
Transitioning Shyp couriers to W2 employees - dylanpyle
http://blog.shyp.com/shyp-ceo-note/
======
wpietri
Excellent.

The Lean (as in Lean Manufacturing) perspective is that you should think of
people as assets, not costs. With that perspective, you start thinking: How
can I invest further in these valuable assets? How can I protect that
investment?

A good software example is training. One common objection to spending money on
learning and training is, "What if people get better and then leave?" Not
recognizing that the alternative is, "What if people stagnate and stay?"

I understand why some companies want to treat workers (programmers, customer
service people, anybody) as fungible, by-the-hour machines that can be hired
and fired as demand shifts. But I think that traps a lot of companies in a
local maximum: there's only so far you can go without continually helping your
people up their games.

~~~
colechristensen
>as fungible, by-the-hour machines that can be hired and fired as demand
shifts

I have no problem with a situation like this if

A: It's a small-ish minority of the economy

B: It's well known by both employer & employee from the start

C: Employees get an adequate compensation bump for the increased risk (i.e.
both employer and employee benefit from the situation)

There are plenty of people who _want_ that fluidity in their lives and an
economy which expects you to be employed 100% of the time between 18/22 and
retirement can be stifling.

~~~
exstudent2
I also have no problem with this and never understood the issue.

Certainly if being a 1099 contractor for Uber (for example) wasn't the best
option for someone, they simply wouldn't do it, right? No one is forcing
anyone to be a contractor so the arguments against it from the perspective of
the contractor seems odd.

People will take the best employment option that works for them. If it's the
difference between being a W2 McDonnald's employee or a on-demand 1099 driver,
I'd take the 1099 as well.

~~~
wpietri
> Certainly if being a 1099 contractor for Uber (for example) wasn't the best
> option for someone, they simply wouldn't do it, right?

So if I understand you rightly, you have never known anyone who has done
something that they later turned out to regret? You have personally never
regretted a choice? And you have never seen rational individual choices that
add up to a bad systemic result?

~~~
exstudent2
So if I understand you correctly we should limit individual freedom because
people may do something they regret? I'll pass, I can make my own mistakes.

------
numlocked
W2 employees are considerably more expensive than 1099 contractors, which is
why so many companies ride the edge of 1099 vs. W2. In this case though, using
the IRS' 20-factor test[0], I'm sure Shyp could have kept their couriers as
1099 from a legal standpoint. I buy that they are genuinely doing this for the
reasons stated.

So that's great and very feel-good (don't we all want to give our employees
additional training and benefits?), but I'm surprised to see it happen in what
I presume is a pretty low-margin business. Benefits are expensive!

[0]
[http://www.twc.state.tx.us/files/businesses/form-c-8-employm...](http://www.twc.state.tx.us/files/businesses/form-c-8-employment-
status-comparative-approach-twc.pdf)

~~~
wpietri
You're only accounting for one kind of expense here: short-term, visible
payroll costs. But Shyp's whole goal here is to create a brand built on
amazing customer service. That's determined by things that are much harder to
measure.

Making decisions based only on the most visible numbers is a business version
of the Streetlight Effect[1]. If we want to do this right, we also have to ask
things like: What's the expense of increased turnover? Of lower morale? Of
poorly trained employees? Of decreased service quality? Of worse word-of-mouth
advertising? Of increased advertising budgets needed to compensate?

That's not to say that cheap is never the way to go. But if we're going to use
numbers, we should use them well.

[1]
[https://en.wikipedia.org/wiki/Streetlight_effect](https://en.wikipedia.org/wiki/Streetlight_effect)

~~~
michaelt

      What's the expense of [...] decreased service quality?
    

This is particularly important for Shyp.

If I order a parcel from Amazon and my delivery driver's bad, it's unlikely I
could get Amazon to change couriers. But if I request a pickup from Shyp and
the pick up driver's bad, I can change couriers tomorrow.

------
joshjkim
On-demands who are classifying drivers as employees: Instacart, Shyp,
Munchery. On-demands who are not: Uber, Lyft, Postmates, Doordash (not
exhaustive, just the big ones that come to mind).

One thing I noticed - 2/3 of the big YC companies have gone the way of
employee. If Doordash makes the switch in the coming weeks, I'll assume that
YC companies are (1) getting legal advice from similar sources and (2) are
more inclined to "do the right thing" (at least the right thing according to
pro-labor folks...).

~~~
debacle
Lyft probably has much more backing for "our drivers are contractors" than
Uber does. The relationship seems to be different in a few critical ways.

~~~
mahyarm
How are they different?

