Tyler, Pam’s husband graduated from a well known engineering university with a BS in Civil Engineering and went on to graduate school to earn a MS in Civil Engineering Project Management. He worked hard, could deal with people, understood technology and knew how to run a profitable project. He rose quickly to be a Principal Project Manager. He heard about the SFHAX Workplace Community Labor Exchange when he was on a job site and noticed some Union stickers on several workers hard hats. These workers were working for a contractor who used to be adamantly non-union. In a discussion with the contractor’s site manager Sally, he mentioned that he saw some Union workers on her job. Sally said,"I know, we hired them through the SFHAX Workplace Community Labor Exchange". They went on to discuss other things but Tyler was curious as to what changed the contractor’s outlook.
He went on the SFHAX website and registered as interested in being an Employer Member. A SFHAX representative contacted Tyler and set up a meeting. SFHAX told Tyler that the key benefits of the SFHAX Workplace Community were a reliable well educated and trained workforce and a market price for labor.
Tyler listened and then responded that his firm has a large human resource department that handles hiring. The firm has consultants who survey the workplace and come up with average labor costs. The firm’s workers' compensation costs are average or below average because the firm has a safety conscious workforce.
The SFHAX representative asked, "Do you staff your jobs entirely with in-house full time staff or do you supplement them with consultants or part time as needed workers?"
Tyler admitted that yes many projects are partially staffed by people who are not full time workers for the firm. He said the firm can’t afford to keep full time staff unless all their hours are billable.
They talked a bit more, then Tyler said he would discuss the SFHAX Workplace Community Labor Exchange with his colleagues and perhaps they would try it on a small trial basis. He said he had a job in mind that might be a good test case.
It took a number of followup visits by the SFHAX representative with other project managers and the accounting staff before Tyler felt confident enough to propose to senior management that they try out the SFHAX Workplace Community Labor Exchange. He started first with some professional staff such as engineers, cost estimators, environmental scientists, designers, CAD technicians and surveyors. He later started using SFHAX for land agents, material planners and inspectors. His projects were constructed by contractors so he wasn’t in the market for trade people.
Sally the project manager for the contractor started using the SFHAX, when her company won a bid but some of the people she usually called on to staff her projects told her that they had moved to the SFHAX Workplace Community Labor Exchange. Sally’s firm was relatively small and tried to avoid paying health care premiums or retirement benefits for all but the core full time staff. They usually hired people for their projects as independent contractors or else used a staffing agency. They had to do this because they were in a competitive market and the other contractors were doing the same. It seemed sometimes to her that they were all in a race to the bottom as far as benefits and working conditions were concerned.
Sally knew her boss, Sam, who owned the company was adamantly anti-union. He had endless stories of how the unions caused him trouble and cost too much. He cut corners where he could get away with it, but generally stayed within the letter of the law. When Sally told him some of the people they usually used joined the SFHAX Workplace Community Labor Exchange and not only that, but they joined the Union, he became very upset.
They were key people; without them he would need to use people that he didn’t know. Unfortunately, until you got them on the job site and saw how they worked they posed a big risk, which could be deadly and costly. Mistakes and ignorance in construction not only cost money but risk lives. He had his workers' compensation insurance and performance bonds costs sharply spike when one supervisor hire whom he didn’t know, with a great resume and a good talk, made a series of rookie mistakes that cost millions and injured several people. To him, resumes were more a work of fiction than anything else and you couldn’t get an honest reference since everyone was afraid of being sued. The year after was rough. His company almost went out of business. Some of the better companies wouldn’t let him bid until he got his workers compensation experience rates down. They viewed high workers compensation experience rates as being an indicator of an unsafe and unreliable contractor. Not to mention that it raised his costs substantially; costs he couldn’t recover, since he had to compete with contractors with lower insurance rates.
Sally said that she contacted SFHAX and the representative was going to stop by. Sam reluctantly agreed to listen, but said he wasn’t hiring anyone who is in a Union. The SFHAX representative told Sam that the key benefits of the SFHAX Workplace Community were a reliable well educated and trained workforce and a market price for labor. Businesses can hire people on a part time basis by the 4 hour work period. If you need about 8 hours of bookkeeping a week you can hire an Employee Member through the exchange. For example every Monday for as long as a year, and then renew each year after renegotiating the schedule and labor payment. Similarly if you need an attorney for litigation or to review contracts, you can hire one through the exchange as needed.
