Subcontractors as well as other small businesses must keep a close eye on expenses and salary structure. Determining what wages to pay your employees within a total compensation plan requires knowledge of skills, prevailing wages, project expenses and profitability.
Know Key Skills
You probably already know the skills that you need for each of the jobs that are included in your list of services. Take the time to document the job description, including the title, tasks required, skills, abilities and work environment. Use the Department of Labor’s job resource tool O*NET to help you discover the tasks, technology, knowledge, skills, abilities, work activities, work context, education, work styles, work values, and wage trends. When you take the time to list these out, you create clarity with your job applicant as well as your hiring staff.
Pay Competitive Wages
O*Net has a link to Careeronestop, which can provide a range of hourly or annual wages specific to your state or zip code. Inexperienced employees can often be brought in at the low range if your total compensation, which includes paid time off, health and retirement programs are competitive. More experienced employees can command a higher wage, but are often worth it because they are more efficient and able to train your newer employees.
It’s important to note that there are minimum wages that you must pay your employees, even if the project you are working on is project based. On October 13, 2013 the Industrial Commission of Arizonan signed a resolution resulting from ARS 23-364 that raised the minimum wage. The hourly rate increased to $7.90 per hour effective January 1, 2014. You must pay at least this wage even if that means that you don’t make a profit on your project-based contract.
Generally, contractors pay subcontractors by the job so that employment lines aren’t blurred, which could cause a reclassification of the subcontractor to employee status. Smart contractors ensure that the subcontractor has behavioral and financial control of their business as well as contracts that describe the nature of their relationship.
Because pay is often tied to the job, you must be competitive in your bid while still remaining profitable. Knowing what you pay your employees is just one component of the entire bid, but often times the highest expense. Don’t underbid just to get the job unless you can sustain your business with your current cash flow and have reasonable expectations of future higher paying contracts.
Subcontractors that create fair compensation structures will attract, retain and maintain performing employees. Compensation structures include salary, incentives and benefits. Determining the right mix for your small business requires research, planning and continuous improvement. It’s one piece of the financial health of your business. Contact me today if you’d like to discuss how I can help you implement systems and processes that improve your profitability.