Uber, Homejoy, Spoonrocket, and Taskrabbit are the names of just a few Silicon Valley startups that rely entirely on contract workers to make their businesses fly.

A prime reason they do this is that they don’t really have to hire anyone, instead they use an army of so-called 1099 employees, who work for an hourly wage, with no benefits and very few of the legal protections that full-time employees typically get. Venture capitalists have tended to like this model, as it keeps the companies nimble and scalable, and have ponied up billions of dollars in funding for such enterprises.

The point was dramatically brought home by an expose Thursday in New York Magazine by Kevin Roose, who wrote about his engagement with the house cleaning site Homejoy. His contract worker housecleaner, obtained for the day for a promotional $19, lived in a homeless shelter. (Homejoy closed a $38 million round led by Redpoint Ventures in 2013.)

While Homejoy said its cleaners typically earn between $17 and $20 per hour, the questions raised about the employment practices of sites that use contract workers are legion. And it also illustrates the disconnect between the protected bubble of Silicon Valley, the elite venture capital firms that grease its machinery, and a new class of workers.

An ongoing legacy of the financial crisis is that millions of workers have lost their jobs and are still lacking fulltime employment. Many have turned to low-pay or freelance work to suport themselves, and freelancers are expected to make up 16 percent of the economy, by some estimates, by 2020.

While some startups, such as Taskrabbit, have attempted to address some of the inequity invovled in being a contract worker, for example by setting a wage floor of $11.20 an hour–higher than the proposed national minimum wage of $10.10–and providing some discounts for health care and transportation, contractors clearly need a lot more.

It’s not just the contractors who are at risk. The startups could jeopardize their own brands by having a substantial disconnect with their employees. Look no further than the problems Uber and Lyft have had with some of their drivers, who undergo only a cursory background check before they start driving customers.

The answer may lie, as Roose suggests, in a path to real benefits such as those offered by the on-demand personal assistant application Alfred. The site reportedly gives its workers benefits like health insurance as they establish themselves in the network once they work 20 hours a week or more. (Class actions in Massachusetts and California challenging contract worker status at some of the on-demand companies may also alter the landscape.) In the meantime, Silicon Valley entrepreneurs and venture capital firms could start with a resounding acknowledgement that contract wokers are essential to the businesses they run

via An Over-reliance on Contractors Could Hurt Startups | Inc.com.