The representative continued; as we both know company estimators read the design documents figure out the number and skills required of the labor to build a project as well as the materials needed. They can price the job using quotes from material suppliers. Labor, however, is more difficult to price. The estimators can use average labor costs developed by commercial cost estimating firms, but these prices are generally not current and may not take fully into account various local labor market factors. They may also treat overhead in different ways.
You have to wait until you enter the labor market to see who is available and at what price. This adds risk when bidding a job. To win the bid, assuming that you don’t have all the workers needed on your payroll and available at the time of the job, you hope that the right types of labor are available and at a price that is less than or at least equal to the prices used in preparing the bid. Also your competitors are bidding against you. You need to be accurate but not overestimate the labor cost.
Another feature of the SFHAX Workplace Community is the handling of workers compensation. Construction, as we both know, is dangerous. Some trades have a high workers compensation rate. SFHAX verifies, before it allows an Employer Member to bid for labor on the exchange, that the Employer Member has a safety plan for the labor category along with appropriate insurance. SFHAX works closely with its workers compensation insurance carriers and the Employee and Employer Members to try to reduce this cost, encouraging them to work safely.
Sam was puzzled. He wanted more detail on what was mean by Employer Member and why SFHAX is paying Employer taxes and Workers Compensation, not to mention health care and retirement.
The SFHAX representative told Sam that SFHAX uses a co-employer model. SFHAX is the W2 employer and the Employer Member takes on the other employer tasks such as providing tools, equipment, workspace, management, sales, marketing, supervision, bonding, liability insurance, etc. As mentioned earlier, the Employer Member is responsible for the safety plan, but since SFHAX pays the workers' compensation SFHAX has an incentive to make sure each Employer Member has a plan and to emphasize to its Employee Members that they make sure they understand and follow the plan. If they see unsafe practices they are required to notify their Qualifier Member. The Qualifier Member will then contact the Employer Member and work out a solution.
Over time insurance carriers liked the idea of a third party reviewing safety. More importantly this focus improves the experience ratings. The result is a reductions to the worker’s compensation and liability insurance premiums. The take home pay of Employee Members is increased and Employer Members see reduced bonding and liability insurance premiums. Employer Members are now part of a larger group and they see that the SFHAX labor payment is generally less than what they would have to pay for the same labor if they tried to provide workers compensation insurance themselves.
Smaller contractors generally those with fewer than 100 full time employees find that having their employees become Employee Members of SFHAX and then hiring them through SFHAX increased the employees take home pay and gave them better health benefits, due to SFHAX being able to negotiate better rates because they were part of a larger group. Health care premiums can be sometimes two times more for small groups compared to large groups. Sam was well aware of this problem because he lost some key employees due to the better benefits they could find in a larger firm even though they were paid the same.
Sam was a canny businessman and didn’t rush into things he didn’t fully understand. He had the SFHAX representative come back many times and talk with him, Sally and his accountant before he agreed to become an Employer Member.
Mario was one of the first Union people that Sam hired through the SFHAX Workplace Community Labor Exchange. Mario’s labor payment was a bit more than what Sam thought it cost him to hire outside the SFHAX Workplace Community, but he thought lets see how it works out. Anyway there wasn’t anyone else available.
Sam was pleasantly surprised that Mario worked efficiently and safely, showed up on time and left on time, worked hard and got along with the rest of the crew. Over time he and his accountant worked out the actual costs of hiring through SFHAX and the alternate methods and found SFHAX was slightly cheaper or the same. A major plus was that he no longer had to deal with health care and workers compensation insurance premiums or hear gripes about how his people couldn’t afford health insurance working as 1099 independent contractors. His accountant and the cost estimators liked that they had a clear cost of labor by trade and by time of the year. Construction is seasonal and labor becomes scare and more expensive in the peak construction season.
Copyright 2014-2020 Richard A. Cornell, PE