------
aresant
This story obviously becomes a proxy for "what to do with uber / sharing
economy employees" given the recent labor commission ruling in the favor of a
plantiff (1)

I think that the current "one size fits all" thinking is wrong here.

If you look at the actual hour distribution of drivers, self published by Uber
(2), you'll see data emerge that is backed up by my personal interactions with
uber / lyft / etc drivers:

Category One - Probably Contractors - In my experience a large percentage of
drivers are using uber as a stop-gap for other income. Or they are retired. Or
are small biz owners etc. They are happy to use uber to pay for weekend gas,
insurance, whatever. They work when they want, how they want.

Category Two - Probably Part Time Employees - Drivers that have another part-
time job, and use uber as the other "half" of their income. The measure for a
"part time employee" is quantified as 1 - 34 hours. But I'd say the more fair
measure is 20 hrs.

Category Three - Probably Full Time Employees - Drivers that are working in
excess of 40 hours and provide HUGE benefit to uber by being always on, more
"professional", and are the backbone to their service model. It also seems
like just a sound biz strategy to wrap up your MVPs as employees

When I compare these observations to the data they released last Dec it seems
to support those general categories.

And probably each of those levels needs different protections and
categorizations in the sharing-economy.

-=

(1) [http://recode.net/2015/06/17/uber-drivers-are-employees-
not-...](http://recode.net/2015/06/17/uber-drivers-are-employees-not-
contractors-california-labor-commission/)

(2) [http://newsroom.uber.com/nyc/2014/12/what-does-a-typical-
new...](http://newsroom.uber.com/nyc/2014/12/what-does-a-typical-new-york-
uberx-partner-earn-in-a-week/)

(3) [http://www.paychex.com/articles/employee-
benefits/5-things-a...](http://www.paychex.com/articles/employee-
benefits/5-things-about-offering-benefits-for-part-time-employees)

~~~
prostoalex
Companies should provide an option.

Let's SWOT this thing.

1099 contractor:

* gets paid per ride

* road wear, maintenance and mileage is tax-deductible

* number of working hours is not capped

* open schedule

* specific geography (mainly airport, mainly residential, mainly events) is up to the contractor

Employee:

* gets paid a set rate per hour

* no car expense is tax-deductible

* number of working hours is capped at 30

* schedule is set by employer

* potential pickup destinations are now more controlled by employer, the app could now demand an employee be at a certain place at a certain time (large sporting event ended, busy hour at the airport, surge in demand in some areas).

The way I see it employee status would be beneficial for some, and contractor
status for others. Common assumption in such debate, since that one California
driver sued Uber, is that _everybody_ wants to be an employee, meanwhile my
UberX conversations with drivers regarding their backgrounds suggest that's
not the case, with ability to set their own hours being the key.

~~~
jsprogrammer
Why must an employee get a set hourly rate?

Car expenses are deductible if they are non-commute miles that are required
for employment and that are not reimbursed by the employer.

30 hour / week cap? Uh, where?

Why must employer set schedule?

~~~
prostoalex
They don't _have to_ , yet if they don't, they open themselves to larger
liabilities (30 hour/week requirement alone will land them into buying medical
benefits).

Thanks for the correction on mileage deduction, I looked into this, and it
turns out mileage is not deductible if the vehicle is being used "for hire"
[http://www.irs.gov/uac/Car-and-Truck-Expense-Deduction-
Remin...](http://www.irs.gov/uac/Car-and-Truck-Expense-Deduction-Reminders)
But that covers both scenarios (1099 or W-2), which makes it a non-point.

> Why must employer set schedule?

I believe that follows from the Uber argument that cheaper prices increase the
usage of the service (and hence surge pricing is beneficial to neither
consumer nor Uber). Previously lack of supply was only correctable via surge
pricing (which would bring more potential drivers on the road), but now a
second corrective mechanism opens up - requiring certain number of vehicles to
be present at certain location at certain time.

------
danpalmer
This is pretty interesting, especially when you compare the reasons to other
companies who are using contractors over employees, such as Uber.

I would be interested to know more about the financial implications of this.
Not living in the US, and never having directly employed someone, I don't know
what sort of taxes are involved, and what happens to the labour costs overall.

