Replies

1. 
   mdf_user_ | Feb 19, 2002 05:07am | #1

   *
   Jeff, if I were doing this, I would first get the latest issue of JLC and examin the article on labor costs. About three months ago, I had a sub working for me who was interested in how much to charge, etc. We started from a $12.50/hr net after taxes, added in $6,000 per year for retirement, some for medical, some for vacation, and 32 billable hours per week. I believe the number came out to about $30.00 per hour without overhead, and profit, etc. If I were doing this, I would look at tile setting, or a nich such as making radiused casing mentioned in a different post. There are just to damn many guys working on the side, who are good, and who are satisfied with beer money cashing their checks at a local bar. (I have seen some of my checks cashed at Sloopies, or whatever). Look at Blodgett's post on 203 loans for fixing up rentals. Go to a community college and take some accounting. If I had been you, while I was an employee, I would have gone to a community college and picked up some business courses, just in case; but, it is never too late.

   Good Luck

   MDF_User

1. 
   Tommy_B. | Feb 19, 2002 05:08am | #2

   *Jeff,I don't know a lot of old subs in carpentry type work. So plan for the future.Since you stated that this is a cost cutting measure by your former employer, consider what this means.I think it means they were unhappy with the fluctuation in the cost for varying tasks. Mostly in fluctuations to the high side. I think paying a man for what he accomplishes rather than by the hour is a good thing in general. You will incure substantially more overhead and risk, so price accordingly. Bidding by the job is better than piece rate because there are so many variables that are specific to a given job. As someone who as subbed a lot of work who is now on the contractor end, I look for the variables that will blow the piece rate if that is what I am using to bid. Unfortunately, either the contractor is not able to bid all jobs out, or the subs are unwilling or incapable of preparing timely bids.If I were you, I would bid every job. Factor in for, bennies, retirement, vacation, annual raises, down time, office time, air time, etc., etc. You will never get anyone to commit to an hourly rate that covers all these. You might get some work, but will always be bidding against the people who don't factor in for all this. You should probably be in the neighborhood of two and a half to three times your previous hourly rate for for the same type of work when estimating your labor costs. That's probably not high enough, but a good starting point. There are some advantages for both parties in this arrangement but you will still be working for the same people.When your self employed, you don't work for yourself, you work for every body. I think there is more personal freedom as an employee. That's more like working for yourself.Best of luck to you.

1. 
   George_Oliver | Feb 19, 2002 06:16am | #3

   *MDF,I'm not saying your numbers are bad, but -- could you break that down in more detail?or maybe someone else...12/hr net -> 30/hr w/o P&O is a big step for just the fed, retirement, medical, vacation...or is it?thanks, GO (an employee)

1. 
   Mike_Smith | Feb 19, 2002 06:58am | #4

   *george.. here's one scenario12 gross6 burden3 med3 retirement3 vacationadds up to $27...or try it this way18 gross9 burden6 med3 retirement3 vacationadds up to $42...that's if you can actually get 2000 billable production hours.. which you can'tso... minimum... $45then you have to cover company overhead & company profit...

1. 
   Jeff_J._Buck | Feb 19, 2002 11:05am | #5

   *The 2.5 to 3 times wage is exactly what I think will fly. I have an advantage...as I know what they've been paying...and I've already told them what they are paying is too low...so if that's the figure......let's not waste each other's time. But....the 3X's still doesn't buy much. That may confirm my doubts....that unless you fly and bust ass....the dollar amount divided out doesn't cover the cost of running a profitable business. And...neither this company...or myself....will accept the level of quality that comes from busting ass! If that's the real world of subbing....maybe dealing directly with the homeowner is the best path for me. That way....when and if you find the willing participant...you have a fighting chance to sell your quality. If I only had their client list......We'd all be rich! Does anyone know......someone who has subbed out labor.....if the charge out rate for inhouse carpenters would affect your top dollar rate on paying a sub? I know I was charged out at $50/hr....so......what's the usual logic? Anything less than $50 is profit......or.....$50 minus...say 15% is more comfortable? Which still brings me just a little under my prefered rate...from when I was on my own. Plus.....I'm thinking...as a sub.....less down time....less selling time. I'd be bidding off prints...with access to the site before hand if needed.....but someone else has already done the measuring/designing/selections/and dealt with most of the home owner reservations and headaches. Hopefully. Thanks for helping me think this thru....keep it coming! Jeff

