PERSONNEL DECISIONS Other than materials — which typically aren’t purchased until a job is sold and the first payment collected — the biggest category of expenses for remodeling company owners are the wages they pay their employees and the burden (insurance, benefits, etc.) those employees carry. When plenty of work is pouring through the door, these costs are easily defrayed: Field employees’ time is billed directly to the clients whose jobs they’re working on, while office employees’ time is built into the markup charged to cover overhead.
When work slows to just a trickle, however, remodeling companies with employees have a serious problem. There are no clients to bill for the field crew’s time, but the field crew still have their own bills to pay and families to feed. They need paychecks if they’re going to keep working. Ditto the office employees, whose salaries are based on the company bringing in a certain amount of revenue.
It’s a position that no employer likes to be in, but often circumstances dictate that they let one or more people go.
If faced with this difficult decision, the first person you should look to lay off is the person who isn’t carrying his or her weight (indeed, this is a useful exercise even when business is booming). “Often, when someone gets fired, there’s a collective sigh of relief,” says Bruce Curtis, president of Washtenaw Woodwrights, in Ann Arbor, Mich.
Ridding the company of dead weight can improve company performance beyond the impact of the reduction in payroll. “Those who stay become part of a healthier, more vibrant operation,” Toker says. If the employees you retain understand that laying others off is part of a strategy to keep the company afloat and healthy, “it infuses them with excitement,” according to Toker, rather than bringing down morale or driving them to worry about their own job security.
Although it’s your job, as company owner, to keep spirits as high as possible, pretending that everything is hunky-dory is counterproductive and will fool no one. “When things are really tough, malaise sets in, especially among the production guys,” Curtis says. “They’ve been laid off before. If they see we’re running out of work, they get down.”
Curtis has long had a policy of getting everyone in the company together every two weeks for a “payroll meeting,” during which they talk about everything from production reports to marketing initiatives to what’s in the sales pipeline. He says that his employees appreciate being kept informed. “You might be two days away from laying somebody off, then land a job and have three weeks of work for them,” Curtis says. “They want to know that.”
Curtis also extols the virtues of having flexibility within your workforce. People who are capable of doing more than one thing are especially valuable during slower periods. Consider consolidating tasks where it makes sense, like combining marketing responsibilities with office management duties. Beware, though. As Curtis says, “The risk is that if a situation arises and we don’t have the right person to handle it, it falls on me.”
Another option is to retain as few staff as possible, hiring people only when you need work done. Companies with a large sales force might consider converting those employees from W-2 to 1099 status (take care to do the necessary legal consultation and research), while other companies might consider subcontracting all aspects of a job, even things such as trim carpentry which are typically done by in-house employees.
If you do have to lay off an employee whom you would otherwise like to retain, try to let him go as gently as possible, leaving the door open for his return when business picks up again. David Leff, president of Leff Construction, in Sebastopol, Calif., often finds himself having to lay off employees during annual slowdowns due to the Sonoma Valley’s rainy season. When he does — and all other things being equal, he uses tenure with the company as his guide — he tells the employees that he anticipates hiring them back.
“When we lay guys off for seasonal reasons, most of the time they can’t go out and immediately find another job,” Leff says. That’s true of slow markets, too. Remember, if business is down for you, it’s down for others builders and remodelers in your area as well. Given how difficult it is to find good labor, it’s understandable if you’re reluctant let people go. But if you treat your employees right and leave the door open for their return, you stand a decent chance of getting them back. When your other option is your company going out of business, it’s a risk you have to take.