Rounding Second, Headed for Third: Balancing Employee Retention with Higher Labor Costs

Columnist Garry Bartecki advises how to finish 2022's construction season strong by retaining good employees with an eye on balance sheets.

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Well, here we are, most of the way through summer, after celebrating our great country on the Fourth of July and hopefully attending some baseball games this season. We now have four months left in 2022 to finish the year profitably, along with maintaining reasonable cash balances to take into 2023. Thus, my reference to “rounding second” and making it to “third,” and, if you are lucky, getting to “home” to score a winning 2022 construction season.

I am usually a hockey fan. But it is summer, and with the Lord Stanley Cup being presented to Colorado, it is time to focus on baseball.

In my opinion, a baseball team has problems and challenges similar to a contractor. They have scheduling, personnel, execution, and financing concerns, and expectations to win if they hope to be able to support the team the next season. It all sounds familiar. Taking this comparison a step further, you can see how the game has changed to become more efficient to produce better players through increased specialized training, data management and recruiting, providing players to fill specific roles on the team. They have to be doing something right because every pitcher out there throws 90 mph-plus.  

So where are we in the construction world this summer? In fairly decent shape, depending on your ability to get materials, maintain a core group of workers to meet demand, and meet timelines. That, and we have found ways to pass on cost increases via billing or cost-reduction maneuvers.

Based on current economic data, the industrial real estate market remains strong because manufacturers and retailers want products closer to end users. Those of you primarily in the housing market may start feeling a pinch or work reduction because of inflation, interest rate hikes and falling house prices, requiring effort on your part to keep the backlog where you need it to be.

No matter where you currently stand, you likely have recruiting and retention issues as most contractors have had in 2022. It is a tough market needing an on-going strategic plan to find and keep a competent workforce. Steps contractors are taking include:

  • Offering finder fees to employees as well as using outside sources to find help. Pay a decent fee—50% upfront once a hire takes place and the remaining 50% at the close of your 2022 season. If they stay, the referral source gets 100% of whatever fee agreed upon.  
  • Using technology like Team Engine, ClearCompany, Crew, or Beekeper, which are automation softwares geared toward finding and vetting blue collar personnel. Recruitment software can increase your appeal as a potential employer and save you time compared to not having this process available.
  • Paying a premium to get people. If your market is paying $30 hr for laborers, you pay $35 or $37 hr. I know it adds to cost but it will give you the ability to choose who you want. I have heard of contractors paying over union wages to get the people they need.
  • Offering a “Gold” health plan with minimum employee contribution required. Unbelievably, employees will stay to keep that coverage. I have experienced this personally and that is what they say.
  • Instituting a “Pay on Demand” program. One of the hot topics this year are “Pay on Demand” programs where employees can generate a paycheck for time earned, typically requesting 50-100% of their workday’s hourly wages after clocking out. Ask your payroll service about this program.

Programs like this could add to your overall labor burden costs, whether directly or indirectly.  Contractors must manage the rising hourly wage required to retain employees and balance steeply rising costs of living due to inflation. Any billing that contractors do should cover these additional labor burden costs—if you do raise your prices, you will add to your contribution margins and cover the fixed labor costs.

Additionally, the trick is to get what you are paying for using tight payroll controls to know how workers are spending their time. Use fingerprint or face ID time clocks, accessible via mobile devices, for time tracking to eliminate buddy punching and other potential forms of timesheet fraud. A timely review of estimated time for the day compared to actual time incurred because you want to implement a “Pay on Demand” program is not a bad thing.

In terms of mitigating costs, I suggest you review every clerical process you have in the office to see if you can outsource some of the work to a contract service. Clerical processes you should pay special attention to include payroll and timesheet tracking, accounts payable, and marketing. Mitigating costs means doing more with fewer people’s labor hours involved. Use computer systems to the max. Have your bank do your bank rec, outsource collection efforts, and avoid billing issues by having them prepared right the first time, which requires time and materials to be priced out properly in the first place. 

These processes can be time-consuming and costly to do in-house. If you do that and eliminate an employee, you save that person’s salary on payroll, as well as their insurance and other employee benefit costs. Reducing clerical work with AI or outside sources will free up time to manage the business.

Another way to mitigate the overall labor burden rate during this time of increased wages and sky-high inflation: maximize uptime by keeping equipment on a proper maintenance schedule before ever leaving the yard to reduce downtime and eliminate low-efficiency labor costs on the jobsite.

There are a couple of other topics we need to cover, which I will do next month. One has to do with the impact higher interest rates will have on our cash flow and banking relationships. The second also relates to interest rates and their impact on your suppliers and customers. The interest cost increase will have a negative impact on a company or customer with a cash flow problem. Customers with large accounts receivable balances should review their cash balances to see where you stand.

Before I finish, I ask you to welcome Erica Floyd, our new Editor-in-Chief for this publication. I will try not to drive her nuts because I know she will make me look good with her edits.

Keep your eyes on “third base”—retain good employees with an eye on your balance sheets—to get through the next quarter.