Why Trusted’s Child Care Providers are W2 employees
Roughly once a week I get asked why we “W2 employ” our providers. It’s time we articulated this well. The alternatives to employing them would be to make them independent contractors (1099) or to have an open marketplace where parents become the employers of record.
We didn’t initially think of W2ing our providers. 1099 felt like the convenient and easy route to take.
Typically a W2 employee is also associated with the notion of being a full-time salaried employee with benefits. But the more we dug into how we wanted to operate our “marketplace” the more we realized, we didn’t want to operate a marketplace at all. When it comes to a sensitive labor marketplace like ours, where you need qualified people to watch children, we felt we needed to take a stance that made everyone feel comfortable about working with us. So, to
- train our providers at the onset and on an ongoing basis,
- retain them for the long haul (because consistency is extremely important when it comes to having someone watch your children),
- give our providers the flexibility they needed, without compromising quality, and,
- ensure we were protecting our providers, most of whom are nursing students, by getting them adequate levels of liability insurance coverage and worker’s compensation (should they get hurt on the job),
the W2 designation made most sense to us.
A couple of years ago, I’d authored this article over on the First Round Review on the benefits of a “managed marketplace” and how trust is a huge factor in enabling a managed marketplace. Here is Boris Wertz’s take on a managed marketplace and his follow-up:
“The question to ask yourself is how much value can you add/unlock by managing parts of the marketplace and is it worth the added risk?”
The answer to that question was pretty easy for us.
Taxes
Let’s take the example of a caregiver who is denoted the 1099 or independent contractor status. Let’s assume she makes $20/hr. Now let’s look at the take home in each of the designations:
As a 1099 contractor, the employee is responsible for “self employment taxes”, which amounts to 15.3% of their wages (you may be able to deduct some of your work related expenses when you file your taxes). As a W2 employee, the employee pays half of this, or 7.65% and the employer pays the other half.
As a W2 employee, the employer will be investing in your Social Security & Medicare. As a W2 full-time employee, the employee could be eligible for other benefits like health insurance for example.
“Right now I’m in my prime years of work,” said Gálvez, the ride-hail driver, “and I’m not putting anything into my social security. What’s going to happen to all these people when they don’t have a pension or anything to back them up in their old age? Are they all going to be driving until they’re in their nineties?”
That quote is from an article by Caroline O'Donovan titled “What A New Class Of Worker Could Mean For The Future Of Labor”.
We have providers who have made over $20,000 in wages in less than a year of being with us, and collectively our providers have made hundreds of thousands of dollars and we feel great knowing that we’ve played a part in contributing to their future. And we’ve even recruited a few of our earliest and most career minded providers, like Lhamo and Sarah for example, as full-time employees of the company.
Enabling Learning & Growth through Training
When I was a stay-at-home dad, I spent a lot of time with other caregivers when I was out with Ava. I informally interviewed many dozens of caregivers and what I learned from them was that they thought of this as a transient job — they weren’t all being treated well, and they found their jobs to be a means to an end. They were uncertain about the future, “not sure how long they wanted to do this” and didn’t know where to go if they needed counseling or help. There was no formal management structure in place for them. This was a tough pill for me as a parent to swallow — why is it that those who are watching our children feel so disgruntled? Why do they find their careers to be dead ends?
One of the advantages of employing our caregivers is that we can train them. We just wrapped up our quarterly town hall meeting where we get to meet with our providers, discuss topical or thematic events with them and learn from them about what they are hearing in the field. We get to reinforce our code of conduct and ethics with them, which in turn helps them deliver amazing high quality care. We also provide specific curriculum or training for those who are interested.
The W2 status works well for Trusted and our employees — as I was telling Tomio Geron, in an ideal world, there would be a “third designation”, that lay somewhere between the spectrum of of W2 and 1099. We are by no means married to this choice, ultimately we want to do what is right for our providers and the status (combined with services & tools) that makes our parents feel most comfortable working with our platform.
