Sharing Economy

Look what start-ups already pay $15 minimum wage

As more states move to lift the minimum wage, a small crop of businesses has surprisingly emerged as supporters of higher mandated pay and worker benefits — sharing economy companies.

Start-ups in the on-demand space, which by and large recruit 1099 contractors, are opting instead to hire W-2 employees and offer perks including wages well above the federal minimum of $7.25 an hour — plus benefits such as health care.

Boston-based Bridj (pronounced "bridge") is an on-demand carpool service in which passengers use an app to hail shared rides. Last year, Bridj committed to $15 an hour for its employees, who make up more than half its total workforce. It also hires freelance drivers.

At New York City-based Hello Alfred, a subscription-based start-up that helps customers with chores like laundry and groceries, starting pay for employees is a whopping $18 an hour.

Both start-ups pay more than double the federal minimum, and are among the first in the sharing economy space to offer $15 an hour or more. But why?

A woman boards a Bridj bus in Washington, D.C.
Astrid Riecken | The Washington Post | Getty Images

At a macro level, the sharing economy is shifting. Uber's business model, focused on hiring an army of contractors, isn't the only game in town. Funding conversations are changing, and investors are asking about sustained growth models.

"About a year ago, the conversation especially with investors was grow, grow, grow at all costs. Don't take on any liability, and replicate the Uber model," said Matthew George, founder and chief executive of Bridj. "Unfortunately what that's done is, it's created these really, really, really fragile companies that are spending way more than they're bringing in, even with the contractor model," he said.

And some start-ups embracing worker benefits including higher pay are looking to the legal future. They anticipate judicial rules that are likely to conclude classifying de facto employees as contractors just won't cut it for much longer.

And it's here, in this intersection of technology and labor policy, that the $15 wage fight has emerged.

California and New York, meanwhile, are on paths to become the highest-paid minimum wage states in the nation after their governors reached deals to raise the lowest amount a worker earns to $15 an hour.

California will lift minimum pay to $15 by 2022. New York City will see $15 wages by the end of 2018, with slower increases elsewhere in the state.

A question now is whether higher minimum pay will ultimately trigger more economic prosperity. And will other sharing economy start-ups follow with higher wages, as the Uber business model loses some of its gloss?

Marcela Sapone, CEO of chore service start-up Hello Alfred, gets a lot of questions about the $18 an hour she pays her hundreds of employees in five regions, from San Francisco to Brooklyn, New York.

She has one question for skeptics. "'How long do you want to be around for?'" said Sapone, who launched the company in 2014 with co-founder Jessica Beck.

"Very early we had a lot of pushback from investors on using W-2s," Sapone recalled. "But it helped us find investors that were right for us."

The Uber business model loses some of its sheen

Hello Alfred pays competitive wages, ranging from $18 to $30 an hour, plus health care for those who work at least 30 hours a week.

Those benefits amount to a roughly 20 to 30 percent cost increase. But Sapone argues those costs are offset by the ability to acquire great employees and keep them happy. It's the quality of her workers and the service that keeps customers.

"Going into a stranger's home and car is very special. It's not the status quo," Sapone said. "Consumers want to pay for labor they believe in."

North in Boston, transit start-up Bridj was founded in 2013 and decided to introduce a $15 minimum wage to company employees last year. Its driver fleet includes freelance drivers, who aren't guaranteed that wage threshold.

"Having a mix of drivers, and a big portion of those drivers who directly work with us, is really fundamental to being able to provide consistent service, and do it in a way that is cost controlled for us," said Bridj CEO George.

Even with the $15 minimum wage, he said 2015 revenue soared. "It hasn't been altruistic," George said. "It fits into our business model about being able to provide an evergreen, reliable unit-based fundamental business."

The minimum wage debate
The minimum wage debate

In the end, no one really knows the exact effects of $15 wages among diverse industries and cities.

A swanky restaurant in Santa Barbara, California, for example, could raise food prices to offset wage gains and local customers are likely to pay more. But higher prices might not fly in more working-class pockets of California like the Central Valley.

But at least one recent study looking at the impact of a $15 minimum wage in New York found the economic impact of higher pay might not be as dire as opponents fear.

If New York enacts a $15 pay threshold, greater purchasing power among workers could lift the economy and counteract higher payroll costs. That's according to a study released last month by UC Berkeley researchers. And lower employee turnover could trigger savings in recruitment and retention.

Consumers would absorb a 0.2 percent annual price increase over the phase-in of $15 wages, and that would be the equivalent to about an extra nickel for a $3 box of cereal, according to the study.

Protesters on the steps of Los Angeles City Hall, June 3, 2015, before the City Council voted on an ordinance that would raise the minimum wage in Los Angeles to $15 per hour by 2020.
LA union wants to be exempt from $15 minimum wage

And again while there are many business owners who strongly disagree with $15 mandated wages, others argue businesses should follow in the footsteps of start-ups like Bridj and Hello Alfred.

San Francisco-based Fireclay Tile is a manufacturer of eco-friendly, handmade tiles. With around 90 employees, the small business last year lifted minimum pay to $11.50 an hour. Its manufacturing plant is located south in Aromas, which is dominated by agricultural jobs. Think strawberry and artichoke field pickers. For local residents, $15 an hour matters.

"Their wage is the defining factor. That baseline number is how people budget their life," said Eric Edelson, Fireclay Tile's chief executive. Fifteen dollars an hour "sets a precedent. And it's up to businesses and business leaders to find a way to get there."