In the final installment of our three-part series ...
On Labor Day last year, Andy Wright and his five employees all took the day off. Wright was the only one who didn't enjoy a free holiday.
“Labor Day cost me $1,400,” says Wright, the owner of WrightBuilt in Grass Valley, Calif. “I bled that cost, but I don't think any of [my employees] thought about that.”
Wright, who provides his employees a tool allowance, paid time off, and a 401(k) plan with matching funds, says he has struggled to effectively communicate the value of these benefits to his crew.
“In construction, everyone is really fixated on that dollar amount,” Wright says. “What I say is: ‘You're fixated on $55,000 a year; but you're getting $1,100 in vacation, you're getting a vehicle allowance, a retirement plan — your package is really worth $62,000 per year. Some of it is deferred, like the 401(k); some of it is when you're home with your family on the Fourth of July.'
“All they say, is: ‘Yeah, but what's my hourly rate?' They are single-mindedly focused on the hourly rate.”
Wright's problems are not uncommon. Remodelers tend to have trouble getting employees to look beyond their paychecks and see the value in anything other than a higher wage. The challenge for remodelers lies in understanding and convincing their employees of the dual nature of benefits — that while they are less tangible than cash, benefits have a real dollar value.
MONEY ISN'T EVERYTHING The way most employers think about benefits, no matter what their business, is as one component of what's referred to as total compensation. Total compensation encompasses any regular expense incurred on behalf of your employees. Judith Miller, a long-time consultant to remodelers, organizes employee-related expenses into four categories:
- Wages. The base hourly rate.
- Required expenses, which include liability and workers' compensation insurance, state and federal unemployment taxes, plus FICA and Medicare.
- Discretionary expenses, which include health, dental, and life insurance, bonuses, contributions to retirement plans, and paid time off.
- Indirect allocations, which include cell phones, tools, tool repair, tool allowances, as well as company vehicles, vehicle allowances, and gas allowances.
Nationally, a construction worker's wages account for only two-thirds of his total compensation, according to the Bureau of Labor Statistics. Among remodelers, however, the proportions vary significantly. Some find that their most expensive employees cost more than twice their wages once health insurance, retirement, and costly workers' comp and liability insurances are factored in.
“A carpenter who makes $25 dollars an hour, by the time you load his rates, could cost $62 an hour,” says Bob Tilghman, owner of Tilghman Remodeling in Hatboro, Pa.