Contract Workers Struggle As Silicon Valley On-Demand Companies Soar

By Heather Somerville
San Jose Mercury News.

SAN JOSE, Calif.

Companies such as Uber and TaskRabbit have promised a new on-demand labor economy where workers are free from the restrictions of a 9-to-5 schedule and will still earn enough money to pay rent.

A report released Wednesday, however, tells a more discouraging story about this growing class of contract workers, the thousands of people who work for on-demand tech companies as freelance labor and not regular employees. As the valuations and profits of these companies soar, few benefits are trickling down to the laborers, creating a workforce that lacks the security of employee benefits and struggles with financial uncertainty.

“These companies talk a kind of political correctness about the new economy and about making things fairer and offering people new opportunities, but they aren’t living up to it,” said Andrew Keen, a commentator on the tech industry and author of “The Internet Is Not the Answer.”

The report, called the “The 2015 1099 Economy Workforce Report,” referring to the name of the tax form for independent contractors, offers one of the first sweeping views of the conditions of contract labor across a broad variety of on-demand companies. Among the findings in an extensive worker survey:

-The average pay is a relatively low $18 per hour.

-More than one-fifth of on-demand workers work more than 40 hours a week.

-About a quarter of workers age 25 and older don’t have health insurance.

-More than a quarter say their income from these jobs represents nearly all or the entirety of their household income.

Perhaps one of the most surprising findings of the survey is that 8 percent of respondents who work for a ride-hailing company and 16 percent of respondents who work for a delivery company do not have car insurance.

Both Lyft, a ride-hailing company, and Postmates, a delivery startup, told the San Jose Mercury News that drivers were required to show proof of insurance and would be kicked off the platform if their insurance expires. When asked whether any drivers had been discovered driving uninsured, Lyft declined to comment.

The report is authored by a newly formed group of Stanford University graduate and undergraduates students and an alumnus of seed fun Y Combinator called Requests for Startups, which sends out weekly newsletters to help entrepreneurs create companies that venture capitalists are eager to fund. The report is based on responses from 1,330 survey respondents from 78 companies, including Airbnb, DoorDash, Postmates, Homejoy, Thumbtack, Uber, Lyft, TaskRabbit and Instacart. More than a third of the respondents live in California.

While on-demand companies offer large-scale employment opportunities that defy the traditional 40-hour workweek, bringing more flexibility and autonomy to the job market, they often put otherwise educated professionals in jobs that require few skills and offer little upward mobility.

“There is income instability and it’s a very real issue,” said Fiona Ramsey, director of communications for Peers, which supports on-demand workers. “When they are economically dependent on one of these jobs, that creates a vulnerability that you don’t have when you are a legal employee.”

Currently, about 34 percent of Americans have freelance and contract jobs, and a 2013 report by software company Intuit predicts that number will grow to 40 percent, or 60 million people, by 2020. The on-demand economy, born in the Bay Area, is the fastest-growing sector of this freelance labor force, due partly to the venture capital money that has flooded Silicon Valley startups. The prosperity of these contract workers will at least partly determine whether the middle class will flourish or continue to erode.

“The problem is more and more people are deriving their living through this,” Keen said. “You have this underclass of 1099 laborers who are doing all these different jobs who are potentially unskilled. They have no security and no safety net.”

Some companies, such as ride-hailing app Uber and home cleaning and handyman service Handy, are being sued by their own service providers for allegedly inappropriately classifying them as contractors.

Flexible scheduling remains one of the greatest perks of the on-demand economy, and according to the survey, that’s the primary reason why three-quarters of contract workers took the job. But workers also say they are at the mercy of customer demand, which means contract workers often work earlier and later than other professionals, and are more likely to work weekends.

Massage therapists for on-demand masseuse company Zeel must work evenings and weekends if they want a steady flow of bookings through the site, said Marcy Lerner, vice president of communications for the company. But the pay, she said, is good: The company’s 3,000 therapists make on average $85 per appointment through the app, compared with $43 at a spa.

But Zeel workers earn more than the industry average. The challenge to earn a steady income is especially glaring for ride-hailing drivers, who each month spend $521 on gas, $285 on car insurance and $115 on maintenance, which comes out of their pocket.

“The hours you work is the best perk for me; all the rest is not so good,” said Vince Willem, a Bay Area resident and college student who said he works for Lyft and Uber while he attends school. “Uber gets 30 percent of our earnings and (we get) no benefits. You have to pay for gas, car services, wash and clean, phone line costs _ and still offer water and candy for riders, besides putting all the mileage on your car. … I’m looking forward to quitting soon.”
The pros and cons of on-demand contract work

_Flexible scheduling
_Ability to work for multiple companies
_Hourly pay can top $30 for more experienced workers
_Freedom from the constraints of a 9-to-5 office job

_Income is unreliable and unpredictable
_Pay can be insufficient (hourly average is $18)
_No health insurance, disability or retirement
_Costs of job _ such as mileage and car maintenance _ is not reimbursed
_Schedule dictated by peak demand on the app
_Difficulty understanding tax obligations
_Difficulty finding enough hours

Source: The 2015 1099 Economy Workforce Report, by Requests for Startups

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