We’ve Been Ubered: How Uber’s Business Model Has Changed the Nature of Work

Uber Technologies Inc (Uber) markets itself as a transportation company that “seeks to make transportation as reliable as running water.” The company operates through a mobile platform that connects customers who need a ride to drivers who need extra cash; however, it has also started to branch out into almost all forms of delivery.

Notably, Uber’s some 167,000 drivers do not wear uniforms, and they use their own motor vehicles to transport customers. Also, drivers work part-time, receive minimal corporate oversight, and have automated monetary transactions. That said, Uber still oversees and orchestrates every transaction through its high tech app. However, this begs a larger question about Uber drivers: Are Uber drivers employees of Uber, or are they independent contractors of the company?

Similarly, one could ask,  “How does their employment classification influence and affect the rest of the economy? And, is this new model of work creating avenues to empower workers or just modern day sharecropping?” Either way, it’s a pretty bold indictment.

Uber and many other notorious companies of the sharing economy, such as Lyft and Airbnb, began flourishing after the great recession of 2008. According to the Inuit 2020 Report, some scholars have argued that the sharing economy and the great recession have accelerated the trend of less traditional work. This could be because a large number of workers were most desperate for work during this period, and with a greater supply of workers, companies had more power in the hiring process. 

Surprisingly, workers in the sharing economy are more educated than traditional service workers and seem to use contracting positions as a way to supplement their income, as opposed to extensively relying on it to pay their bills. Notably, 35 percent of Uber’s employees have a college degree, and more than half have another full-time job. The guy that did my last Uber ride had a Ph.D. Without a doubt, it’s a pretty impressive workforce for most industries.

As of today, Uber and Lyft together are valued at over 70 billion dollars and employ over 500,000 drivers as independent contractors in the United States alone. And each company is expanding into food and package delivery. However, according to an essay by Gerald F. Davis, they each have fewer than a couple of thousand full-time employees.

Quite the contrast from the traditional 9-to-5 jobs that used to dominate the work landscape. This trend is not just evident in start-ups but in other larger, more established companies as well.

For example, an increasing number of Fortune 500 companies, such as GE, IBM, and Microsoft, are employing more independent contractors for work than actual employees. This shift in worker-employer relationships has been deemed the “Uberization” of these companies. The Uberization of companies turns jobs into tasks and creates large, employee-free organizations that are highly profitable. GE has sold off the vast majority of its businesses and only focuses on a few core competencies. Uber and Lyft business models have allowed them to lower costs at the expense of workers and enabled their businesses to expand quickly.

Similarly, since many companies operate using Uber’s business model, service workers that were not independent contractors in the past are denied the benefits of full-time workers. This misclassification allows employers to evade covering workers’ compensation, health insurance, and unemployment insurance, all of which are protections that took decades to fight for and that are slowly losing ground. In many cases, service workers can make more per hour working as independent contractors than as traditional employees; they just have fewer protections.  

According to the book titled The Fissured Workplace, businesses have also outsourced a great share of their work to smaller companies or independent contractors, forcing wages of workers down and making the workforce more competitive. This outsourcing of tasks allows companies to become more focused on their core set of competencies and to reduce cost. This ultimately allows them to please investors, to ensure a higher return on capital, and to remain as nimble as possible. Also, an increasing number of start-ups are becoming the Uber of something, providing an on-demand service that consumers cannot live without.

So, are these on-demand business models and lean companies simply giving more opportunities for independent contractors, or are they creating more independent contractors?

While Uber may be an extreme case, independent contract work is becoming more of an important part of the way employers engage workers and how employment arrangements are formed. According to the Bureau of Labor Statistics, contingent workers are self-employed and can be from a variety of professions. They generally perform services where the service is not controlled by the employer. Instead, these workers function as their own employer, but their positions are temporary.

Traditionally, contingent workers have held managerial roles, professional roles, and sales jobs.  According to the United States Accountability Office, in 2015, a quarter of the workforce was employed in some capacity as contingent workers, and it has been estimated that over 60 million Americans will work as independent contractors in some capacity by 2020. This is roughly a third of the United States workforce! And it is only getting worse, which is a pretty scary thought to those entering the workforce!

In Uber’s case, thousands of new Uber drivers sign up on the platform every month. In early 2015, Uber announced that its millionth driver had started working with the ride-sharing company. However, the turnover rate is high, and many drivers only stay with the platform for a couple of months. Uber and Lyft do not offer phone support for drivers, offering only email help. However, Uber does regulate the quality of the cars its drivers use when transporting customers. In fact, Uber cars must be fewer than ten years old and sedan models. Also, before driving for Uber, a car must be inspected and must undergo a test drive by an experienced Uber driver.

