Tilghman’s example is extreme, a worst-case scenario in which his most expensive carpenter maxes out available benefits contributions. Still, it’s instructive in that it highlights the real cost of benefits and the degree to which the other components of total compensation might limit wages.
“Any kind of benefit has an effect on the total burden,” says Bjorn Freudenthal, general manager of College City Construction in Lakeville, Minn. “Whatever level of benefits you want to offer, after that decision is made, all the operations bear that burden.”
PUT IT IN WRITING The key for remodelers is making employees understand that while benefits might limit wages, they have their own real value. And the best way to do that is to create total compensation worksheets for each of your employees. A total compensation sheet lays out each employee-related expense as both an hourly and a yearly cost, allowing for regular cost assessments as well as better estimating and budgeting. At the same time, the sheet can help provide employees with a more realistic picture of the value of employment, an effort that can improve retention and morale.
At Old House Restoration in Alma, Maine, owner Les Fossel says wages are often significantly lower than those of his competitors because they don’t offer benefits or comply with insurance regulations. Fossel says that using a total compensation sheet has helped him explain to new hires how, even with lower wages, their total compensation packages are actually worth more than what they were earning before.
Paul Winans, co-owner of Winans Construction in Oakland, Calif., also finds total compensation sheets useful in helping employees understand the value of their compensation packages. “The [total compensation] sheet lays out, in addition to compensation, exactly what we provide each employee and how much it costs,” Winans says. “It helps people to understand exactly what they’re getting for each hour they work each year. It’s remarkable how effective it is.”
Freudenthal feels the same way. “Every year during review time, we review total compensation — salary hourly, earnings potential, medical, dental, trucks — so the employee has a real understanding of what he’s getting.
“What you look at is total packages: Total compensation is a lot of different factors. The important part is how any one [factor] affects the total,” Freudenthal says.
GET IT TOGETHER There are a number of ways to arrange a total compensation sheet. (To see examples, go to www.remodelingmagazine.com, click on “TheMagazine” and select “Current Issue,” then “WebXtra.”)
As with any spreadsheet, you want it to be logically organized and to present the data clearly. The idea is to determine how much the company spends on each employee, both annually and per hour. The first step is to organize the components of total compensation, then calculate an annual total for each employee.
Some costs — health insurance premiums, for example — are easy to assess. A monthly premium simply has to be multiplied by 12 to produce an annual total. Taxes and insurance costs that are assessed as a percentage of annual wages can be calculated easily, too. Just multiply the appropriate percentage by total annual wages. For example, if the workers’ comp rate is 7.5% and the carpenter’s annual wage is $37,440, then the annual cost of workers’ comp for this employee is $37,440 x .0765 = $2,864.16.