, an undergraduate literary publication.

More posts by Ryan Mach