No Substitute for Using Subcontractors
The cost of owning and managing a drywall business continues to increase, calling into question the likely prosperity garnered from such an endeavor. With employee benefits, unemployment taxes, payroll taxes, liability insurance and worker’s compensation, there is a great deal to overcome. Taken individually, the costs are depressing. Taken collectively, however, the costs can be devastating. So what’s an enterprising drywall business owner to do?
To Subcontract or Not to SubcontractAnd no, this isn’t a literary dissertation on Shakespeare’s classically penned play, “Hamlet.” But much like the title character in Shakespeare’s play who, when contemplating the merits of living, wondered aloud, “To be or not to be …,” the vitals of a drywall business may also depend on the answer to a simple but important question: to subcontract or not to subcontract?
While this article will make a persuasive argument for utilizing subcontractors, there are, however, discernible drawbacks to an absolute reliance on them. In a reversal of roles, their schedule may dictate your schedule and lead to errant time lines and lost jobs. Lacking adequate time and reliable labor to ensure quality workmanship, a surge in volume may become overwhelming, resulting again in busted schedules, unsatisfactory finished products and likely termination of business relationships. Employing a majority of subcontractors works best if balanced by a competent core of employees who can oversee their production. This will allow any issues to be rectified before they balloon into serious problems. That protocol established, the use of subcontractors can allow the subtraction of several costs of doing business and higher profit margins will ensue.
Nationally, the problem that ensnares the finances of most businesses is the unrelenting cost of health care. According to the National Coalition of Health Care, in 2005, the average annual cost to employers for an insured individual was $4,000, while providing for a family of four cost employers a prohibitively expensive $11,000. More maddening is that health care costs since 2004, as revealed by the NCHC, have risen an average of 9.2 percent, or three times the rate of inflation. This ever-growing rise of an essential benefit leaves employers with but a few options. For drywall contractors, the ability to pass along this cost is hampered by the competitive climate of lagging home sales. Builders are more cost conscious than ever and aren’t likely to shoulder any more unnecessary costs. The most viable solution to this problem is to employ subcontractors who provide their own health insurance. Companies that jettison this heavy financial burden of providing health insurance will find a marked improvement in the health of their bank accounts.
Vacation PayAnother benefit given to employees is vacation pay, and while not as expensive as health insurance, this expense is nonetheless appreciable to the finances of the company owner. According to the U.S. Department of Labor Bureau of Labor Statistics, employees average a minimum of two weeks of paid vacation per year. The Department of Labor also reports the average wage for drywall installers in 2005 was $37,580, giving them a weekly pay of $723. Multiplied by two weeks, the business owner would pay out $1,446 per employee for vacation pay. It’s not a figure that will bankrupt a company, but again, by using subcontractors, the business owner isn’t incurring a usual and expected cost of running a business.
Some other savings generated by employing subcontractors is the avoidance of both federal and state unemployment tax and the Social Security/Medicare tax. On the federal level, according to the U.S. Department of Labor Employment & Training Administration, the average annual cost per employee is $56. Unemployment taxes vary by state, but the national average for 2005 per employee was $302, according to The American Institute for Full Employments “Unemployment Insurance Progress Report – May 2006”. While this figure is manageable, it can materially inflate if factors, such as the length of time a business has been established, timely payments and the number of claims made, are deemed unfavorable. In addition, by employing subcontractors, the Social Security/Medicare tax is eliminated. The 15.3 percent Social Security/Medicare tax is paid on wages earned, with employers being responsible for half. Considering the average drywall mechanic earns $37,580, as previously stated, the annual employer’s portion for this tax would be $2,875. While not striking, the money saved is still meaningful to the business owner and cannot be discounted. Other areas ripe for monetary savings by using subs but that are more difficult to quantify in dollar amounts are liability, vehicle and worker’s compensation insurance and the additional administrative time otherwise devoted to maintaining employee records.
In today’s business environment, it is essential that the cost structure of every company be scrutinized in order to find ways to save money. Employing subcontractors is one of these ways. The rationale for doing so is ample and robust, allowing those who utilize subcontractors to be stronger, both financially and competitively. And you don’t have to read Shakespeare to figure that out.