For employers, hiring people as independent contractors rather than full-time employees has a lot of advantages. You don't have to pay their Social Security contributions, Medicare taxes or health benefits. You can let them foot your own job-related expenses. In the event one of them does something terrible, you can always resort to the "That person doesn't really work for us" defense - even while bragging about how many "jobs" you're creating. So many new transportation and delivery services rely on contractors, the so-called on-demand economy is practically synonymous with the 1099 workforce.

But lighter isn't always better. In a move that goes against the prevailing current, Shyp, a year-old startup that packages and ships customers' items, announced on Wednesday that it will transition all of its couriers from independent contractors to full-fledged W2 employees. One the move is completed, Shyp's entire workforce, which also comprises "satellite" drivers who gather parcels and warehouse workers who ship them, will consist of full-time employees.

Why take on extra costs that your peer companies seem to think they can avoid? For two reasons, CEO Kevin Gibbon told me during an interview at Shyp's San Francisco offices: because they can, and because it will ultimately enable them to grow the business faster.

Unlike many other on-demand offerings, he said, demand for Shyp's services is relatively consistent and predictable throughout the course of a day or a week. Requests for an Uber ride or a Postmates food delivery might double or triple on a rainy night, but external circumstances (apart from predictable ones, like holidays) don't really affect when people post their packages. "I compare us more to the FedExes and UPSes of the world than to Uber," he says.

Because of that stable demand curve, Shyp can utilize its couriers time effectively while scheduling their hours. If an Uber or a Postmates tried to do that, they would just run into the problems of the industries they're seeking to disrupt: too much capacity sometimes, not enough at other times. (Indeed, that's one reason Uber has been experimenting with courier offerings of its own.)

Still, the costs that go into treating someone as a full employee add up. Asked whether the switch will cost Shyp money, Gibbon says, "Initially, absolutely, but we think we're going to make it up. We think this will be net-positive."

The big advantage of W2 employees is that you can train them at their jobs. A company that tries to train its 1099 workers, in contrast, risks running afoul of labor regulations meant to insure independent contractors are truly independent and not simply employees being illegally deprived of benefits.

Trained couriers, says Gibbon, will be better, happier and more efficient at their jobs. They'll also be better able to handle customers' questions and requests -- a particularly important consideration as couriers are typically the only human point of contact between customer and company. "Operationally, this makes a huge difference in our business," he says.

As for the timing of the shift, Gibbon says it has nothing to do with a recent ruling by the California Labor Commission that, while very limited in scope, provides a precedent that might strengthen future legal efforts to force Uber and others to treat their workers as employees. The idea was simply to do it now, while Shyp is still only a few hundred employees spread out over four cities. Having raised over $60 million* to date, the company plans to grow much bigger very soon. "To make this call early is so much easier," Gibbon says. 

 

*An earlier version of this article mistakenly stated this number as $300 million. That's Shyp's valuation as of its latest funding round, according to Fortune

Published on: Jul 1, 2015