Employees Or Subs?

fathersonfab

When you guys think about expanding and building your business, what do you feel is the better path to take. Hire emloyees and keep most of the work in-house, or hire subs?

An example would be in kitchen or bath remodeling. Would you want general laborers as well as qualified plumbers, electricians and tile layers as emplyoees, or would you sub out the specialties.

Which is more cost effective?
Which one gives you more control over the growth of your business?
What are the benefits to either approach?

I'd especially like to hear from Mike Finley on this one. (nice web site btw).

Thanks.

Mike Finley

What's best and what is economically feasible are two different things.

Do you have enough work to keep a licensed plumber and a licensed electrican working full time at pay rates high enough to take them out of the market as independent contractors running their own businesses? If you held the plumbers and electricans licenses yourself I would think you could then get journeymen on your payroll.

There are lots of variables, some of which depend on the level of the work you are doing. If you are doing low end jobs then the tile work isn't that complex, if you are doing high end work the tile work is extremely complex.

There might be 100 tile setters in your area, 25 of them might be of the quality I would need for the high end work. That's 1 out of 4 of professional tile setters who are working everyday at their craft, with probably over 10 years experience are qualified as I see it for us. With those percentages what chance would I have trying to train somebody as a tile setter? If 75% of professionals don't qualify how could I train somebody inhouse to be better? Low end projects you could certainly pull in somebody and train them.

A lot of the answers to what's cost effective and best will change depending upon the type of work, and the amount of work you are doing.

I'm looking toward a lead carpenter system to allow me to grow.

If you want more detailed answers, you can PM me. I'm not really into giving away too much info that is specific to my success on an open forum.

KentWhitten

I don't think I would bother with the MEP's. Carpenter's here and there maybe. Think about this: the trades that have alot of people in it will be generally a decent price. You might have a little less control and have to watch yourself in a little different way.

Businesses do this all the time, hiring subs. The really big companies, that's the majority of their workers. In a down time, you will also get subs generally cheaper, whereas you will find it difficult to look an employee in the eye and say you're fired or I'm paying you less.

Then again having an employee handy can be worth it IF they are decent. Hire the ones that TRY to make a difference. The ones that don't give a **** I personally think are useless. I don't care how good they are. Maybe in general, look for a sub/employee with a good attitude. And married guys seem to stick around better than single guys, just as a general rule, not saying you single guys are whoredogs and run amok

__________________
If you correct your mind, the rest of your life will fall into place ~Lao Tzu

Custom Cabinetry - Portland, Cape Elizabeth, Scarborough, Kennebunkport, Yarmouth, Falmouth, Cumberland, Ogunquit, Maine

Salmon Falls Cabinetry

Mud Master

At least in my field, I find 90% of residential drywall contractors sub out EVERYTHING, and have one MAYBE two point up guys as employees. These guys will do point up, set up/take down scaffolding, deliver extra material, do the smaller jobs, etc..

Now, I am mainly a commercial contractor, and it is VERY difficult to try and sub out the things we do to multiple trades. Every guy I have seen attempt to do it has failed. When you get into complexities such as prints, structural integrity,etc..it gets very difficult. Reason? qualified people that CAN do the work don't want the cheap rates a sub would get. The qualified subs that would do the work, are going to give you a price within $200.00 bucks of the price you would have submitted in order for yourself to make a profit. Which in turn does not make you any money.

Alot of guys work piece, so they don't want to have to stop to read prints, layout, set up, etc.. That is why residential drywall works so well being subed, because is it generic. Like I said, I have never seen a new commercial job..shell or fit out successfully be subbed out AND still make any real profit in my line of work.(EX. GC hires me, I hire a sub)

I run 14 guys at the moment, but I do still sub out residential jobs, anything under 1500 sheets, and if it is over I bring in my guys. I also will sub out some of my commerical drywall when I need to, and I very VERY rarely sub out any type of framing. I got a couple friends that will come in and help me if I get in that much of a crunch. I sub out electrical, plumbing, HVAC, painting and flooring. I do the framing, drywall,acoustics,doors,cabinets/countertops,cove base/trim,EIFS, & storefronts.

