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Is It Time To Hire Employees Again?

Among the many reactions many remodelers and renovators had to the economic downturn and accompanying collapse of customer demand was a reduction in payrolled employees and an increased reliance on subcontract labor. As the economy begins to recover, homeowner confidence grows, and the demand for remodeling services grows, contractors are wondering if it's time to return to the employee model for trade laborers.

SHORTAGE OF SKILLED LABOR

As demand for construction services collapsed, large numbers of workers left the trades. It seems that younger, less experienced workers left the profession in larger numbers than their older, more experienced counterparts. As a consequence, the average age of construction workers in Minnesota is now over 50 and the trades haven't been presented to younger workers as a viable career choice for many years. Younger workers lack basic work skills and habits like showing up for work every day at the same time or calling to notify the supervisor when illness prevents going to work. Complicating the labor shortage issue is the increasing skill and technical knowledge required for even the simplest of jobsite tasks.

HIRE AND TRAIN YOUR OWN LABOR

The consequence of the quick recovery and labor shortage is that remodelers and renovators are looking to hire and invest in employees they can count on. Adding the overhead that accompanies adding payroll is a challenge for most owner-operated remodelers, and a bit scary. Hiring a young, inexperienced person doesn't relieve the company of its immediate labor shortage. The alternative, Hiring an older, experienced worker requires a much higher wage and benefit package as the supply/demand equation has these workers in high demand.

HIRE RIGHT

At times like these, remodelers may be forced to implement short-term solutions that put their companies at greater risk than the immediate labor shortage. "Hiring" employees but treating them for payroll and tax purposes as subcontractors creates a number of potentially very expensive problems, especially when the "subcontractor" gets all the work he needs from one remodeler. If the worker is injured on the job or a slow week between projects causes the worker to seek unemployment benefits, the state is likely to reclassify the sub as your employee. When this happens, the employer is liable for the medical costs, unpaid work comp premiums, unpaid tax withholdings, and the loss of the worker and the training he was receiving from the employer. Laws affecting the employer/employee relationship have become more complex. Remodelers should consult with their legal and accounting advisors before hiring new employees to fully understand the documentation required and the costs involved.

To hire and retain workers, wages will have to be competitive. U.S. Bureau of Labor Statistics reports that the average hourly wage for carpenters in Minnesota is $22.88, construction laborers average $20.92 per hour, drywall installers average $26.57 per hour, and roofers are earning $24.34 on average. Entry-level helpers are earning between $13.00 and $17.00 per hour.

Wages make up only a portion of the total cost of employing workers. A rule of thumb for employers is that wages represent approximately 50% of the total cost of an employee. Benefits make up a significant piece of the additional expenses. The December issue of Remodeler magazine reports that of employers in the construction sector with one to forty-nine employers, 70% provide health insurance bearing 80% of the cost of coverage, 38% provide dental coverage, and 44% offer some kind of retirement benefit. In addition to wage and benefit, employers must account for vehicle, tool, training, insurance, and tax costs when hiring.

DON'T BE AFRAID TO RAISE YOUR PRICES

The good news is that when demand increases and supply is tight prices increase. This economic truism applies to the price for remodeling just as it applies to the price of labor. Remodelers froze, or in some cases reduced, their rates in response to the slowdown in construction over the past 8 years. As the market heats up and the number of projects is increasing, it's time to begin reversing that trend. Material costs are increasing, experienced labor is in short supply, and investment in your businesses has been withheld meaning that it may be time for new tools and vehicles. Adjusting your rates in response to the industry turn-around is the prudent thing to be doing.

Remodeling is on an uptick and has been for the better part of a year. The U.S. economy is stable and showing signs of steady growth. Oil supplies are up, and prices are drastically lower. Unemployment in Minnesota is at 3.7%, a rate most economists say represents full employment. These are all reasons for guarded optimism and a growth oriented focus to your business. The time is right for remodelers to move beyond the survival focus that has dominated much of the past eight years. As you develop your business plan for 2015, the time may be right to invest in your business again by hiring a young person who is short on skills but long on desire, and giving them the experience and opportunity to carry on the trade and succeed in the remodeling industry.

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