It’s scorching on the streets of Midtown Manhattan as Afonso Oliveira strides around the lunch-break crowds, unbent beneath his 45-pound, $350 industrial backpack. He is carrying everything that might be needed to tighten a leaking faucet at a digital marketing agency or repair a social network office’s electrical outlets. His feet move with a runner’s rhythm in Salomon Speedcross trail-running shoes rather than the typical work boots of a handyman. The 27-year-old does marathons in his spare time, and he doesn’t break a sweat moving between appointments.
It’s difficult to keep up. “This job, walking is one of the things that comes with it,” Oliveira tells me. “Usually I walk pretty fast. This is slow for me.”
Oliveira’s job is to show up whenever an office signed up with his employer, Managed by Q, needs something done: a pipe secured, a monitor mounted, a standing desk built. A client simply touches a special iPad installed in their office space, and Oliveira or one of his dozens of colleagues shows up like a food-delivery order or a ride to the airport.
I follow Oliveira to a market-data startup in a generic monochrome loft. The handyman breezes silently past the office manager, checks the iPad to see what’s wrong, and turns his attention to a glass door that has swung in the wrong direction and become stuck. “The bolt is catching,” he pronounces before cutting down a square of carpet and extending a stopper at the top of the doorframe. “It’s magic!” one employee exclaims. Oliveira is already on his way to the elevator and his next stop, having spent all of 10 minutes inside.
‘Uber for Offices’
Managed by Q, an on-demand maintenance and cleaning startup launched in April 2014, invariably includes the phrase “Uber for offices” in its pitch to venture-capital backers. A loftier description, the one preferred by co-founder Dan Teran, is “an operating system for space.” Q is supposed to exist quietly in the background and provide assistance only when asked, much like the company’s weapon-inventing namesake from the James Bond films. Managed by Q can do pretty much anything an office administrator might otherwise handle, from scheduling a plumber visit to ordering extra napkins for the pantry.
Unlike other stalwarts of the on-demand economy, however, janitors and cleaners summoned through the Managed by Q app receive stable incomes, benefits, and the potential to earn promotions. This is only possible because Q hires its entire workforce of over 400 people as W-2 employees rather than relying on temporary labor from independent contractors. None of Uber’s over 160,000 U.S. drivers fall under this classification—yet.
Paid-by-the-hour workers will make up as much as 40 percent of the U.S. workforce by 2020, according to a report from Intuit, up from around 25 percent in 2010. Thirty-four percent of the workforce did at least some freelance work in 2015, according to Edelman. Yet this burgeoning labor sector finds itself in an existential crisis.
Uber lost a key ruling in a lawsuit earlier this year that alleges it misclassified many drivers as independent contractors instead of full employees, and the company is now appealing the decision. Other on-demand businesses like the car service Lyft and the grocery-delivery startup Instacart have faced similar lawsuits, as have more established companies like FedEx and Yelp. In July, the on-demand cleaning company Homejoy shut down under the weight of its own labor-related legal battles. The debate over worker classification has also become a talking point in the 2016 presidential contest.
This legal tumult is the result of a small but significant distinction. Anyone who signs a 1099 contract to start, say, picking up passengers for an app-based car service, is entitled to little in the way of benefits or stability from their employer. The obligations mostly run the other way: 1099 workers are responsible for paying their own taxes, setting their own schedules, learning on the job, and even supplying their own equipment. This makes 1099 workers cheaper than their W-2 counterparts—and far less closely managed.
“The most important factor is the right of control over the workers,” says Shannon Liss-Riordan, a Boston lawyer involved in litigation against Uber in California who has become a public champion of W-2 employees in the on-demand economy. Indeed, the IRS rules out anyone being deemed an independent contractor “if you perform services that can be controlled by an employer.” The problem for startups reliant on contractors, as Riordan sees it, is figuring out how to “provide the quality of service they are promising their customers” without violating the law.
Converting to W-2s
Some on-demand startups, including shipping service Shyp and domestic help provider Alfred, recognized the shifting legal winds and spent the early part of this year feverishly converting their contract workers to W-2 status. Managed by Q chose that path from the beginning. “We really wanted to reward performance, to train and nurture people,” Teran says. The strategy seems to be working. In 2015, Q raised $15 million in Series A funding led by RRE Ventures, expanded to Chicago and San Francisco, and gained over 300 clients in Manhattan totaling 2.5 million square feet of office space. Each client pays for a minimum of four hours of cleaning a week. The company recently poached executives from employee-heavy businesses like Buffalo Wild Wings and LivingSocial, and Q’s new general manager in San Francisco came over from Uber.