2. 
   bobl_ | Feb 19, 2002 03:54pm | #6

   *Jeff, If I read correctly, right now you're only subbing labor. Don't forget to know exactly what you are providing labor for (whose shelping the material, etc) and whose responsible to get the "missing" piece from then lumber yard as well as the quality of the material (your labor making up for "customer provided" material).

3. 
   Ralph_Wicklund | Feb 19, 2002 05:33pm | #7

   *Jeff,Are you comfortable with someone else doing the measuring and being responsible for all supplies on your jobs?As a sub, even for just labor, you are running a business just like the rest of us and like you did before, with all the wage, overhead and profit requirements that your former employer has. What they pay an in-house carpenter, or charge for his time, really should not enter into your calculations.When you don't have complete control of all aspects of your portion of the job, such as who was responsible for that crucial box or nails or trim screws, or the correct # of feet of special trim (without unuseable blemishes) you are taking a huge chance on completing the job within the time frame and dollar amount you have quoted. That, of course, translates to dollars per hour you would have to eat.So, if your former employer charged out 50$ per hour for a carpenter - YOU - you are no longer in that position. For all practical purposes you are now the lead carpenter and the RESPONSIBLE person for your own company and YOU and YOUR COMPANY must be compensated for all that you do and all the risk you are shouldering.Now is the time to get back into the BUSINESS mindset rather than the emplyee mindset and qoute those jobs as you would any other that you generated for yourself. If you feel that there should be a percentage reduction because of the work you did not have to do such as generating the business, writing the contract, schmoozing the customer, etc, then you probably should factor that into your quotes. Just remember, that you NEED to make a living and grow a business and be compensated for the risks involved when someone else is controlling aspects of the job that could and will affect YOUR bottom line. Whew!

4. 
   Rich_Beckman | Feb 19, 2002 05:50pm | #8

   *Jeff,Remember. The most important jobs are the ones you don't get 'cause they didn't pay enough.If I recall correctly, you became an employee not because you weren't making enough out on your own, but because you felt there was more security as an employee. Am I right?Bid the job at the priceb you neednot at the price you think will guarantee you'll get it. You had other work before, it is still out there for you.Rich Beckman

5. 
   Ron_Teti | Feb 19, 2002 06:04pm | #9

   *Jeff,Dont forget about the contingincies such as change orders, and the "Or while your add it could you do this for me and carp Joe is a little behind so" As a sub working for a FORMER EMPLOYER,The employer might have the same mindset toward you as when you were a employee. So make sure your covered by contract. just a thought...

6. 
   blue_eyed_devil_ | Feb 20, 2002 05:22am | #10

   *Pros: you control your own destiny.cons: destiny controls you.Jeff, if you are going to run a one man show, specialize. If not, you will make more money using other people's time.Charge enough to be profitable.blue

7. 
   Schelling_McKinley | Feb 20, 2002 05:40am | #11

   *Jeff- As a gc I find myself considering why your employee is following this strategy. It doesn't make a lot of sense as a cost cutting measure unless he just doesn't have enough work to keep you busy all the time. We have a painter who we keep busy 70% of the time. As a subcontractor we don't have to keep him on the 30% of the time that we don't need him. He can fill up that time pretty easily and still will come running to work on our projects. Does he charge enough? I don't think so but he is happy to have the work. You will know soon enough if the arrangement is good for you, especially since you know what it is like to be in business. Good luck.