~~~
numlocked
IANALL (labor lawyer): This is a very rough estimate, but I think of a W2
employee as about 20% more expensive than a 1099 contractor:

+7% Social Security

+2% Medicare

+1% Unemployment

+5% Works comp (this varies though)

+5% Medical benefits (varies a LOT)

If someone is better informed than I, please let me know :)

~~~
joshjkim
That's right - one thing I would add that is actually very non-negligible for
on-demand logistics are (1) reimbursement for mileage (2) more robust
insurance policies.

IRS calls for $0.56/mile - if you assume an average delivery in SF is around 2
miles, that throws an additional $1+ per delivery cost to the business.

For insurance, I know that Lyft currently charges about $1.50 for a "safety
fee" which I would assume covers their insurances. However, those insurance
policies are still built on the gray contractor status and probably depend to
a certain extent on driver's having personal insurance (which is a fraught
relationship - most personal insurance has a commercial use exception, which
means driving for work is not covered). I would assume that when they re-
classify, the insurance providers will use it as an excuse to push premiums
up. There's also a chance that the clarify will bring premiums down
(volatility = risk, and the current classification is highly volatile), so
that may be a possibility as well. Most likely though, you give an insurance
company a reason to charge more and they'll take it =)

~~~
dublinben
The IRS safe harbor rate ($0.575/mile for 2015) is just the maximum that can
be reimbursed tax free. It isn't meant to be a recommended amount to reimburse
drivers, and it does not take a driver's actual costs into account.

------
kanamekun
The key quote:

<< After careful consideration, we've decided to transition Shyp couriers, the
individuals who complete pickups at our customers' homes and offices, to W2
employees. This move is an investment in a longer-term relationship with our
couriers, which we believe will ultimately create the best experience for our
customers.

Here at Shyp, we have three different roles that make up the workforce that
creates the awesome Shyp experience that we’ve become known for. We have
couriers (handle pickups), satellite van drivers (take items to warehouse) and
those in the warehouse (handle packing and shipping, etc.). This move does not
impact our satellite drivers or warehouse employees, who have been classified
as W2 since Shyp launched in March of 2014, due to the specific
responsibilities of their role. >>

------
narrowrail
I always find these discussions around contractor or employee rather lacking
in context of other businesses that have operated similarly (i.e. using
contractors) for decades. The obvious example to me is Landstar Systems [0],
which uses the term owner operator and emphasizes the fact that drivers do not
operate on 'forced dispatch.' Of course, they usually neglect to mention that
Landstar handles the insurance for their owner operators (the company self-
insures), and the drivers can't drive for any other company on that insurance
policy. So, in effect, these drivers don't work for any other freight
provider.

[0][https://en.wikipedia.org/wiki/Landstar_System](https://en.wikipedia.org/wiki/Landstar_System)

~~~
shawn-butler
IRS guidance on worker classification in the limousine industry:

[pdf] [http://www.irs.gov/pub/irs-utl/limo.pdf](http://www.irs.gov/pub/irs-
utl/limo.pdf)

I think the Ninth Circuit laid the smack down on FedEx for them classifying
their drivers as contractors in a decision last year.

Classifying people and their labor gets complex.

------
Animats
_" This is an operational decision based on our interest in owning the entire,
end-to-end Shyp experience; it is not in response to recent lawsuits against
other technology companies. "_

Yeah, right.

------
rip747
A company blog with no link back to the company's main site? Why do I see this
mistake on so many of these?

------
danpalmer
Now I'm waiting for Shyp to fail as they run out of money, and then pivot to
HR software designed to make it easy for companies to manage thousands of
employees.

------
Enthouan
So now what's the difference between Shyp and any other delivery company?

~~~
prostoalex
Shyp picks up and packages the stuff for you, not delivers _to_ you.

In cities that they've launched they're also able to sometimes offer cheaper
rate for shipping (including the $5 pickup fee) than you'd get by driving to a
UPS Store / FedEx Office, because they enjoy a heavy discount due to volume.

------
mrmch
Awesome, props to Kevin and the Shyp team for making this happen.

------
metaphorm
this is encouraging and I hope the trend continues in this direction.
employees are a company's operational lifeblood. neglect them at your own
peril.

------
ericabiz
This is one time when having the actual headline on the article can be
misleading. The first thing I think when I see "A note from [company]'s CEO"
is that the company is going out of business. My second guess would be
announcing a funding round.

How about something like "Shyp Transitions Couriers to W2 Employees"?

This also encourages people to submit paywalled articles because they have
better headlines, when (I assume) most of us would prefer to read it from the
source.

~~~
madez
Maybe your notion of what "A note from [company]'s CEO" can mean is too
specific.

It is the original title, it is a note and it's from the CEO. I think speaking
and taking things literally should be the default.

~~~
smacktoward
This is like arguing that every brand of cereal should be labeled "Box of
Cereal" because it is a box that contains cereal. It's possible for a label to
be completely true and completely uninformative at the same time.

