Also significant toward this shift away from lifetime employment was the terrible financial crisis of 2008. During the crisis, profits were hard to come by and executives began to think of cost-cutting measures to improve profitability. Unfortunately, the employees bore the burden of such measures. There were massive layoffs during this crisis, and numerous companies began to see the advantages of converting future workers into an independent contractor status. It was a win-win for the company. Employees would no longer receive fixed salaries and benefits, and instead, be treated as independent contractors, possibly paid at an hourly rate with no benefits and under the condition that any expenses incurred may or may not be paid by the corporation.
The Internet and cellphone have transformed the way business is done in the world. For example, UBER is a ride-sharing “taxi” company. UBER hires independent contractors to drive for them in the ride-sharing process. Uber drivers are free to work when they want, are responsible for their expenses and are paid a percentage of the fare by UBER.
The company would obtain a tremendous savings because benefits and perks for employees are substantial expenses and these savings, in turn, would make the company more profitable. Workers would be free, though, to choose the hours they worked and could also find additional work, if needed. This possibility may hinder the company employing an independent contractor model because it has given up some type of control over their employees.
It remains to be seen whether the financial savings from using independent contractors outweighs the lack of control and direction of the contractors as such a lack of control could hamper the company’s customer service record. An employee in a traditional work contract can be told what to do directly but independent contractors may lack discipline.
Recently, a worker in California challenged UBER with the Labor Commission stating that she was owed expenses for gas and tolls. UBER disagreed and stated that she was not an employee but the California Labor Commission disagreed and awarded her the judgment, highlighting the blurry distinction between employee and contractor. The Labor Board had a multifactor test of determining an employee from a contractor, a decision will have huge ramifications throughout the business world because companies will think twice about hiring workers as independent contractors versus employees.
There has recently been a focus on strong customer service by companies along with the various states throughout the country raising the minimum wage. These two factors have changed the battleground regarding employees versus independent contractors. Enjoy, a tech start-up by Ron Johnson in the Silicon Valley in California, sends employees to companies to help with tech set-up to provide a more personal service.
According to Diane Burton, professor of human resources at Cornell University, “When people are your source of competitive advantage, it is clear that a long-term employment relationship and what we would call a ‘good job’ is good for the workers and good for the companies.” This shift into looking at the corporation as one entity and not two halves – the corporate headquarters and independent contractors – is taking place before our eyes. As a result, solid positive feedback from the company’s customer base should improve dramatically.
Through centuries, there have always been shifts in sentiment regarding employees and how they should be treated in the workplace. It remains to be seen if the cost of hiring a company employee with salary and benefits outweighs the lesser cost of an independent contractor from a customer service benefit. As we have seen from the above example with UBER and the California ruling, there is uncertainty whether or not one is an employee or independent contractor. A corporation is in business to make a profit and the key component of making a profit is satisfying the customer.
The recent court ruling and state-by-state shift to a higher minimum wage all point toward examining whether the independent contractor model will be sustainable for corporate profits and excellent customer service or whether a company should hire future employees with benefits and have total control over the entire operational system known as the corporation. The future of this model remains unclear. Whether employees want full-time work or the freedom of working on their own time must be considered. The independent employee might just be the vision of the future as companies try to best figure out how to improve their brand recognition throughout the world with their workforce.