This past Tuesday (9/10/19), California legislators approved a landmark bill that will require companies to treat contract workers as employees when the contractor's work is considered "part of the main business." In response, Uber declared that they were not subject to the new law because it does not consider its drivers to be at the core of their business.
At Rinse, we feel very differently about our Valets: they have always been at the core of our business and are at the frontlines of our customer experience. To that end, the new legislation doesn’t impact us at all because we have classified our Valets as W-2 employees since the very beginning (2013).
Read our CEO and Co-Founder Ajay Prakash's Forbes article from 2015 to learn more about why it's so important to Rinse that we invest in our Valets and classify them as employees since the beginning.
Forbes Article from July 15th, 2015
Over the past few years, there has been a growing debate around whether someone is an employee or independent contractor, particularly in “on-demand economy” companies that require a staff of drivers and other service providers to deliver their product or service to the end customer. The recent ruling by the California Labor Commission on how Uber should classify its drivers has re-ignited this debate. While I can’t opine on how other companies have decided to classify their workers, I wanted to provide perspective on how we formed our opinion on the subject at Rinse in case you are currently thinking about starting a company where delivery is core to its value proposition.
At Rinse, a critical part of the experience we’ve created for our customers is the interaction they have with our Valets (which is what we call our drivers) at the point of pick-up and delivery. Our Valets are on the front lines of the customer experience, so we made the decision to classify them as employees (“W-2”) early on. Depending on how you use your delivery staff, you might decide to take a different approach, but here are three reasons why W-2 status made sense for us — and why it could make sense for your drivers too.
It’s the Right Thing to Do
When starting a company, it’s imperative for founders to remove any friction that may stand in the way of getting their product to their customers to collect feedback. Given that, you want to spend less time early on agonizing over decisions like whether to classify your staff through W-2 or 1099 forms, and instead spend more time on actually serving your customers and improving your product. Even though classifying your drivers under 1099 status is quicker and cheaper (especially since you avoid payroll taxes), it’s important to understand what exactly your drivers will do and how they will do it. At Rinse, our Valets work less than 20 hours per week (which one person told me early on puts us in a “gray area” in the employee vs. contractor debate), but we provide them with a uniform, make their schedule, tell them where to go and when to go there, and supply them with most of their equipment. According to IRS guidelines, those are all indicators that W-2 status is most appropriate for them. If you expect your drivers to do similar things, you might draw the same conclusion that we did.
It’s Better for Your Drivers
Although W-2 status is more expensive for your company, it is much better for your delivery staff in the long run. Financially, they end up paying fewer taxes each year, are compensated for overtime hours and are reimbursed for each mile driven. More importantly, though, it signals to your drivers that they are a critical part of your team (which they are!). At Rinse, we invest enormous amounts of time in training our Valets so they have complete product knowledge to best serve our customers and the appropriate context to understand the importance of their role. This investment has led to better performance, happier valets and incredibly high levels of retention (and in some cases, Valets have been promoted into key roles on our customer experience and operations teams), and is an investment we would be less likely to make if we classified our Valets as merely contractors. As you think about building your team, consider using the W-2 status as a strong motivational tool to get the best out of your delivery staff.
It’s Better for Your Customers
Most importantly, investing in your delivery staff is ultimately better for your customers. One thing I’ve heard consistently from customers since our early days is that we have the friendliest and most competent delivery staff out there. This is because happy employees who really care about their company are more likely to go above and beyond to make sure their customers are happy. In addition, sending a consistent delivery staff to your customers only serves to increase the level of trust they will have in your brand and in your service. At least, that’s what we’ve seen at Rinse.
If delivery is core to your product offering, it’s worth your time to think through how you want to classify your drivers. If you’ve noticed the recent spate of lawsuits against delivery companies that have chosen to go the 1099 route, it might be wise to classify your drivers as W-2 employees today. That said, regardless of how the “W-2 vs. 1099″ debate evolves, make sure you take a people-first approach and take care of all your employees, especially your service staff like drivers, as they are often the main touchpoint for your customers. Remember, happy employees lead to happy customers, and ultimately you need happy customers to even be part of this ongoing debate.