CEO Kevin Gibbon On Why Shyp Is Converting Its 1099 Workers Into W2 Employees

This morning, Shyp, the San Francisco-based shipping services company, announced that, “After careful consideration, we’ve decided to transition Shyp couriers, the individuals who complete pickups at our customers’ homes and offices, to W2 employees.”

The move, wrote CEO Kevin Gibbon in a blog post, “is an investment in a longer-term relationship with our couriers, which we believe will ultimately create the best experience for our customers.”

Shyp can afford to make the switch, seemingly. In April, it closed on $50 million in Series B funding led by Kleiner Perkins Caufield & Byers — a round that pushed its total funding to $62.2 million. The company also says that the number of shipments it’s making has increased nearly 500 percent over the same period last year, suggesting it can’t gamble on what’s become a very hot labor market.

Gibbon shared more about the company’s decision with us just now. Our chat has been edited for length.

TechCrunch: How long have you been thinking about doing this?

Kevin Gibbon: Really since we launched in San Francisco. Like everyone else, we’re always looking at ways to improve the service and be an employer that people want to work with.

TC: A lot of startups seem to be waiting around instead for some “third” classification of worker. Did that seem impractical to you?

KG: Really, this isn’t a response to the lawsuits or anything else having to do with the broader conversation about 1099 workers. Operationally, we get a lot of benefit from it. Our service doesn’t just involve dropping off an item; our customers need to be comfortable with [the person] who is picking up their $10,000 painting.

We were also getting a lot of requests from drivers who wanted to be more a part of the company.

TC: How many employees do you have?

KG: We don’t disclose exact numbers, but we have hundreds of employees who make up three parts to our workforce: couriers who handle pickups, drivers who take items to warehouse, and employees at the warehouse who handle the packing and shipping. The last two have been W2 workers since we launched; this change turns our couriers into W2 workers, too.

TC: Can you give us some idea of how much more it will cost you to employ those workers? We’ve seen estimates that full-time employees cost roughly 30 percent more than 1099 workers.

KG: I don’t know exactly, but there’s additional cost. It’s still a positive for us. There’s an economics aspect to it. Demand for our service is pretty flat throughout the day, so we know how many people we need [to be working at any one time]; now we avoid the difficulty of being able to schedule people to cover that demand. We also think it will [enhance] our customers’ experience.

TC: Are you providing health care to these employees, or relying on the Affordable Care Act to do so?

KG: We’ll have a mixture of part-time and full-time employees, and any part-time employees will get [access to] Affordable Care [benefits] and full-time employees will get a [different health care package].

TC: How many of your employees will be full-time versus part-time?

KG: That will have a lot to do with what couriers want. Some will elect to be full-time, some will elect to be part-time. We still want to give them as much flexibility over their schedules as we can while also meeting our business needs. It’s a very competitive [labor] market, and it’s something we can do to stand out.

TC: Can they work for other on-demand services when working for you?

KG: They can. There are no non-compete clauses.

TC: Do you think others of your on-demand peers are likely to embrace the same path?

KG: I think it would be harder for other services. We don’t have the huge peaks and valleys in demand that food-delivery or ride-sharing companies see, where for certain hours of the day, they’re really busy. I think from a business standpoint, it would be extremely difficult if not impossible for [many others] to do this.

UPDATE: The lawyer suing Uber and Lyft in hopes of seeing them reclassify their drivers as full-time employees has filed similar complaints against Shyp, Washio and Postmates this week in San Francisco. The San Francisco Business Times has the scoop here.