8. 
   Jeff_J._Buck | Feb 20, 2002 09:13am | #12

   *I'm not sure of the logic behind it either! Keeping all the guys busy isn't a problem. I know they do have a steady stream of jobs in the pipeline. The biggest complaint from customers seemed to be they couldn't serve them all quick enough. I'm gonna persue this route....but not count on it....as I don't believe the company can maintain the very high standards they tout while using all subs. Seems to me....the control just wouldn't be there. And all the last minute changes and adjustments will either bankrupt the job or drive the subs away. I look at it more like a chance to get my feet wet...and get my name out there to other builders......before...when I looked into subbing...the first question was always "Who else have you subbed for"...and no one wanted to be the first! This way....I'll be able to give a very reputable company as a client...and have the pics to back it up. Also would help me nail down the pricing and test what the market will bear. Anything I do will be under my contract. Not just.....buld a room for $100. My contracts have always been very details. As far as materials and measuring go.....the current project manager will be tapped to handle that....and he'd get ya what you need each and every time. I think the plan with bigger jobs will be...to keep a lead capr on each job and he'd do all the leg work. Depending which leads they pick to stay......I could see it going either way. Me personally....I think they woulda been better off thinning the job-lead train......if you have 50 waiting.....double the prices and see how many are still standing! More estimating with numbers from the field instead of reading the estimating books would have helped too.....the books will get you close....but don't work when stain grade joints are expected on paint grade work. I say.....demand the highest standards....but charge enough to cover it. And....settle on a beautiful design.....and stick with it. These are all more reasons why I don't think the sub-only thing will fly for long too. But....I'm willing to try. I know what they expect.....will just price it that way....and see if they think I'm way too high. Thanks again...and keep the thought coming. Jeff

9. 
   FredB | Feb 20, 2002 09:12pm | #13

   *From what I see in your thread Jeff is that the company is trying to do two things.First, they want to lower costs by eliminating the employee overhead. It will be cheaper to hire "subs" than carry employees. This is the same thinking that puts contractors into individual departments of large stores, super markets, city governments and so forth.They want more flexibility than having full time employees will let them have. Lots of labor laws, working condition rules, etc apply to employees, not contractors(subs). Also, they can pick and choose and play bidding subs off against each other a lot better than they can employees.Remember, being a True Sub, not an Employee in Disguise, is a business just like any other. You need all the same cost analysis, insurance coverage, licenses, etc. Do you know enough to do this? Are you just grasping at straws, or is this a real opportunity for you?Never mistake it they have their own bottom line at the top of the priority list. As an employee you are too expensive for them. As a Sub you are really in the Who Can Do It For Me Cheapest business. This is a bidding business.Now if what they actually want is for you to be an Employee In Disguise and you go along with it you are subsidizing their business. In effect giving them your money with nothing coming back your way. Don't think you or any other intelligent person wants to do that.

10. 
    Jeff_J._Buck | Feb 21, 2002 12:11am | #14

    *Once agin...they will have no control over the subs. No start time/stop time/construction methods/theories on life and/or religious convictions. They know what a true sub is.....their lawyars know what a true sub is....and that's what they are looking for. Just....here's the project....we need to start it soon......How much for the labor.....when could you start....and aprox. how long to finish....so we can let the homowner know. Thanks again....Jeff

11. 
    Schelling_McKinley | Feb 21, 2002 06:46am | #15

    *Fred- I think that you are right about the reason that most large employers (and government) have for using subs, to reduce costs. This works well for the subcontractors as well. They can deliver a quality service at a low price because they have a small group of motivated managers and employees unlike the timeservers that many large organizations breed.I don't think that this strategy will work for a high end builder. High end subs don't get into bidding wars with each other and they will stop working for a builder who tries to play that game. Jeff- Keep us informed as your new situation evolves. We are interested in your continued success and also how your old company does with their new approach. Your information will help us more than you know.