I know I am rambling on, but the point is..sub contractors work out GREAT for certain types of work, but there are only certain types of work that they will make money for you on. If you are a GC doing larger work, they work out ALOT better(mainly because it becomes piece or sqft work) than if you have them working on smaller, or even large complex jobs.

My advice is I would at least carry two guys that you can train in your own way, one lead mechanic and maybe a helper. Having a couple guys that can do the things that take time, patience, and thought will make you MORE money than subs. As far as having master plumbers & electricians on your payroll for residential remodel work...I honestly do not think it is cost effective. Sub that out.

__________________

thom

I've been building new houses for the past 10 years, all subs. It's a lot easier. For the prior 15 years I did mostly additions and remodel, both commercial and residential. That was mostly employees.

Subs are difficult to deal with on a remodel. They can't be available on a moments notice, but that's the demand of the job. Your customer doesn't like to see things stop and wait while you wait for the plumber do a 3 hour job, or the electrician do a 2 hour job. Plus, that makes it a pain to schedule your own guys. So on remodel, we did almost everything in house.

On new work, subs work out easier. The job is big enough to make it worthwile, and with all subs, you're not trying to schedule your own guys and keep them productive around the vagaries of your subs schedules.

Big commerical remodel can work the same as new. It must offer enough work in sizeable chunks to make it desireable for your subs.

skyhook

I go with subs, that way I can scedule the work and not have to worry if the guys have enough to do or burning up the profit with hourly wages and benefits.
Disgrunteled employees are a PITA. Never again.
Family is the best, no WC.

__________________

ultimatetouch

framer man I like your website. What rendering program do you use?
I am debating on employee and sub and I am leaning toward subs..I just cant get a feel for these potential employees and I feel like they are just telling me what I want to hear.

__________________
Ultimatetouch
Illinois Remodeling Company, Kitchen Remodeling Chicago, Room Additions Illinois

ultimatetouch

How are you guys finding your qualified subs?

__________________
Ultimatetouch
Illinois Remodeling Company, Kitchen Remodeling Chicago, Room Additions Illinois

Mike Finley

You're obviously not asking them any of the questions I posted for you to use. If you can't get a feel for them after they answer those questions, I don't know what to tell you. I'm not sure how old you are, maybe you just need some years to season you and be able to separate the bull sh*t from reality of what guys talk about.

Also, I don't know what your experience levels are with the competency of your work. For instance I will ask them to rate themselves from 1-10 on a bunch of skills then looking at their ratings I will start asking them very specific questions... I have guys tell me they are a 10 at tile, then I'll ask them have you ever set glass tile? Nope. Ever installed granite? Nope. Ever installed travertine? Nope. Ever bullnosed stone yourself? Nope. Ever layed a mortar shower pan? Nope.

Doing some digging reveals what the truth is.

ultimatetouch

I havent attempted to hire in a while and have went through deadbeats.
A couple of years ago I thought I could change people or that they just had to work for a fair employer...I hired two quickly. Now I will hire slowly and screen them..check references and so fourth...Mike I am going to download the questionaire thanks. I am still leaning toward subs but the screening process is the same.

__________________
Ultimatetouch
Illinois Remodeling Company, Kitchen Remodeling Chicago, Room Additions Illinois

ruskent

Right now as a company that is only 2 years old, i have no choice but to sub out several trades. I do not have the need to have a full time, mason, excavator, and carpenter on staff. Nor do i have the money to equipt those guys.

Over time i hope to slowly pull those things in house and only sub out the electrical and plumbing.

It just takes time to get that point.

dirt diggler

why would you want to??

sub it, be done, move on, next job ...


why spend several years training an employee how to be a mason ...

