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Are your staff problems your own fault?

Discussion in 'Business Fundamentals' started by daddy daniels', Jan 4, 2014.

  1. daddy daniels'

    daddy daniels' Member
    Messages: 32

    One of the largest problems in the industry is staffing. I'm come to the opinion that a lot of the problems are self inflicted. In Southeast Michigan companies are trying to hire and keep qualified seasonal staff at the rate of $14 to $18 for plow drivers and $10 to $15 for hand labor. Drivers average around 100 hours per season. Laborers around 160. Our state pays out $363 per week in unemployment insurance benefits. Five weeks of benefits is the break even for a driver, and seven for a laborer. Our "season" is 11/15 through 4/15. Where is the incentive?
    Companies in our area with the least staffing problems pay drivers $28 and up and laborers $18 and up.
    I have narrowed the division down to the contractor/sub-contractor dynamic, which is unique in our industry. In this industry you have sub-contractors believing they should make a profit, when traditionally the profit is left for the contractor and the sub gets a high wage and enough to cover expenses. The sub charges $75 per hour, and if they pay the driver $30 and $45 to the general fund there's nothing left. The contractor charges $100, pays the driver $30, the general fund $45 and has a 25% margin. The sub in turn decides to pay the driver $18, claiming the difference for profit. I believe this directly leads to the sub's inability to hire and retain qualified staff. These numbers vary by locale, but I find the general theme to be nationwide.
    Some may say that the work force available that doesn't qualify for benefits is generally less qualified, leading to a myriad of problems.
     
  2. edgeair

    edgeair Senior Member
    Messages: 597

    Therein lies the problem however. In the ideal world, an employer could pay what the workers want. However, reality usually trumps that theory. If you can only get $75 an hour in your market for a truck and operator, less $10 for fuel, $10 for wear and tear, $10 for insurance, $10 for parts/damage reserve, $25 for operator, that leaves only $10 for profit/screwups/uninsured damages etc. (rough numbers) Where then is the incentive for the owner to risk it all? Why should the owner who bid on and won the job, pays the bills, pays the taxes, and ultimately takes the risk make less than the operator? Then you have to consider training, shop costs etc.

    I think more often than not, the employees get big ideas for what the employer is making, without realizing all the costs. They then decide they can make more on their own, and another lowballer is born. This continues the vicious cycle as he now bids low on a job that he doesn't understand his costs on (and does it for a couple of years until he realizes he is losing money), wins the bid from his previous employer who has to drop his rates to compete leaving less for the new employee and so on and so on....

    Don't get me wrong, I feel an employee needs to be motivated to stick around. However, I don't think reality is preventable.
     
  3. daddy daniels'

    daddy daniels' Member
    Messages: 32

    What you are describing is something totally different than what I am. You are comparing market tolerance to business model dynamic. I'm referring to sub's not understanding their economic role in the industry by skimming what they view as profit from employee wages. I'm referring to contractors hiring sub's who they know are exercising this practice. I believe this practice is the number one reason why companies struggle with hiring and retention.

    You described market tolerance. Generally, if the contractor sales rate is $75 per hour, then all other factors should be lower. Unemployment, wages and all others, making the ratio similar to what I originally described. If the factors are not lower, and the market will only tolerate the lower sales rate, then yes, a company would ask themselves if they should even bother to exist. This generally doesn't happen although, evidence being the "national" management business model skyrocketing. When it does happen it's usually on a small scale, and the company that goes under was poorly managed, evidence being they were selling service below a profitable margin. There are profitable rates in every market.
     
  4. edgeair

    edgeair Senior Member
    Messages: 597

    Yes, agreed. And what I am saying is that when there isn't much left for a sub to exist, they have to take the left over as profit rather than pay higher rates. Why would a sub exist only to benefit the employee? There has to be a benefit to them or a profit.
     
  5. daddy daniels'

    daddy daniels' Member
    Messages: 32

    That's just it, there are no profits for a sub, there isn't supposed to be. The sub gets what amounts to a high wage and expenses covered. The contractor gets the profits. The reasons a sub would want to work for themselves are plentiful. Important to some is the freedom of being your own boss. If a sub needs to employee a person, it should be aimed to exasperate the reasons for being a sub, not for profit, as there are none to have.
     
  6. edgeair

    edgeair Senior Member
    Messages: 597

    So what you are suggesting is that if a company wants to work for a National as a sub, they should just be happy to have the work and not make a profit? I don't follow that business model.

    I don't do the sub thing and I don't work for nationals so maybe I just don't understand this line of thinking, but for a legit company to take on work, no mater who it comes from, there must be a profit or whats the point?
     
