Your say / Business

Is the on-demand model inherently flawed?

By Bristol24/7  Monday Nov 14, 2016

Uber’s recent employment tribunal decision sent ripples across the so-called ‘Gig Economy’. 

The tech giant will appeal the decision and that’s hardly a surprise.  Their business is founded on the premise that it is an intermediary only.  The implications are massive – they’ll be liable for employer National Insurance and pension contributions on top of minimum wage and holiday pay. 

But the ramifications are wider than that. Uber’s prices are calculated on a minimum rate, a cost per mile, plus a cost per minute.  From there, it takes a cut and passes the remainder to drivers.  The model guarantees revenue for Uber for each ride.  It also ensures that customers only pay for the rides themselves (not the drivers’ downtime) and they don’t pay too much of a premium for rides which take longer than expected.  That pricing model is more difficult if Uber is paying a minimum hourly cost to drivers.  It means they could lose money on fares – either because of traffic or because drivers are waiting between rides.  That, along with the increased cost to Uber of employment obligations, mean that prices are only going to go in one direction.

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The on-demand model has been wildly successful for Uber, its investors and its paying customers.  But in this case, the people who seem to be losing out are the most important people; the people who are at the very core of the business – those delivering the service.  When the balance between the customer and the service provider is skewed too far in favour of the customer (and, you might argue, Uber), then the on demand service isn’t sustainable.  Eventually, the bubble will burst and the imbalance needs to be addressed – a marketplace only works for so long as both sides agree with the bargain struck.

On demand platforms aren’t inherently flawed.  Used well, these platforms enable providers to deliver a better service at a lower cost.  But, if those supplying the service aren’t even paid a sum equivalent to £7.20 an hour, then the reason the service is low cost has nothing to do with technology and everything to do with the circumventing of employment regs.  This debate shows no signs of stopping any time soon.  HMRC has also announced that it intends to crack down on firms using people with “self employed” status in an attempt to avoid payment of employer NI or proper rates of income tax.  On-demand platforms seem to be number one on their list.

Whilst I firmly believe there is a place for the on-demand model, tech-founders need to be careful.  Uber’s financial success has been massive, but organisations wishing to emulate that success and be the “Uber for…” should think twice about how they go about doing that.  Is it a genuine on-demand model or is it just a way of getting around employment regs?

 

Chris Sanderson is the co-founder of limber, a flexible employment app that launched in Bristol this autumn. Limber aims to connect busy businesses with locally rated workers in the hospitality and retail sectors. The company proudly embraces its employment obligations as part of the business model. Find out more at www.limber.work

 

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