I have just finished reading your Up Front article titled "The Cat's Out of the Bag" (June 2001). In the article you are referring to the "alleged illegitimate business practice of paying employees as subcontractors."
Your reader "the tiger" says the alleged practice "has driven the prices in our industry so low that to have employees has become a health hazard" to her husband and their business.
Let's take a look at the $1,500 your reader is paying for workers compensation insurance.
Yes, it's true, if you have an employee on your payroll, you would have to pay the $1,500. However, there are some "top dogs" out there that have learned a better way.
Let me explain. Only the officers of a corporation can be exempt from paying workers compensation. So if you subcontract, let's say, the hanging on a job to the president and vice president of a small company that is exempt from comp, you don't have to pay the insurance.
Now before all you pussycats get all stiff-haired and start scratching, here's how it works.
Suppose you have a loyal employee whom you've had on your payroll for some time. Suppose you educated the employee on how to open a corporation, do the books and become comp exempt. Rather than paying him by the hour to work for you, subcontract to him the hanging of your project on a piecework basis.
If he normally hangs three sheets an hour at an hourly rate of $15 per hour and on the $15 you pay an additional $3.50 for comp, your total cost would be $6.17 per sheet.
Let's say he is a 30-year-old man. A full coverage personal and live insurance policy with dental will cost him around $500 a month, including coverage for loss of income due to an injury. If he was to get himself in such a policy through his company, everyone wins. Here's how:
By subcontracting to his company at $5.50 per sheet, my production increases (I have yet to meet a person working piecework that produces the same or less per hour than when the same person works by the hour), and I don't have to pay high comp charges.
The client gets a better price.
But the main benefactor is the former employee. Not only will he bring home more money from which he can pay for his personal insurance policy, he also has many more benefits. For example, when he was an employee he was only covered by workers comp if he had an accident on the job. With his full health insurance policy, he is covered 24 hours a day for any medical attention he may need-not just work-related injuries.
Not to mention the tax benefits he will have. Because he now has a corporation he can deduct expenses such as gas, truck, tools and uniforms to name a few before paying himself, which equates to paying less personal taxes, which in turn means more milk for the kittens.
There are many other things that can be done to increase production and profits while reducing your pricing "legally" that would take me hours to type, so I will stop here.
Yes, some small companies are "cheaters," however, many more companies are changing the way they do business, which benefits everyone, including our industry. The problem here is that these techniques are not known by many companies and they blame lost jobs on "cheaters," when in fact it's going to be more informed and educated contractors that are willing to find new ways of doing business to stay one step ahead of the competition while providing a better price to the client. Everyone wins.
So pussycats and tigers beware, because we educated dogs will run you up a tree if you don't open your eyes and change with the times.
This letter was not written to attack "pussycats," but to help them understand that they need to become more aware of one of the many "legal" techniques used by dogs.
The problem is not cats and dogs. The problem is a lack of good seminars and instructors teaching our industry and too few contractors willing to invest time and money to go to these seminars when they are available to educate themselves.
President & CEO,
Empire Construction Inc.