  7. daddy daniels'

    daddy daniels' Member
    Messages: 32

    Yes. Sub's should not make a profit, the contractor should.
    There are many positives to being a sub. You make your own fate, choose your jobs, hours and everything else in your professional life. The sub may choose to make a run at being a contractor, or stay right where they are at. Maybe occasionally they get hired as the contractor, but mainly sub. Maybe they work a deal as a sub where they end up having a small profit after following sound business practices. Happiness in the endeavor.
     
  8. jrs.landscaping

    jrs.landscaping Senior Member
    from Maine
    Messages: 637

    Working to work is the dumbest business model I've ever heard of. Sub or not I go to work to make money, I can sit on the couch and break even........
     
  9. edgeair

    edgeair Senior Member
    Messages: 597

    +1

    Beginning to think that this guy is a National
     
  10. daddy daniels'

    daddy daniels' Member
    Messages: 32

    :
    Now you know how being a sub's employee in the snow and ice industry feels.:salute:
     
  11. jrs.landscaping

    jrs.landscaping Senior Member
    from Maine
    Messages: 637

    Another ignorant post, we pay our subs higher than the going rate, I would hope they pay their employees accordingly. To think a business would provide a service to break even is ridiculous.
     
  12. daddy daniels'

    daddy daniels' Member
    Messages: 32

    You're getting off topic, what you're suggesting is a whole other animal. Start a thread on that topic and I'll jump in. Do you have an opinion on what I'm suggesting is the reason behind poor hiring and retention?
     
  13. jrs.landscaping

    jrs.landscaping Senior Member
    from Maine
    Messages: 637

    I was speaking about the contractor subcontractor dynamic....... that was in your original post wasn't it?
     
  14. daddy daniels'

    daddy daniels' Member
    Messages: 32

    When you said " to think a business would provide a service to break even is ridiculous" I thought you were headed toward a discussion on specifically business that operate without a profit margin.
     
  15. daddy daniels'

    daddy daniels' Member
    Messages: 32

    So your defending the right of the sub to drive down the wage of their employee for the sake of profit, but you haven't said whether you think it effects their capability to hire and retain staff.
     
  16. jrs.landscaping

    jrs.landscaping Senior Member
    from Maine
    Messages: 637

    That's part of the dynamic, even the sub needs to generate a profit or else they can no longer sub, same as the contractor who pays the sub too much and doesn't turn a profit, every business no matter the level needs to profit to survive.
     
  17. daddy daniels'

    daddy daniels' Member
    Messages: 32

    I see your view, although I don't agree entirely, as there are plenty of non-profit organizations.
     
  18. jrs.landscaping

    jrs.landscaping Senior Member
    from Maine
    Messages: 637

    Yes there are but no one comes into the service industry to do charity work, we are here to make a profit. I guess we can agree to disagree........
     
  19. 32vld

    32vld Senior Member
    from LI, NY
    Messages: 621

    The sub is not an employee. The sub is running a business that has room in his schedule to take on the overflow work that another business can not handle.

    Example:

    Company A gets $100 hour. His costs are $50 hour. That $50 hour includes his drivers hourly salary.

    That leaves $50. Out of that second $50 is the owner's salary of $25 and the company's profit of $25 (which depending on the year some or all of the profit goes into the owners pocket).

    I think that the sub contractor should get a lot more then $25 an hour. All the sub is getting paid is his salary. His expenses are not being covered. The head of Company A is getting his costs covered. So should the sub. The sub should get at least $50 an hour.

    Because Company A is putting one of their trucks on the road for $50 an hour.

    The Company can afford to pay the sub the same $50 an hour for his truck.

    Well the first half or the $100 is accounted for. Now the second half.

    Owner is still getting his $25 salary when he hires a sub.

    Out of the $25 profit the owner should be able to throw some of that last $25 so the sub has a profit.

    So the sub should get another $10 for a profit. The owner still gets a $15 profit.

    If the owner of Company A did not have the sub then the he would of not even made $40 off of that customer.

    $40 to pick up a phone. Call a sub and give him the job.

    Company A wants a good job done so he retains his customers. Pay subs cheap you get cheap quality. Then poor customer retention.

    Subs are not employees. Want to pay employees then buy more trucks and hire more workers.


     
  20. 32vld

    32vld Senior Member
    from LI, NY
    Messages: 621

    All that non profit means is that they can not show a profit.

    That does not stop them from paying their management/owners well.

    They do not pay dividends because they are non profit.

    They make up for that by paying high enough salaries to make up for not getting paid dividends.