So, how does all of this impact workers and the nature of work? Well, in organizations that adopt Uber’s business model or that employ large numbers of independent contractors, job security rather than income is becoming the greatest challenge for workers. In fact, Uber and Lyft drivers make on average well above 15 dollars an hour when they work, which is substantially higher than taxi drivers make per hour. However, Uber drivers are employed only on an as-needed basis and do not have a steady income that workers in other industries have.  

Additionally, Uber labeling drivers as independent contractors creates a legal framework that prevents drivers from getting benefits that employers are required to give employees.

These benefits include overtime compensation, family and medical leave, unemployment insurance, and workplace-safety standard. Based on current US law, employers are not required to offer overtime compensation to independent contractors. Also, employers don’t have to pay employment taxes for them. Minimum wage laws do not apply to them, pay is determined by the agreed upon contract, and training is typically not provided. This denies workers at companies like Uber many of the social safety nets of past progressive labor legislation. This legal framework gives leverage to Uber and Lyft to demand more from drivers. Consequently, the compensation for drivers at Uber has been slowly decreasing.

Outside of the sharing economy, with more independent contractors in a variety of fields, including medicine and other technical fields, people seeking full-time employment in the job market will have to compete against those willing to work as independent contractors. Moreover, according to an article by Forbes, high-income independent contractors may have a higher tax burden than their full-time counterparts. Independent contractors must pay self-employment taxes, while a full-time employee must pay only the employee part of Medicare and FICA.  Sounds like sharecropping to me.  

The sharing economy has further blurred the line between independent contractors and employees. Given the recency of the sharing economy, few ligations have been settled in courts across the country, and even fewer pieces of legislation have been passed to address the issue and to provide rights to workers. However, this has not slowed workers at these companies. This lack of change from legislators and an onslaught of change in the economy has prompted contingent workers at companies like Uber and Lyft to press for benefits from their employers. And they started to head for the courts as well.

As for a real-life example, in June 2016, Uber drivers in Massachusetts and California filed a federal lawsuit accusing Uber of illegally classifying drivers as independent contractors to evade providing benefits to drivers.

Drivers in the lawsuit assert that they are not independent contractors and that drivers should be entitled to reimbursement for their work-related expenses, such as gas and vehicle maintenance. Uber, however, asserts that employees are only employed on an as-needed basis and, therefore, cannot be legally classified as employees.

In August 2016, Uber settled the case in court and paid an estimated $100 million to drivers in California and Massachusetts to reimburse them for gas and vehicle maintenance. As a result of the lawsuit, Uber is making significant changes to its business models in those two states. Currently, drivers in California and Massachusetts are creating a driver’s association to represent their concerns about management. Moreover, drivers are now allowed to receive tips from riders in California and Massachusetts. However, a condition of the lawsuit was that Uber is allowed to continue to classify drivers in Massachusetts and California as independent contractors and not as employees.

According to an article published in New York Times, a similar lawsuit was filed in New York by two former Uber drivers and one Lyft driver. The New York State Department of Labor regulators ruled in August 2016 that the drivers are eligible for unemployment payments. These litigations not only help Uber and Lyft drivers but can serve as precedents to help independent contractors in other large corporations win unemployment benefits and the right to unionize.

To make matters more complicated, federal legislation protecting contingent workers is lacking in many areas. New laws are needed to help add clarity to this new area of work and address newly found job insecurity as a result of this business model. However, none of this legislation or turbulence has detracted from Uber’s growth or ability to attract investors. Despite the few isolated case wins by Uber and Lyft drivers, court rulings have continually supported drivers as independent contractors. Ensuring that independent contractors receive fair treatment under employment laws is difficult given that it is hard to ascertain who is their employer and what responsibility the contracting employer has to provide.

Despite endless lawsuits and PR scandals, more companies are embracing independent contractors over employees to lower costs.

In fact, Uber appears to be more than just some trendy new company with a few public relations problems; it’s now a  new business model that larger companies are continually implementing and adapting at an accelerating rate. Not only are traditional industries being disrupted as the economy evolves, but the nature of work and what it means to be an “employee” appears to be changing as well.

Ultimately, companies like Uber are operating with a business model that decentralizes the power and risk of the company to its employees, creating a team of independent entrepreneurs that operate under the guise of a corporate umbrella. Thus, because the prevalence of contract work is rising, it’s hard to deny that we have been Ubered.