Q’s biggest accomplishment, however, might be its labor force of hundreds of cleaners and handymen. Uber often boasts about creating jobs for its drivers, promising to mint 50,000 new drivers through its 2015 pan-European partnership. Of course, those positions can sometimes entail only short bursts of activity. A job at Managed by Q, by contrast, offers some similarities in terms of flexibility with an entirely different degree of stability for workers.
The shift to on-demand work came easy for Afonso Oliveira because he was making a living that way long before smartphone apps became economic engines. Oliveira came to New York from the Brazilian town of Minas Gerais more than a decade ago to do construction jobs alongside his father, eventually moving on to stints as a roadside mechanic, floorer, and brick pointer. About three years ago he discovered Taskrabbit, the most contingent of contingent labor platforms, where workers bid on short-term tasks like cleaning and repair.
“In the beginning it was good,” Oliveira says during a break at a tea shop. “But then it became a window for contractors finding work.” Contractors would bid down gigs just to lock in new clients. “From there I gave up and started out on my own.”
Oliveira built his own team of handymen to do jobs around New York and New Jersey, working for clients including Uber. He heard about Managed by Q from another contract worker at Uber, and in late 2014 he gradually began integrating his workforce into Q’s system. “My guys were working for me, and I was working for Q,” he says. After less than a year with Managed by Q, Oliveira found himself near the top of the company’s management structure in the role of executive handyman. He oversees his department, offers training in new skill areas, and juggles work schedules for 22 on-demand handymen.
Insurance and Benefits
Unlike wholly self-employed handymen, Oliveira’s workers are covered by Q’s $2 million insurance policy. They receive benefits after they start working more than 30 hours a week, and the benefits don’t stop if their hours dip. Healthcare premiums are entirely covered by the company. With the right expertise, handymen can make as much as $45 an hour.
For its part, Uber emphasizes workers’ ability to not be stable employees. Sixty-five percent of drivers vary their working hours by more than 25 percent month to month, according to an Uber representative. W-2 employees wouldn’t have the ability to work whenever they want, the company argues, though W-2s aren’t legally forced to work a certain number of hours to qualify. The lawsuit Uber faces in California recently became a class-action suit, promising to set a larger legal precedent for when W-2s are necessary.
Working under 1099 status makes it illegal to earn promotions or take on larger responsibilities beyond the scope of a contract. Most on-demand platforms are cul-de-sacs: For a temporary worker, investing in the job does not necessarily lead to a measurable return, complicating the notion that drivers are actually self-employed. “Uber drivers are not entrepreneurs,” Liss-Riordan says. “They can only make more money by driving more hours.”
Since W-2 employment allows for promotions, it can also lead to a longer, more fruitful relationships. Anthony Knox, a 38-year-old operator, as Q calls its cleaners, started shortly after the company launched and was recently promoted to supervisor-in-training. “Everybody wants to get more responsibility,” he says.
That responsibility comes with higher wages, another impossibility for on-demand 1099s. In New York, for example, Q cleaners start off at $10 an hour and move up to $12.50 after a training period. (Rates vary slightly in each market, with San Francisco cleaners starting at $15 an hour). Cleaners can become mentors, earning $14, and then advance to quality-control supervisors at an annual salary of $35,000. Managed by Q charges its clients $25 per hour of service by a field worker. 32BJ SEIU, New York City’s largest property services workers union, uses an independent contractor agreement with a minimum handyperson wage rate of $26.198 an hour for Class-A office buildings. The union counts over 145,000 members, not far off from the U.S. population of Uber drivers.
Digital-first companies have largely avoided grappling with traditional labor unions like 32BJ SEIU. “Thus far we have not dealt with the cleaners union,” says Michael Scharf, CEO of MyClean, a New York-based home and office cleaning company that also uses W-2 workers. “We’re hoping to stay below the radar.” In June, the co-working startup WeWork, currently valued at upwards of $10 billion, fired the cleaning company it had retained after workers threatened to unionize. It later hired some of the cleaners as full WeWork employees. Q’s workers occupy a middle ground with some protection and support, though entirely at the behest of the company.
A stocky African-American from the Bronx dressed in Q’s white-on-black T-shirt, Knox works with cleaners like a gentle camp counselor, asking if they’re having equipment issues or feeling overworked. I follow him to a startup incubator in Chinatown where Smyrna Cassidy, an operator for six months, is cleaning tables and arranging desktop detritus into eye-pleasing grids. The practice, called knolling, is named after geometric Knoll furniture and has become a Q trademark.
