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The Potential Of Co-Employment
Small contractors, thinking about hiring employees for the first time, face a set of challenges few are fully ready for. Government-required forms and taxes and insurance are often the stuff of nightmares for a small, simple business to tackle.
Small but growing contractors face a number of real roadblocks when they try to expand their business. The first time you hire an employee - and try to follow the rules – you are often slapped with outrageous rates for state unemployment and Work Comp insurance. Seems that everyone assumes that your business will create problems – so they give you the highest rates to start with and let you work your way down over some number of years.
The booming economic times we saw in the past compounded the difficulties associated with hiring for small businesses. Competition in hourly rate AND the pressure to provide insurance and other benefits (all of which are priced higher for smaller companies) often ‘ate your lunch’ long before any crumbs fell to your bottom line. The slower economic times we are currently in make it easier to hire employees, but retention is still so important that we have to find lots of ways to encourage our employees to stick with us for the long haul.
Who is the ideal employee that we are looking for? I like to hire people who NEED the job. You know what I mean. There is nothing like a mortgage and a car payment and a couple of kids to make a person want to get up and go into work on time every day.
Trying to hire that kind of person while not providing the benefits (s)he needs is almost impossible. It certainly leads to higher turnover rates and a smaller pool of labor to choose from. There are solutions for you, however.
We tried a lot of different ways to staff our jobs. In the past, we looked into getting employees from a temporary service. We would have little control over the quality and skill level of these employees, and would likely not get the same person two days in a row. Our work requires too much knowledge and skill to let us use “day labor”. Although a simple hourly rate included all of the insurance and tax costs, the expense of training new people every day made this choice completely out of the question.
We wanted to spend our energy training and motivating employees (instead of spending that time filling out tax forms). We looked into various services that would file our paperwork and taxes for a fee. The employees would be ours, but the administrative headaches would go away. Most of these services wanted to charge about 3% to handle the work for us. The bottom line: higher labor costs, so we had less of a competitive edge. This was not the right solution for us. We needed to lower the cost of labor. Period.
Another concept - leasing employees - had been around for quite a while. This current term is co-employment, which describes the situation well. Under a program of leased employees, we would do the recruiting and hiring, but our new-hire would get his or her paycheck from a separate employment company. Our role was typical for any employer - to hire, provide all direction, set the rate of pay, etc. The only thing we would do differently would be to pay this separate company a percentage over and above the hourly rate that covered all taxes and insurance. The companies we looked at all required us to have a minimum of 3-10 employees in order to qualify for their program.
Upon investigation, this turned out to be the right road for our small business to take for some surprising reasons. This separate company charged us a fee of 3% of our payroll as an administrative fee. At the same time, they lowered our state unemployment contribution from 2.5% to .5%, saving us 2%. They also lowered our Work Comp rate from 11.9% to 8.9%, saving us 3%. (Note: We negotiated this rate with them, and they were surprisingly flexible.) In all, they took over all of the headaches AND lowered our overall costs.
We were a little worried about how the change would be perceived by our staff. Change is often resisted in any organization. We put the most positive spin on the story, and every employee reasoned that this was a good thing for them and for us. What a relief!
Today, don't cut paychecks to any of our employees. We don’t file any payroll taxes, and we never have to deal with a Work Comp claim. We’ve tapped into the growing trend of outsourcing. The owners of the company are free to grow the business and the profitability - by spending time with our customers and our employees instead of our bookkeepers.
Our employees now are part of a 30,000-member labor group, enabling them to access excellent benefits at a low cost. They now have health and retirement plans, access to a credit union, discounts for eyewear, and the list goes on.
The employee leasing company wrote our policy manual and made their HR staff available to help with any employment issues that came up. We have used this free resource many times to avoid the pitfalls that other contractors get caught up in.
How do you choose an employee leasing company? There are a number of concerns that you may hear about when you start asking questions. What could go wrong? Well, the employee leasing company could charge you for the taxes and insurance and then not remit the appropriate funds to the proper authorities. In this case, as the business owner, you are still liable for any taxes or any injuries that occur to an employee on your staff. You’d better choose a company that is reliable and reputable and will be around for a long time.
In our search for a company, we spoke to three. Each had merits and each made a great case for the industry. One did not have a local office near us, which was a strike against them. The others were each similar, and we chose the one with the strongest and longest history of service.
We had four employees at the time we signed on, so you don’t have to be a large company to take advantage of the system.
We will probably never go back to being typical employers. We have become too spoiled over the last three years. I only wish we had figured this direction out much sooner.
As always, Good Luck growing your company!
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