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We’ve Been Ubered: How Uber’s Business Model Has Changed the Nature of Work

Uber Technologies Inc (Uber) markets itself as a transportation company that “seeks to make transportation as reliable as running water.” The company operates through a mobile platform that connects customers who need a ride to drivers who need extra cash; however, it has also started to branch out into almost all forms of delivery.

Notably, Uber’s some 167,000 drivers do not wear uniforms, and they use their own motor vehicles to transport customers. Also, drivers work part-time, receive minimal corporate oversight, and have automated monetary transactions. That said, Uber still oversees and orchestrates every transaction through its high tech app. However, this begs a larger question about Uber drivers: Are Uber drivers employees of Uber, or are they independent contractors of the company?

Similarly, one could ask,  “How does their employment classification influence and affect the rest of the economy? And, is this new model of work creating avenues to empower workers or just modern day sharecropping?” Either way, it’s a pretty bold indictment.

Uber and many other notorious companies of the sharing economy, such as Lyft and Airbnb, began flourishing after the great recession of 2008. According to the Inuit 2020 Report, some scholars have argued that the sharing economy and the great recession have accelerated the trend of less traditional work. This could be because a large number of workers were most desperate for work during this period, and with a greater supply of workers, companies had more power in the hiring process. 

Surprisingly, workers in the sharing economy are more educated than traditional service workers and seem to use contracting positions as a way to supplement their income, as opposed to extensively relying on it to pay their bills. Notably, 35 percent of Uber’s employees have a college degree, and more than half have another full-time job. The guy that did my last Uber ride had a Ph.D. Without a doubt, it’s a pretty impressive workforce for most industries.

As of today, Uber and Lyft together are valued at over 70 billion dollars and employ over 500,000 drivers as independent contractors in the United States alone. And each company is expanding into food and package delivery. However, according to an essay by Gerald F. Davis, they each have fewer than a couple of thousand full-time employees.

Quite the contrast from the traditional 9-to-5 jobs that used to dominate the work landscape. This trend is not just evident in start-ups but in other larger, more established companies as well.

For example, an increasing number of Fortune 500 companies, such as GE, IBM, and Microsoft, are employing more independent contractors for work than actual employees. This shift in worker-employer relationships has been deemed the “Uberization” of these companies. The Uberization of companies turns jobs into tasks and creates large, employee-free organizations that are highly profitable. GE has sold off the vast majority of its businesses and only focuses on a few core competencies. Uber and Lyft business models have allowed them to lower costs at the expense of workers and enabled their businesses to expand quickly.

Similarly, since many companies operate using Uber’s business model, service workers that were not independent contractors in the past are denied the benefits of full-time workers. This misclassification allows employers to evade covering workers’ compensation, health insurance, and unemployment insurance, all of which are protections that took decades to fight for and that are slowly losing ground. In many cases, service workers can make more per hour working as independent contractors than as traditional employees; they just have fewer protections.  

According to the book titled The Fissured Workplace, businesses have also outsourced a great share of their work to smaller companies or independent contractors, forcing wages of workers down and making the workforce more competitive. This outsourcing of tasks allows companies to become more focused on their core set of competencies and to reduce cost. This ultimately allows them to please investors, to ensure a higher return on capital, and to remain as nimble as possible. Also, an increasing number of start-ups are becoming the Uber of something, providing an on-demand service that consumers cannot live without.

So, are these on-demand business models and lean companies simply giving more opportunities for independent contractors, or are they creating more independent contractors?

While Uber may be an extreme case, independent contract work is becoming more of an important part of the way employers engage workers and how employment arrangements are formed. According to the Bureau of Labor Statistics, contingent workers are self-employed and can be from a variety of professions. They generally perform services where the service is not controlled by the employer. Instead, these workers function as their own employer, but their positions are temporary.

Traditionally, contingent workers have held managerial roles, professional roles, and sales jobs.  According to the United States Accountability Office, in 2015, a quarter of the workforce was employed in some capacity as contingent workers, and it has been estimated that over 60 million Americans will work as independent contractors in some capacity by 2020. This is roughly a third of the United States workforce! And it is only getting worse, which is a pretty scary thought to those entering the workforce!

In Uber’s case, thousands of new Uber drivers sign up on the platform every month. In early 2015, Uber announced that its millionth driver had started working with the ride-sharing company. However, the turnover rate is high, and many drivers only stay with the platform for a couple of months. Uber and Lyft do not offer phone support for drivers, offering only email help. However, Uber does regulate the quality of the cars its drivers use when transporting customers. In fact, Uber cars must be fewer than ten years old and sedan models. Also, before driving for Uber, a car must be inspected and must undergo a test drive by an experienced Uber driver.

