Paying Employees/Hourly/Piece

Grumpy

I want to make something clear, there is a difference... a big difference IMO... between an "independant contractor" and a "sub contractor". To me an independant contractor is a guy. To me a sub contractor is a guy and his crew who has his own truck, tools and insurance and licensing.


Both are 1099 at the end of the year. While I do use both, I prefer to pay anyone who uses my tools and equipment with a w2 instead of 1099, but it's ahrd to pay them all that way, especially if they are just being hired on temporarily for a project or two.

BTW Piece work rates should scale based on the difficulty of the job, and these difficulty factors should be worked into a bid regardless if you are paying piece or paying hourly. In addition every man needs to earn $X per day to feed his family so you have to know how long things take to complete and base your piece work rate on that.

Piece work is not a method to pay slave wages just a way to control budgeting on normal jobs which are easily predictable. I've worked hourly and piece. I've worked for companies that paid hourly and companies that paid piece. I see pro's and con's to each, which is why I am trying to come up with a hybrid system to eliminate the con's... however that will probably just create a whole new set of con's...

Anyways, what ever works for you and keeps your guys well paid and well motivated and is within the boundaries of the legal system is good for you!

tekwrytr

"worker productivity" determines piecework rates. If you can't put on 7-8 square of wood shingles a day in California, you don't work--including through the Carpenter's Union. For asphalt shingles, it is 13 square in some places, 16 square in others.

Similar quotas exist elsewhere. If your hourly employees only do a square an hour, and mine do a square and a half, the only jobs you will ever get are the ones I don't want.

The problem is that the fastest roofers want to be paid piecework rates, while the slowest want to be paid hourly.
tekwrytr

RooferJim

I would disagree with that statment about the faster guy getting more jobs.
If you sell you do not have to bid. I can charge more, do less volume and make more money and enjoy my life and have time to go on vacation whenever the hell I want. Work smarter not harder

Grumpy

Jim, I try to do what you do but I also try to do MOE volume. Sell higher, deliver quality and do more jobs to make more money. I suppose I am a glutton for punishment.

However there is some logic to what tekwrytr says because if I charge the same as you but you are faster than me, you will make more money than I.

tekwrytr

A fine point of meaning. I didn't say the faster guy gets more jobs. I said the employer of the faster guy will get more jobs, providing that fast guy is paid by the hour. How do you get fast guys to work by the hour? Either train them from scratch (not hard; I do it all the time), or make it clear that when slack season starts, layoffs will be directly related to productivity.

Some years ago I applied for a shingling job in California, and was told that 16 square a day was mandatory, but that if I averaged 20 square a day, I "would have a job in the winter." In short, if I "donated" an extra 4 square a day, I could "depend" on being allowed to continue doing that while the 16-square-a-day guys were furloughed. Roofing reality.

One of the more draconian policies follows the decimation strategy popularized by Jack Welch, former CEO of General Electric. At intervals, either quarterly or semi-annually, fire the least-productive 10% of your workforce. The longer you do it, the more productive your workforce will be.

BTW, the "decimation strategy" is taught, directly or indirectly, in nearly every college and university business department in the US.
tekwrytr

tekwrytr

I have heard the "if you sell, you don't have to bid" argument before. It is generally from small business owners, mostly self-employed workers. It rarely comes from the owners of larger, more successful businesses, because it flies in the face of reality.

I can't go on vacation whenever I want, because I have a responsibility to the employees and staff who depend on my efforts to make their rent payments, truck payments, and buy food and clothes for their kids.

Life was great (I thought) when I was working by myself, making a decent amount of money (I thought), and could take time off whenever I chose (I thought). However, after a couple of years of hard work, I had very little more than I would have had if I had worked as an employee of a decent company that cared about their workers well-being.

A lot of the "benefits" of self-employment are an illusion. The advantages of being a contractor only kick in when you have a half dozen or so good workers making money for you, which creates an obligation on your part to keep them earning.

If Joe Blow the backyard roofer underbids you by a couple of bucks a square it is no biggie. If the roofing equivalent of Wal-Mart comes to town and out-sells, out-bids, out-services, and out-performs you at every turn, you have a problem.