When he started working for Q, Knox was attending nursing school while taking shifts for other contract cleaning services. Now, like Oliveira, he’s more invested in climbing the company ladder. “A lot of technology is replacing nurses. I go to school for two more years and then they replace me with a machine,” Knox says. I ask if he’s worried about cleaning jobs going the way of the Roomba. “If you were to send a Rosie, if we may, to go clean an office at night, it might seem more efficient at the moment. It’s a robot, it wouldn’t get tired,” he says. “But how much programming can you program to really not miss details?”
Cassidy and Knox head upstairs to the office of a startup that ships curated boxes of pet treats, and proceed to take out the trash. The space is wide and mostly empty early in the evening, although a few dogs scurry about near the kitchen. Managed by Q is a startup serving other startups with their obligatory office perks. There’s a keg of rosé on tap and a haven of couches and bunk beds occupying one corner in what looks like a human-scale cat playground. “I should have gone to school for that. You can go to work, drink wine in bed all day, and still be at work!” Knox says. “They give them everything here.”
The iPad that Q installs in its clients’ offices disguises human labor as an app. “They created a proprietary tech platform that allows them to have an extra layer of communication” with their clients, says Scharf, the MyClean CEO. This depersonalizing effect has also at times disadvantaged workers while benefitting the tech companies who contract them. When it comes to workers, “A lot of these startups are applying the rules of technology,” when it comes to workers, says Alfred co- founder Marcela Sapone. “That’s not how you deal with people you have a relationship with.”
Offering the support that full-time jobs have traditionally provided is expensive, particularly for app-based platforms pushing for massive growth. The startups that favor W-2 workers tend to be smaller and focus on high-end products. Going W-2 drives up the cost of managing and hiring new workers. Maren Donovan, founder of Zirtual, an on-demand virtual office assistance company, converted to a W-2 workforce in May. She puts the cost increase to her startup at 20 percent over contract labor.
In fact, the cost of using W-2 employees likely sped Zirtual’s collapse. In August, the company suddenly shut down and sold to Startup.co. “All of these on-demand shared economy companies that have been built up that all have independent contractors,” she says. “Their model will be destroyed if they have to move contractors to employees.”
In successful cases, however, a W-2 workforce may be more invested in their employer than 1099 contractors who come and go. Cosseted developers given stable employment might design the platform, but they’re not the ones interacting with paying clients. “I think it will be hard for companies to build strong teams if they treat their headquarters-based team with respect and their field operations with anything less,” says Hunter Walk, a partner at the VC firm Homebrew and an investor in Managed by Q.
Programmers vs. Laborers
There remains a gulf between on-demand startups’ most publicly prized employees—developers, UX designers, and product managers—and those doing the labor that makes the apps worth billions. This is as true for an Uber driver as it is an office cleaner or a domestic assistant. Q’s Oliveira might be an executive handyman in title, but that doesn’t make him destined for the C-Suite. “It’s hard for people who do not know what it takes to be a handyman to tell you what you should do or not,” he says of his relationship with the rest of Q’s staff.
Beyond the legal regulations, this gap is what stands in the way of a resolution between digital platforms’ owners and their contracted workers, who are far from integrated into the profitable dynamism of the Silicon Valley economy.
On a Saturday afternoon I visit Q’s new office, a sprawling loft with curved windows and exposed brick archways that was previously occupied by AOL. Vacuums and cleaning supplies are piled up near the kitchen. The occasion is an Operator Assembly, a chance for established cleaners and handymen as well as fresh recruits to hear updates on company policies and news. After an enthusiastic round-up of growth projections—very fast, very national—the workers break into smaller groups for team-building activities, lectures on client technique, and knolling sessions, in which iPhone cords, notebooks, and Q-branded giveaways are arranged in elaborate geometric compositions.
At the end of each assembly, there’s an award ceremony recognizing a few workers for exemplary service and high ratings from clients. That day, the supervisor, Anthony Knox, gets an award for not missing a day of work. “When I came here I told you guys I’d give you my all, and that’s what I do every day,” he says to raucous applause from colleagues. He takes home a $25 Visa gift card and a paper certificate. It’s a small liquidity event—although it might not be the last for Knox. Managed by Q plans to have a stock-option program in place for cleaners and other field staff by the end of the year.
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Uber Expected to Ride Out Employee Ruling, Maintain High Valuation Copyright 2015 Bloomberg.