So, how does all of this impact workers and the nature of work? Well, in organizations that adopt Uber’s business model or that employ large numbers of independent contractors, job security rather than income is becoming the greatest challenge for workers. In fact, Uber and Lyft drivers make on average well above 15 dollars an hour when they work, which is substantially higher than taxi drivers make per hour. However, Uber drivers are employed only on an as-needed basis and do not have a steady income that workers in other industries have.  

Additionally, Uber labeling drivers as independent contractors creates a legal framework that prevents drivers from getting benefits that employers are required to give employees.

These benefits include overtime compensation, family and medical leave, unemployment insurance, and workplace-safety standard. Based on current US law, employers are not required to offer overtime compensation to independent contractors. Also, employers don’t have to pay employment taxes for them. Minimum wage laws do not apply to them, pay is determined by the agreed upon contract, and training is typically not provided. This denies workers at companies like Uber many of the social safety nets of past progressive labor legislation. This legal framework gives leverage to Uber and Lyft to demand more from drivers. Consequently, the compensation for drivers at Uber has been slowly decreasing.

Outside of the sharing economy, with more independent contractors in a variety of fields, including medicine and other technical fields, people seeking full-time employment in the job market will have to compete against those willing to work as independent contractors. Moreover, according to an article by Forbes, high-income independent contractors may have a higher tax burden than their full-time counterparts. Independent contractors must pay self-employment taxes, while a full-time employee must pay only the employee part of Medicare and FICA.  Sounds like sharecropping to me.  

The sharing economy has further blurred the line between independent contractors and employees. Given the recency of the sharing economy, few ligations have been settled in courts across the country, and even fewer pieces of legislation have been passed to address the issue and to provide rights to workers. However, this has not slowed workers at these companies. This lack of change from legislators and an onslaught of change in the economy has prompted contingent workers at companies like Uber and Lyft to press for benefits from their employers. And they started to head for the courts as well.

As for a real-life example, in June 2016, Uber drivers in Massachusetts and California filed a federal lawsuit accusing Uber of illegally classifying drivers as independent contractors to evade providing benefits to drivers.

Drivers in the lawsuit assert that they are not independent contractors and that drivers should be entitled to reimbursement for their work-related expenses, such as gas and vehicle maintenance. Uber, however, asserts that employees are only employed on an as-needed basis and, therefore, cannot be legally classified as employees.

In August 2016, Uber settled the case in court and paid an estimated $100 million to drivers in California and Massachusetts to reimburse them for gas and vehicle maintenance. As a result of the lawsuit, Uber is making significant changes to its business models in those two states. Currently, drivers in California and Massachusetts are creating a driver’s association to represent their concerns about management. Moreover, drivers are now allowed to receive tips from riders in California and Massachusetts. However, a condition of the lawsuit was that Uber is allowed to continue to classify drivers in Massachusetts and California as independent contractors and not as employees.

According to an article published in New York Times, a similar lawsuit was filed in New York by two former Uber drivers and one Lyft driver. The New York State Department of Labor regulators ruled in August 2016 that the drivers are eligible for unemployment payments. These litigations not only help Uber and Lyft drivers but can serve as precedents to help independent contractors in other large corporations win unemployment benefits and the right to unionize.

To make matters more complicated, federal legislation protecting contingent workers is lacking in many areas. New laws are needed to help add clarity to this new area of work and address newly found job insecurity as a result of this business model. However, none of this legislation or turbulence has detracted from Uber’s growth or ability to attract investors. Despite the few isolated case wins by Uber and Lyft drivers, court rulings have continually supported drivers as independent contractors. Ensuring that independent contractors receive fair treatment under employment laws is difficult given that it is hard to ascertain who is their employer and what responsibility the contracting employer has to provide.

Despite endless lawsuits and PR scandals, more companies are embracing independent contractors over employees to lower costs.

In fact, Uber appears to be more than just some trendy new company with a few public relations problems; it’s now a  new business model that larger companies are continually implementing and adapting at an accelerating rate. Not only are traditional industries being disrupted as the economy evolves, but the nature of work and what it means to be an “employee” appears to be changing as well.

Ultimately, companies like Uber are operating with a business model that decentralizes the power and risk of the company to its employees, creating a team of independent entrepreneurs that operate under the guise of a corporate umbrella. Thus, because the prevalence of contract work is rising, it’s hard to deny that we have been Ubered.

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