Low prices do not automatically equate with a lack of selling skill. It may be a perfectly valid strategy to expand market share.
tekwrytr

RooferJim

some valid points no doubt. It takes time to build a referal base and when that is established you will always have a back log. It is true that the jackeleg will try to gain market share by a low price stratagy. But I have seen it time and time again that they come and go. either the bad quaulity work comes home to roost or bad books.

Grumpy

I agree IF and only if low bidding has been done on purpose and in consultation with your financial advisors. I am doing something similiar with our wood windows. I typically go into winter mode and don't do much of anything, however this winter we will be pushing hard for the windows so I am trying to increase market share by cutting actual profit on the wood windows.

I know what I am doing, I know what I am going to make, and I will more than likley be raising my prices come spring. My main goal, other than building our wood window refrence book, is to keep cash flowing at the slowest time of the year. Since I primarily budget on a 10 month work year, any profit generated will be gravy. At $1,000 a window on avergae it's not like we are working for free... however I'd day the "going rate" would be $1,200.


Regardless of trade, the low-bidder strategy can work when properly executed. There are a few ways of executing said strategy, either staying extremely small or growing extremely large but there usually ins't much gray area for low bidders. I prefer to bid on the higher end, maybe not the highest, and bid alot. No reason to work cheaply when customers are just as willing to pay more for us.

Amen to the not being able to take vacations and the mysterious freedoms that seem to be escaping me. I have 3 full time sales guys now. I have one production manager, I have a part time office person who frees me to leave my desk, I have a part time book keeper who makes sure everything is in order. I call them the bricks, but I am the mortar that keeps everythign together. I do a little bit of each of their jobs and fill in for each and every one of them when they are sick or on vacation. It's going to be some time before the machine is self sufficent and can operate two or three weeks without my presence and still generate profit... but it'll get there.

While not having much to do about paying employees I just wanted to reply to points that were mentioned above.

tekwrytr

The "Wal-Mart Strategy" of being the low-price leader in a given field or given area is often used in contracting to expand market share. Consider that a substantial amount of work is by referral, and that referral often indicates price as a factor.

If Person A is used as a reference, you want that person to be one of the ones who got a champagne-quality job at a beer-price, not just someone who was happy with your work. When Person B asks about your work, the quality will be even more impressive because Person A will also brag about getting such a great deal--premium quality work that was also the best price.

With a list of such referrals--specifically and intentionally created for the purpose--a contractor can rapidly progress to the "no bid" area of business. New business is generated by prior business, and that prior business--by design--qualifies the contractor as low (or very reasonably) priced.

The idea of attaching ego to job price is an impoverished view; higher prices on a per job basis do not necessarily lead to a higher bottom line. Everything in business is strategy, and the superior strategists usually wind up with all the marbles.
tekwrytr

Ed the Roofer

It would seem that your post indicates a do more volume for a cheaper price, while I believe that less volume at a higher mark up will create a long term higher demand for your service and allow for continued growth and profit to remain viable for the long term.

The weakness of the "do more for less" philosophy, is that it can not handle the unfortunate financial circumstances a copmpany may go through. What happens when just one big $ 20,000 or $ 30,000 roof job goes in the chitter? Is there enough profit from the low margined jobs to handle the downfall?

Ed

RooferJim

Tekwryt I could not disagree more with your view on this. when a referal is based on you being cheap then what is its value over a yellow page lead.
In roofing many custumers dont know quality from a hole in the groud. We have to constantly try to educate them that it is imposible to be the cheap price and get the best specifications and installation. Folks with your strategy come and go. I love showing someone a yellow pages from say 1990 "yes I have one" and one from now. Yes everything in business is a strategy and your Walmart mode does not apply long term in the roofing industry, at least not if you want to make money and have less headaches.

RooferJim

quadrophenia71

Square feet do not change, therefore, profit margin will never change

Grumpyplumber

Here's a thought.
Do some math, figure an hourly with incentives for proven/inspected work.
I'm not in your line of work, but I see two major arguments against either, one saying you could wind up with milkers, the other saying you could get crap work.

tnt specialty

Grumpy...

"Independent contractor" and "subcontractor" are one-in-the-same, per your described context....

The whole phony scam it to make the "sub" appear to be "independent"; Which they typically are not.

Didn't read all the replies....sorry if I'm redundant