Employee or Independent Contractor: Time for New Classifications?

The age of flexwork and on-demand services is changing how we work.

It’s no longer a black-and-white, employee-or-contractor world. Innovative, online companies are shaping a new paradigm entirely, and their approaches to the way we work are disrupting the old-school classifications of employees and contractors.

The Name of the New Game Is Flexibility

The business models for companies like Uber, TaskRabbit and Airbnb hinge upon adaptability to consumer demands – resources can be increased and decreased to better serve customers. At the same time, workers get to tackle their workload and schedules in ways that truly fit today’s lifestyles.

Unfortunately, government guidelines haven’t caught up with the times.

“The line between the 1099 (contractor) and the W-2 (employee) is a squiggly one, defined by a rough set of IRS guidelines with somewhere between four and 20 factors,” says Newsweek author Noah Lang.

Squiggly it is. The IRS guidelines focus on how much behavioral and financial control the company has over the worker, along with the type of relationship involved. But there is no one-size-fits-all factor that “makes” a worker an employee or a contractor.

Reconsidering the Labels

And now, as business models continue to evolve, it can be even more difficult to pigeon-hole workers into the employee or contractor role. Lang asserts that it’s time to “classify those who work in the on-demand economy in a way that reduces headaches, delivers a more secure lifestyle and facilitates platform (and economic) growth.”

We need a new, workable definition to solve the employee-versus-contractor dilemma.

A McKinsey Global Institute report suggests alternative work platforms might unlock trillions of dollars in future economic value as companies are better able to source, match and deploy their workers.

Meanwhile, a Harvard Business Review article by John Boudreau quotes a study of 33,000 employees in 26 countries, which found that “independent workers were more satisfied, innovative and engaged with their clients than regular employees…”

When independent workers are more satisfied and employers are happier, it’s a win for business, worker and customer.

On top of that, Boudreau says framing the debate around whether a worker is an employee or a contractor misses the point. The options for getting work done are increasing. So, rather than focusing on the employee and independent contractor models, he says we should be asking a new question: Is regular full-time employment the only way to deliver high pay and marketable skills?

Our take? Rather than limit the options and dialogue around the growing demand for different work arrangements in this on-demand society, business and government leaders should focus on generating more options for work that encourage innovation.

The growth of our sharing economy is guaranteed to drive changes to employment practices. But will it affect the definition of employees and independent contractors, too?

We’d like to think so. As new work and service models are rapidly evolving, the way we classify the people doing all of the work needs to evolve too.