... when you can just sub out to one


i don't get it - why make things harder

ruskent

I am not a expert mason, so i doubt i could train one. I would hire an experienced mason.


The main reason to do more things in house is $$$$$$$$$.


I am talking LONG TERM. The more labor i can get on each job, the less amount of jobs i need to sell.

tnt specialty

fathersonfab;

For lack of a better term, your question could result in some confusising answers/advice, depending on what part of the country it comes from, as the particular term "sub" can be, and is, ambiguous.

For instance, here in Colorado, the term subontractor, ("subs"), is very commonly used to represent what are actually, and legaly employees, as independent subcontractors for the sole purpose of the unethical/unscrupulous employer to avoid paying appropriate labor burdens. In some trades, there is essentially no employees anymore; Everyone is a "sub"., (so we have these "sub-subs"). It's terrible. Colorado's lack of state contractor licensing affords this practice to flourish.

Getting back to your question; In a state that does have a meaningfull contractor licensing proccess; IMHO, as well as 20+ years experience; It's pretty simple; Whenever we can do something in-house, we do. In enables us to stay on schedule and control the quality more effeciently. However, if your personell lacks the proficiency; Sub it out.

Woz the Painter

Does the state of Colorado define subs differently than the IRS, Federal Gov? I have read their definitions and it seems fairly clear who's a sub or not. Or is it that Colorado has a reason to let employees be classified as a sub?

tnt specialty

No, Colorado has no immunity to federal laws that I know of....That's what's so bizzare. It just flies in Colorado, for some reason.

Ed the Roofer

This is the short version.
Internal Revenue Service List

The test for common law employment

Employee or independent contractor
The list that follows gives 20 factors or "tests" used by the IRS when determining whether a person is an employee or an independent contractor.
The question of "who controls the details?" appears to be the primary basis on which the determination is made.
No single factor or small group of factors can be taken as conclusive evidence of the presence or absence of control. To determine a workers' status, all the factors must be evaluated. The weight given to the individual factors is not equal, and some factors may not apply to certain occupations.
No one factor is sufficient to determine status without consideration of the others. Although many of these factors are open to interpretation as they are written, the language used here is taken exactly from IRS documents. (IRS Publication 937, Employment Taxes and Information Returns, p. 4.)
Because final determination is made on a case-by-case basis, often in a court of law, it is very difficult to know in advance how a ruling would be made on any specific employer/contractor.
Following these factors is an examination of the four service provider categories:
1) employees
2) independent contractors
3) statutory non-employees
4) statutory employees.

1. Instructions
   An employee must comply with instructions about when, where and how to work. Even if no instructions are given, the control factor is present if the employer has the right to control how the work results are achieved.
2. Training
   An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.
3. Integration
   An employee's services are usually integrated into the business operations because the services are important to the success or continuation of the business. This shows that the employee is subject to direction and control.
4. Services rendered personally
   An employee renders services personally. This shows that the employer is interested in the methods as well as the results.
5. Hiring assistants
   An employee works for an employer who hires, supervises and pays workers. An independent contractor can hire, supervise and pay assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.
6. Continuing relationship
   An employee has a continuing relationship with an employer. A continuing relationship may exist even if work is performed at recurring although irregular intervals.
7. Set hours of work
   An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours.
8. Full-time required
   An employee may be required to work or be available full-time. This indicates control by the employer. An independent contractor can work when and for whom he chooses.
9. Work done on premises
   An employee usually works on the premises of an employer, or works on a route or at a location designated by an employer.
10. Order or sequence set
    An employee may be required to perform services in the order or sequence set by an employer. This shows that the employee is subject to direction and control.
11. Reports
    An employee may be required to submit reports to an employer. This shows that the employer maintains a degree of control.
12. Payments
    An employee is paid by the hour, week or month. An independent contractor is usually paid by the job or on a straight commission.
13. Expenses
    An employee's business and travel expenses are generally paid by an employer. This shows that the employee is subject to regulation and control.
14. Tools and materials
    An employee is normally furnished significant tools, materials and other equipment by an employer.
15. Investment
    An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.
16. Profit or loss
    An independent contractor can make a profit or suffer a loss.
17. Works for more than one person or firm
    An independent contractor is generally free to provide his or her services to two or more unrelated persons or firms at the same time.
18. Offers services to the general public
    An independent contractor makes his or her services available to the general public.
19. Right to fire
    An employee can be fired by an employer. An independent contractor cannot be fired so long as he or she produces a result that meets the specifications of the contract.
20. Right to quit
    An employee can quit his or her job without at any time incurring liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good for failure to complete it.

