More Q&A From Our December 2018 Webinar
The webinar we recently held on the labor shortage and rising marketing costs was well attended and generated a ton of responses.
If you missed part 1 of the Q&A session from our blog make sure you read it first.
Now onto the questions:
Q: In the case where we are paying a subsidy or bonus to our current crews or those recently hired, you refer to your plan as a “contingent incentive”. How does that work?
A: First, the word contingent essentially means “if” meaning if installation increased – if the recruiter hires and retains people who speed up installations – if instead of simply raising the rate for an installer you devise a plan called, “a contingent bonus plan”. In it, you define goals, which are met or exceeded. Create a “credit” of a contingent bonus. Let’s say as an example, the installer made $100,000 last year, and this year makes a contingent bonus of $10,000 if that installer stays in your employ. In the next calendar year, they are paid a bonus starting March 1st for 10 months. Every month they get a $1000 check. Now that $10,000 is paid over 10 months, (contingent) if they stay in your employ. If they leave you, the bonus stops. The $10,000, which was earned in the first calendar year is paid in the second calendar year. (See what follows in the next question)
Q: How does an installer (W2 or 1099) see this as a great benefit?
A: Here is an example: They probably don’t have an IRA (Individual Retirement Account) and in the case of the 1099 (sub) they are not familiar with a SEP IRA. In either case, the money paid from the contingent bonus fund could be tax free to the installer if invested in either an IRA or a SEP IRA. In short, they pay no taxes when they put it in the plan and when they take it out, its taxed (usually at a lower rate than when it was put in).
Q: How do we get information on IRAs or SEP IRAs?
A: It’s fairly simple; however, don’t assume that your install people have even heard of either plan. Guide them, direct them, and help them to establish plans such as these. It’s not common in this industry for employers to offer these in this manner. Make a difference by being different.
You cannot force either W2 or 1099 employees to invest this money. However, when you present the plan there is abundant information via your accountant or IRS that shows the power and viability of this plan. Hundreds of thousands of small businesses employ similar plans. Much depends on the way you sell it rather than tell it.
Q: If it’s the same amount of money as raising the rates, why should the installer agree to it?
A: Much depends on the way you prepare yourself to present it. If your installer is a 1099, he is an independent businessman. He may not think about it that way, but he is. As most of these individuals get older, despite the fact that they are making good money with their truck and equipment, they don’t have a retirement plan. This plan extends to them an opportunity to do so.
The beauty of all this lies in creating a training fund and getting a program started with adequate funding.
Q: How do you explain this in a simplified manner to people who are simply used to getting a piecework rate or a contract allowance?
A: Obviously, the palest ink is better than the most remarkable memory. This can be spelled out in one or two pages. Be sure you get a lawyer to review this keeping in mind that it is a contingent plan.
Q: Two things of interest – You mentioned recruiting women; there are many parts of the job that women might not want to do. And you also mentioned changing the job title.
A: Let’s deal with the last issue first, the job title. The word “installer” is out of date and certainly doesn’t explain why this should be called skilled labor. A plumber, an electrician, HVAC specialist, etc. are licensed. When the word "licensed" precedes plumber it creates a different title.
The title is important, it reflects on how someone outside of the industry might perceive the opportunity, neither manipulative nor misleading. Make it one that the individual will want to enjoy. Installers (by any name) are usually independent contractors. In short, they are in business for themselves. They may not see it that way, but those newly recruited may.
Titles such as "Property Improvement Technician" or "Building Material Replacement Technician" are appropriate and descriptive. No one could challenge the fact that a replacement window installation differs considerably from the window installed in a newly built home. All aspects of it including the measuring and the “fitness” of the replacement unit require an understanding beyond that of simply installing a window. The same is true of re-roofing vs roofing residing vs siding where you are working to structured limitations. In numerous surveys, young people were not attracted to either the idea of being part of an installation crew or similar.
The title represents more than just words. It implies that the individual will be “trained” and given opportunities, which might include owning their own business. Remember a sub-contractor installation crew is “in business for themselves”.
Now to the issues of recruiting women.
You are probably aware that in many countries and in rural communities in the US, there are women who run these crews. Many of you in your mid 50's or early 60's go back to an era when there were no women police officers, fire fighting personnel, UPS drivers or similar. With the proper foundation, you really create an “opportunity”. Again, that’s why funding is so important.
We are reminded of the labor force during WWII, particularly the part referred to by the name Rosie the Riveter. We were a country of 130 million with over 16 million men and women in uniform. There were not enough men to man the jobs in factories, which were creating war materials. Women were hired and trained and did a magnificent job at every level. In short, a male labor shortage solved. Think of that when you plan to attack the current labor shortage.
Coincidentally, while this might hit a sensitive nerve for many viewers, the average home improvement company does not make the net profitability to which they are entitled. And issues such as the labor shortage and the constant escalation of marketing costs remain one of the dirty little secrets of this industry. This is why, it is our hope that concepts such as we have introduced here are properly addressed.
Q: I felt I have been misled by industry statistics that I have heard from my trade association and in the trade magazines. All of which, I understand was well intended, but I still do not understand why none of these organizations come up with a plan such as you have proposed?
A: We believe that the organizations you mentioned were doing the best they could within their scope of understanding of how the business works and necessities required.
We also suggest that you review the article “Facing the Reality of the Labor Shortage Crisis”. It is brief and it focuses on the issues you raise.
There are more questions pouring in as we speak and we will attempt to implement this blog with the answers as soon as possible.