As more US workers become full time freelancers (which already comprise 35% of the US workforce), better protections need to be put in place to allow this new class of workers to thrive.
These workers, also known as gig workers, contingent workers, or independent contractors, do not work full time for a company and do not receive benefits from their employer, such as health insurance, sick leave, and unemployment insurance. This type of work spans across sectors, income levels, and job types, and these workers typically have flexible hours, inconsistent income streams, and contracts with multiple companies. While most people think of these workers as Uber drivers or Postmates delivery people, there is also a highly skilled labor class that works on government contracts, for large tech companies like Microsoft, and in fields that require highly specialized skill sets such as cybersecurity.
Last month, Village Capital joined with QBE Insurance and Mastercard Center for Inclusive Growth to bring together over 100 gig economy leaders to discuss the challenges these workers are currently facing and how startup innovations can fill market gaps. Here are a few highlights of what we learned:
A hallmark of traditional employment is that employers define how and when employees do their work, with the goal of maximizing productivity, oversight and cost efficiency. In exchange, an employee has historically expected to receive stable wages, a safe working environment, and access to benefits and paid time off.
In contrast, independent contractors function as mini-CEOs. These workers value the autonomy and flexibility that come with this type of work, allowing them to fulfill other responsibilities, such as child care or caregiving, more effectively. They are also able to be more selective when choosing which projects to work on or firms to work with.
However, employers have difficulty finding and effectively vetting this type of worker, which can lead to unclear performance metrics, challenges integrating these workers into more traditional team structures for projects, and lack of consistent HR processes in terms of on-time payments, access to benefits, and career pathing opportunities. These frictions can cause a lot of frustration on both sides.
In response to this market gap, startups have developed solutions to make it easier to connect this type of worker with relevant gigs. We see opportunities for new platforms to coordinate more aligned incentives to provide employers with stable and consistent access to high quality independent contractors, as well as more consistent payment and growth opportunities for contract workers.
Startup solutions that connect employers to vetted independent contractors include:
Labor law and employer policies have yet to address many of the challenges of hiring independent contractors. Lack of legal protection and basic worker protections, such as paid leave, workers’ compensation, and portable benefits are an increasing risk for these types of workers. At the same time, the current system of employer provided benefits isn’t working well for traditional employees either, with 1 in 5 Americans losing their benefits due to the pandemic.
However, the pandemic has created an opportunity for change, including the significant policy shift of providing temporary income protection for gig economy workers through the CARES Act. Guilds, or worker collectives, such as Gig Workers Guild and Workers Guild, have also started to form to help these workers unite around common challenges and provide aggregate purchasing of insurances and other benefits.
According to panelist Rafael Espinal, Executive Director of the Freelancers Union, one of the largest costs that freelancers incur is insurance acquisition. There needs to be more buy-in from companies and the government to support portable benefits. “There are lots of workers that don’t want a traditional job but want the benefits that a traditional job brings,” said Espinal.
Some gig worker advocates believe policy changes such as the controversial California Assembly Bill 5 (AB 5) will help spur innovation in benefits provision by forcing employers to reclassify independent contractors as employees. These types of forced reclassifications will ensure they provide access to legal and employment benefits such as minimum wage, overtime pay, and workers compensation insurance.
We see a significant and growing opportunity for new worker platforms that aggregate needs and provide access to financial services, increased earning opportunities and other portable benefits independent of the employer relationship.
Startup solutions improving financial health & benefits access for gig workers include:
There is growing evidence that the pandemic has accelerated the trend of employers shrinking their full time employee base while backfilling labor needs with more on-demand skilled contractors. At the same time, companies are moving towards outcomes-based work for special projects. As a result, it is difficult for even the best independent contractors to move up within a company since they don’t fit into a traditional hierarchy. “The nature of work is changing,” said Parag Mehta, Executive Director and Senior Vice President, Mastercard Center for Inclusive Growth. “Workers will need access to training, education, and professional development throughout their lives. We must advance a culture of lifelong learning for all workers, regardless of where they live, who they work for, or what their work arrangement.”
Many independent contractors and the companies they work for don’t know the skills they have and how those skills compare to others. “The absence of a manager creates a big problem - workers are flying blind and working more instead of working smarter,” said panelist Hantz Févry, co-founder of Stoovo. Furthermore, different organizations have different approaches to internal evaluation and other HR functions, making it difficult to develop a widely accepted skills assessment platform. “Getting better at talent management is a social responsibility. I believe a focus on skills is necessary as we see more and more workers left behind,” said panelist Carlos Gutierrez, former Commerce Secretary and co-founder of EmPath.
Intermediary organizations can serve this function, but many are focused on a particular industry or job type such as the Screen Actors Guild.
Skill building on the job is shifting to focus on just in time learning that is needed for a specific project, yet most companies are not investing in the success of their independent contractors by providing them with the same access to learning tools and educational benefits as their full time counterparts. According to Angie Kramer, founder and CEO of JobBliss, “Companies need to start investing in credentialing from trusted sources, but there’s a big barrier to investing in ‘someone that’s not mine’.”
Startup solutions improving credentialing and skills assessment include:
While there is still a lot of work to be done in terms of helping independent contractors access benefits, improve income stability, and create generational wealth, more workers are demanding that employers adapt their talent management practices while startups are building solutions that fill the gaps to ensure no worker is left behind.
“The flexibility of the gig economy allowed me the opportunity to build the life that I wanted. Today, there is a lot of stigma around the concept of gig work, but it can be used in a positive way to make a life for yourself,” said panelist Vivian Chen, co-founder and CEO of Rise.
Village Capital will be hosting more of these conversations in 2021. If you want to be part of a growing community of leaders who are advocating for change to improve the lives of independent contractors, you can sign up here.
Marissa Lowman leads the Future of Work Practice at Village Capital, where she oversees direct investments, research initiatives, and an accelerator program for early stage startups. The practice is focused on supporting adult workers and learners who need additional skills or new skills to further their career paths. Prior to Village Capital, she completed fellowships at leading venture capital firms Learn Capital and SJF Ventures. Marissa also co-founded LearnLaunch, an edtech accelerator and innovation hub. She began her career as a Fulbright Fellow in Germany. Marissa has a BA with honors from Johns Hopkins University and an MBA from Cornell University Johnson School of Management’s Cornell Tech program.