In a recent journal article in the CPA Journal. April 1992. pp. 48-55.) Alan R. Sumutka, CPA and Associate Professor of Accounting, shared his conclusions that the 20 factors are not weighted equally.
After analyzing a number of court cases, Sumutka concluded that eight of the factors are primary and can provide "very persuasive evidence of employee status" (p. 48).
What is important is whether the service provider or the service recipient has the right to control the details of the work to be performed.
Evidence of employee status is provided if the service recipient has the right to:

• Require compliance with significant instructions (IRS Factor 1).
• Set the hours of work (IRS Factor 7).
• Set the order or sequence of services to be performed (IRS Factor 10).
• Discharge the service provider (IRS Factor 19).
• Hire, pay and supervise assistants as the nature of the work requires (IRS Factor 5).

Or if the service provider:

• Has no ability to realize a profit or loss (IRS Factor 16).
• Has no investment in significant tools, materials and other equipment when such items are necessary to accomplish the task and are usually provided by the service provider (IRS Factor 14).
• Has no significant investment in facilities when they are necessary to accomplish the task and they are customarily provided by the service provider (IRS Factor 15).

If the answer to any of these factors is "yes," the IRS would probably make a case for an employee relationship between the service provider and the service recipient. If the answer to these eight factors is "no," and the answer to any of the remaining IRS factors is "yes," there is still cause for concern.

Ed

joasis

As my little company grows, we are subbing out more now, as opposed to doing everything with my guys....I am loosing my foreman (chasing more money in the oil field) so that puts me down one more crew...so I have no choice. The headache is staying up with the subs shcedule as well as mine...it is eitherdo this, or cut back....what a choice.

__________________

tnt specialty

ED,

It's kinda like the employing of illegals.....

It's right there in black and white.....however........

fathersonfab

TNT,

I was refering to subs as actual liscenced sub contractors. I am from California and I am familiar with the practice of "Independent Contractors". I did some work in the movie industry for a few years and it is very common to hire an independent contractor, we called them "1099 employees", a 1099 is the form you need to to fill out for taxes. In fact, the movie industry operates very similar to the construction industry.

After allot of thinking and studyiing, I'm getting the picture that employees is the better way to go, although subbing out would be easier and is more practical in the short term. However, in the long run, I feel having employees is the better way to go to have a sustained, predictable business. The key is having a strategic system of business that is teachable to even the inexperienced. Imagine going to McDonald's and everyone that worked there was a "sub-contractor". There would be no system and it would work different everywhere you went. Every sub would be allowed to cook a burger any way he wanted, and milkshakes could be think or thin debending on that subs preference.

Employees will make the business thrive with predictable results and a system for doing business. An experienced employee can teach a new employee how to work. Employees work for ME, while subs work for me and 10 other GC's. Employees show up for work, while subs might have other jobs that take preference. With employees, I'm the boss, with subs, they are their own boss.

Bad employees are a result of bad managment. Even a bad employee can be taught a working system. If he fails or doesn't want to do it that way, they are fired and replaced. The burden is with the employer to develop such a system.

These are just some of my thoughts and opinions. All are welcome to comment.