Why On-Demand Shipping Service Shyp Is Turning Its Couriers Into Employees

Staffers are more pricey than freelancers. But if they make for a better customer experience, it could be worth it.

Why On-Demand Shipping Service Shyp Is Turning Its Couriers Into Employees
[Photo: Flickr user Simon Carr]

When you use the Shyp delivery service, you use your smartphone to snap a photo of the object you need shipped, and a courier shows up and takes the item away. Like Uber and Lyft drivers, Postmates meal bringers, TaskRabbit helpers, and other linchpins of the on-demand economy, those couriers have been independent contractors, not employees.

But that’s about to change. Shyp is shifting from signing up couriers as contractors to hiring them as staffers, with the closer ties and legal obligations that such a relationship carries. The new approach will start in the next city Shyp enters: Chicago, where it plans to be up and running this summer. Couriers in the company’s current markets–Los Angeles, Miami, New York City, and San Francisco–will transition from contractor status to employees on January 1, 2016.

Shyp involves multiple layers of complexity–once it picks up an item, it takes it to a warehouse, packs it up, then hands it off to a major courier such as UPS for delivery–but it’s the couriers who define the face-to-face experience for customers. “Our service has so many touch points–showing up at your home and shipping anything anywhere in the world,” says CEO and cofounder Kevin Gibbon. “It could be really expensive, like a painting or something like that. We felt that given how complicated the actual job is, the best course is to transition these folks.”

The announcement comes two weeks after the California Labor Commission ruled that one Uber driver was an employee, not a contractor. Though the ruling is specific to that driver, there’s plenty of controversy–and legal wrangling–over on-demand startups’ practice of relying on contractors. Last month, grocery delivery service Instacart began allowing some of its contractors to become employees. It’s one of a number of startups which have moved away from the contractor model.

A Shyp CourierPhoto: courtesy of Shyp

More Control, More Expenses

Shyp says that its move doesn’t have anything to do with lawsuits against other companies; it’s been thinking of doing this for a while. In fact, Gibbon broached the possibility during an on-stage appearance at the TechCrunch Disrupt conference in May.

Still, by moving away from the contractor model, the company gains the ability to exert more control over the Shyp experience without fear of legal repercussions. It can get more involved in training and coaching couriers, managing the hours they work, and generally treating them like full-blown team members rather than freelancers. It will also begin to pay workers’ compensation, unemployment, and Social Security taxes for couriers. They’ll continue to use their own vehicles, but Shyp will cover costs such as fuel.

Aren’t employees more expensive than contractors? Sure, which is one big reason why on-demand startups have shied away from hiring them. But Gibbon says that Shyp’s satellite drivers and warehouse workers are already employees, so hiring couriers isn’t a dramatic departure. And its profit margins are such that there’s room for the extra cost. “We felt that with everything we can bring operationally, it’ll be a net positive,” he told me. “If someone has a better experience, they’re much more likely to tell someone else about it.”

A Shyp warehousePhoto: courtesy of Shyp

If hiring employees is the way to go, it’s easier to accomplish early in a company’s history rather than later on, which is why Gibbon doesn’t think that other on-demand startups will necessarily follow Shyp’s lead. “When you have 20,000 to 50,000 drivers, it’s extremely expensive to do that,” he says. “We only launched out of beta just over a year ago in San Francisco. We’re still really new.”

Gibbon also says that Shyp’s business is generally steady throughout the day compared to something like an Uber-style car service: This makes hiring couriers a more practical decision, even if it’s not the most expedient one. “We’re definitely not here for the short term,” he told me. “We’re building a very long-term company aimed at reducing friction points in shipping.”

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About the author

Harry McCracken is the technology editor for Fast Company, based in San Francisco. In past lives, he was editor at large for Time magazine, founder and editor of Technologizer, and editor of PC World.

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