Electrical Contractors and Outsourcing
Reliability, hiring and termination costs are persistent problems in the electrical contracting industry. Thorough screening, testing and interviewing techniques can help prevent reliability issues. The question is, do you have time to do all of these things and maintain focus on the job site? If you deal with Sphere Electrician Northcote you will be definitely satisfied with the quality of electrician’s work.
First review a list of functions your company must do to hire, maintain and retain an employee. Place a cost on each item using the time value of the person who must handle each separate item. For example and simplification, your office manager earns $15.00/hour and spends a half-hour a day dealing with employee issues. The time value is $7.50 to perform that function. Do this for each item listed below and come up with a daily total amount. Divide the total by 8 and determine if you are performing the functions cheaper than the staffing company can. Most electrical contractors can not because they are set up operationally, not administratively.
If you need a guideline to compare costs, most staffing companies charge a very small amount on top of each hour billed; use 5-7% as a general rule. Keep in mind this includes all labor burden costs including state/federal payroll taxes, worker’s com, liability insurance, payroll processing, etc (see list for the rest).
Outsourcing your human resources function eliminates the need for:
Placing job ads, handling phone calls from ads, processing job applications,checking references,performing criminal background checks, scheduling and paying for drug testing (if required), scheduling and conducting interviews, controlling Worker’s compensation insurance costs, maintaining liability insurance on employees, paying for office staff human resources training,
employee handbook development, safety program development, administration and injury reporting, payroll administration, mailing checks and setting up direct deposit accounts, payroll tax accounting – weekly payroll and annual mailing of W-2’s,
time tracking of field employees (electricians), offering and administering health and savings plans, worker’s compensation claims processing, processing unemployment claims, handling court ordered garnishments, paying attorney’s fees if a suit is filed against your company, addressing and processing NLRB issues, dealing with and paying for other post-employment obligations (wrongful termination suits, HIPPA notifications, etc)…and all of the other time consuming costs not mentioned above that chew into your bottom line!
What many electrical contractors do not take into consideration is the amount of time away from production and the amount of time their office staff devotes to recruiting, hiring and maintaining each employee on the payroll. This is a variable cost outsourcing labor solves.
Going back to the numbers, variable costs are costs that can be varied flexibly as conditions change; like the number of electricians you need to carry on your payroll at any given time. The point made here is that labor is a much more flexible resource than capital investment. Outsourcing labor provides you and your staff with freedom away from time consuming human resource functions. The time you save is better spent marketing, dealing with customers, suppliers, and focusing on the work at your project site.
Spend time to add up the time and cost of the listed functions involved in hiring and retaining electricians. Ask a staffing company to provide you with a cost breakdown of their hourly charge for each electrician’s skill level. Keep in mind staffing companies cover all the costs you would and charge a nominal account administration fee (the fee is normally much less than what companies spend on the list of HR functions). Compare the costs. Remember to consider the intangible benefits of reduced liability, time savings and increased freedom to focus on your customer.
Most contractors will agree that for any given electrical contracting project, outsourcing is cost effective. One key point that must be emphasized is outsourcing labor is not a “one size fits all” solution to controlling variable costs. Businesses that are comfortable where they are do not make good candidates. On the other hand, a business that wants to grow while maintaining tight control over variable costs makes an excellent fit.
We can never predict when an employee will decide to leave a company but, we can control what it will cost to replace that person using effective outsourcing strategies. Keeping the right mix of permanent and temporary employees is the key to controlling the priciest variable costs in our industry – labor. Outsourcing electricians allows you to control variable costs that are discussed in the next few paragraphs.
As you are aware, variable costs are the costs directly linked to the tempo of operations in electrical contracting. They are called variable because they vary with the size and workload of the business. This means that the more projects bid and won; the more labor, material, etc. costs will rise. The more labor costs rise, the more employee-related administration costs go up.
This, of course, is in contrast with fixed or overhead costs. These costs are those that are incurred regardless of whether or not your company works one or ten projects. These costs do not vary as the pace and size of your operations change unless a dramatic change is made. Variable costs are project specific, whereas, fixed costs are associated with the entire company. Office leases/mortgages have to be paid no matter what is produced or in what numbers. Hence rent or a mortgage is a fixed cost.
Consider a situation where you determine your electrical contracting service yields a 25% contribution margin. Your figure can then be used to determine whether variable costs for your project(s) can be reduced. You can choose to bump up the price of materials and/or reduce your labor costs.
Material pricing adjustments is the easy part. Labor costs are not. To attract and retain quality electricians, you must pay more than the competition, offer benefits and training.
Remember your bottom line or net profit is determined by how you decide to spend each penny of your contribution margin on fixed costs. We know you can control your fixed costs by deciding on how much to spend on vehicles, equipment, tools, phone service and all the rest of your business needs
But, what is the true cost to attract, hire, manage and retain a qualified electrician for a three month project and what is the cost to hire a permanent/full-time employee? You probably know the answer, the cost is the same. It is the replacement cost of the employee that will eat into your bottom line after you conduct all of your human resource or human capital management functions in-house. And what price do you place on the expenditure to bring someone new into your company? And what does it really cost to replace that person? The answer is simply the cost of time – your time, your staff’s time and all time removed from project related activities.
Learn more about outsourcing electricians [http://www.strategy-construction.com] at Strategy Construction’s Web Site.
Mike Widner is Director of Strategy Construction Company in Colorado Springs, CO. His background is in manpower management and human resources management in the construction industry. Over eight years, Mike performed several personnel realignment projects for the US Air Force and currently focuses on helping electrical contractors control labor costs using outsourcing techniques.
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