Sharing Economy

3 Ways On-Demand Companies Can Stay Within the Law

The Department of Commerce has hinted at regulations for on-demand businesses. Here's how to prepare.
3 Ways On-Demand Companies Can Stay Within the Law
Image credit: Uber | Shutterstock

Summer is supposed to be a time for slowing down, getting out of the office and taking a break from the heavy issues of the day. But for businesses in the on-demand industry, those heavy issues are just beginning.

Related: How to Succeed in the On-Demand Economy

The U.S. Department of Commerce kicked off the season with a report addressing concerns over workplace training, income instability and privacy that have arisen from the sharing economy. The report suggests that firms such as Uber and Airbnb, the giants of the industry, might soon be integrated into the standard regulatory framework.

That may not be music to Uber’s ears, but it is easy to see why the government is trying to wrangle the on-demand economy into something manageable and taxable.

As of October 2015, more than 22.4 million people spent $57.6 billion per year with on-demand companies. By 2014, those companies had raised $9.4 billion, and Uber recently received $3.5 billion in fund-raising from Saudi Arabia’s Public Investment Fund. That’s a lot of cash going largely unregulated.

Consumer interest in on-demand services is meanwhile disrupting the world’s economy. Increased government scrutiny and regulation will challenge companies operating in the sharing economy, especially when it comes to their freelance workforces. They will have to answer questions on employee safety and compensation, and they may have to rework their current employment models as a result.

Preparing for government regulation today can help on-demand companies thrive tomorrow.

Related: The Sharing Economy Isn't a Niche. It's the Future of Market Capitalism.

Appeasing Uncle Sam

The Commerce report indicates that the on-demand economy has arrived. Uber and Airbnb aren’t flukes. They are powerhouse corporations heralding a new era of economic development.

But they are not immune to legal pressures. On-demand companies must shore up their processes in three key areas if they want to avoid regulatory trouble.

The first is income instability. The report states that freelance contractors are “often unsure at any given time whether their services will be in demand.” In other words, freelancers working for on-demand companies are not guaranteed the ability to make a livable income.

Most of these organizations don’t offer health insurance, retirement plans or pay equivalent to the minimum wage. This lack of benefits or consistent pay can leave contractors in precarious financial situations, especially if they face unexpected emergencies.

On-demand companies also need to evaluate their training offerings and standards. Organizations such as TaskRabbit expect freelancers to have certain skills and capabilities before they begin working with the company. This may save money for the business, but the lack of training precludes otherwise willing participants from applying for jobs.

Most of these organizations also insist that contractors own current-generation smartphones. Only 50 percent of Americans who make less than $30,000 per year own a smartphone at all, let alone a brand new one. Again, these hiring standards create steep obstacles for lower-income workers.

The third area of concern is consumer privacy. Customers and contractors often must provide valuable private information, such as credit card numbers and travel history, in exchange for on-demand services. However, not every company has a clear answer for how to prevent this data from being leaked, hacked or exploited. Safe handling of customer information is a chief priority for the Department of Commerce, and it will likely be one of the first areas targeted for regulation.

Preventive maintenance

As Airbnb’s San Francisco lawsuit demonstrated, the last thing on-demand companies want is the government interfering with their business models. Companies should self-regulate before laws and regulations are imposed that interrupt their operations. Here are a few strategies to prepare for what’s ahead.

1. Learn the law of the land.

The best way to avoid legal headaches is to know the laws in every market where the business will launch. When starting up my own company’s first rollout in San Francisco, I took great pains to ensure that I was playing ball properly before I first stepped out onto the field, and it has made a world of difference.

Most states define independent contractors differently, and that’s a crucial distinction for on-demand providers. Review each location’s regulations and definitions before expanding there.

Related: When Starting a Business, Beware All the Taxes and Regulations

2. Bankroll some benefits.

More than 45 million Americans work as contractors. But the lack of benefits and income stability can wear down even the most stalwart freelancer. Think about providing basic benefits such as job training and at least a minimum wage salary. Lend smartphones and other tools contractors need to succeed with the organization. Such support alleviates the strain for them and broadens your potential talent pool.

3. Protect customers' privacy.

Sharing companies have access to unprecedented amounts of customer and contractor data. Take a page from Lyft’s strategy, and educate your community members about your methods for protecting their information. Being transparent about how you use their data will reassure them that you value their trust.

Government regulations will keep things interesting for on-demand companies in the next several years. But organizations that are proactive in these key areas are positioning themselves to avoid lawsuits, attract a greater number of talented workers and continue to grow their businesses.

Related: Need a Solid Startup Strategy? Try On-Demand Talent

Is your company one of them, and what are you doing to prepare?