12. 
    Rich_Beckman | Feb 21, 2002 07:46am | #16

    *> Jeff- Keep us informed as your new situation evolves. We are interested in your continued success and also how your old company does with their new approach. Your information will help us more than you know.How else will we know who wins the pool??Rich Beckman

13. 
    Jeff_J._Buck | Feb 21, 2002 09:16am | #17

    *I'm outta this one...I lost too much to Mike on the steelers and the super bowl! Least this way....I won't try to fix it so I win. Jeff

14. 
    Ron_Teti | Feb 21, 2002 05:58pm | #18

    *Hey jeff if ya sub for your old boss and he asks ya when your gonna finish tell him to talk to you in 5 minutes your on break :)

15. 
    mdf_user_ | Feb 21, 2002 08:27pm | #19

    *Here's the skinny on labor costs:Start with 12.50/hourx32 billable hours per week or $400 take home per week. Now, you have FICA at roughly 15% or $14.70 per hour. Now you have state and federal at let us say a total of 28% or 20.50 per hour roughly. Now you want $6,000 per year into retirement, or $3.75 per hour before FICA, or $4.41 before FICA, so you are at $25.00 per hour. Now you want two weeks of vacation, or $800 so about .50 per hour, we are at 25.50 per hour. So, we have medical. let us say $400 per month. Let us say you are a C corp and can totally deduct the medical, add $3.00 per hour or 28.50. Now since you are a C corp, you must pay unemployemnt on yourself, so on the original20.50 per hour, figure 3.5% or .75 per hour. So we are at 29.25. Now, as all you know there are contingencies, yes? well let us set them at .75 per hour and you have $30.00 per hour. Now, we have neglected a truck (bus?), tools, gas, insurance (you are insured aren't you?), and maybe lunch with a customer. Adds up fast, doesn't it?MDF_User

16. 
    mdf_user_ | Feb 21, 2002 08:40pm | #20

    *MDF_UserI suspect the reason most contractors want subs boils down to two items:Unemployement insurance - if you use it it is probably about 7%. As a sub, you are happy to sit on your butt for nothing because you are the boss.Workman's comp. I have heard of this running from 7% to as high as 30%+ for things like roofing, etc. If you are a sub, solo, and you fall and break your butt, well it is your butt isn't it? So, if your are a sub, you would want to get disability insurance - all you subs have that right? I suppose that would add something to the cost of your per unit hour. Now, you are starting to see why do a sub. If you bill out the carp at the same rate as before, you skip workman's comp, you skip unemployment, you skip paper work, and when the job is done, so sad, goodbye.MDF_USER

17. 
    Tommy_B. | Feb 22, 2002 04:58am | #21

    *MDF,You have finally come to the crux of the issue.Most subs are not legitimate businesses. If they are, they are factoring the same things that an employer would into the cost structure. Which leaves no savings to the general.I think that generally subcontracting is a way to screw those who are not astute enough to figure all of the costs of billing out for work.Not in all cases, but a lot of them. It hurts us all. And I am as guilty as anyone because I have participated in this type of arrangement. The ultimate beneficiary is the consumer at the expense of the worker in most situations. It results in alot of unpaid taxes, that we all pay for.I'm not sure you are a sub if 100% of your income comes from one entity. At that level, they have total control over you. At 90%, they still do. I would say somewhere around 50-65% they might have a manageable amount of control over you. I would like to see some IRS regs limiting the amount of income on a percentage basis, that a sub can take from one 1099 payor. Just my thoughts.

18. 
    Jeff_J._Buck | Feb 22, 2002 05:52am | #22

    *That raises another question.....the IRS line...which I would call the one and only legal line....as to how much time can be spent subing with one company. And.....is there really a line to cross. I've been told both.....as long as the company doesn't control the work....you are a sub......AND....that it's a time dependent thing.....like you can't work ....let's say one year.....and charge 100% of your time to subing to just one company. Is ther any official IRS guideline on this. Seems lloe something you could fight either way....if you are a true sub....and they just happen to have enough work to keep ya busy.....and you want to be a sub...and not an employee.....can the IRS really force you and the company to rethink your deal? Like my insurance guy said....it's always a fine line....but it never really comes up till some sub gets hurt....and sues the company as an employee.....in which case...that sub usually has a strong case against the company! From that stand point...he advises his insurance clients to not use subs...if an employee can fit the bill. Because of the liability. But I ain't gonna bring this point up to anyone considering me as a sub at the moment! Anyone know for sure about a time limit spent subing for one specific company? Not that I'd think this would come up in my case.....but ya never know! Jeff

19. 
    Mike_Smith | Feb 22, 2002 05:57am | #23

    *the IRS 20 question thing is the usual test of who is and who isn't an employee....most "subs" who work for 1 contractor can't pass the test....here's a link that discusses the latest interpretation ( 1996 )http://www.kdv.com/clarify.html and here's a link to the 20-factor test itself...http://www.prounlimited.com/20guide.html

20. 
    Jeff_J._Buck | Feb 22, 2002 06:23am | #24

    *I'll have to read those....and see how they stack up with MDF's post in the Hobby/Trade thread. Thank....Jeff

21. 
    Tommy_B. | Feb 24, 2002 06:29pm | #25

    *Jeff,If you go to mike's 2nd link and look at #17, it discusses the financial indepedence issue.As I understand it the reqirements are not mutually exclusive. Any one could make you a statuatory employee.Of course, generally it would never come to that.Also note the hourly pay issue. This, along with many other reasons is why I would encourage you to bid every job. If they are that organized that they can put every little job out to bid, more power to them and you. You may find yourself bidding, and winning/losing their work for them. If you will be bidding all of their prospective work, you may invest a lot of your time, which would necessitate factoring that into your billable hourly rate.I would plan on something like one hour non billable for every two hours of production work. You figure, you'll have client and contractor hand holding, estimating, billing, accounting, office administration, phone time, down time, equipment and shop supply purchase and maintenance, vehicle maintenance, etc. etc.

22. 
    Bill_Hartmann | Feb 24, 2002 08:49pm | #26

    *TommyJust to limit the amount of confusion. But "statuatory employee" has not thing to do this with.Staturatory employees are people working specific jobs where, by law, they are employees, but allowed to treat the income as self-employeed. The common ones are route salemans (bread and chips) and insurance sales.

23. 
    Tommy_B. | Feb 25, 2002 03:16am | #27

    *Oh,I guess I used the term loosely.

24. 
    Jeff_J._Buck | Feb 25, 2002 03:48am | #28

    *all the bids would be total amount....not hourly. To those in the know....on the initial contract....would the "change order" notice...be better off worded "at the rate 0f $35/hr".....or something like...."at an additional cost...to be presented and signed off before any additional work is performed"? Does putting a dollar amount per hour muddy the issue....or clear things up? I could see it going either way. But I'd think a builder would like some advanced notice to make sure you don't plan on trippling your rates on change orders. Thanks, Jeff

25. 
    Ralph_Wicklund | Feb 25, 2002 05:21am | #29

    *Somebody posted in the past that change orders are not strictly based on a hourly rate but on whatever factors are affected by the change. But in your case, as a labor only contractor, that's all you have to go by.If you have given a job rate to the GC he doesn't necessarily know the rate you used to get that figure so I think you should present the change order to him based on whatever figures you would normally use and let him figure out what he needs to get from the customer to make it work for you and for him.Since you are expecting additional consideration - more work in the future - you will not load the change order.

26. 
    Mike_Smith | Feb 25, 2002 05:22am | #30

    *jeff..it usually helps to sate teh rate.. but.. a real change order is SUPPOSED to be signed before the work takes place..so that is a 2d chance to come to agreement on the PROPOSED change...always get a signature before proceeeding with a Change Order.. .. eg: i've been involved as expert witness in arbitration.. where the contractor was demonstrabally WRONG.. the arbitrator agreed. but said since the Contractor had a SIGNED change order, the question was moot and the homeowner had to pay...

27. 
    Jeff_J._Buck | Feb 25, 2002 07:00am | #31

    *Id do the change at the same rate as the first bid.....but giving a set amount bid.....they'd really not know the exact rate...because I'd quote the job on an "X number of days" deal. And that info would be used just to let the customers know aprox when thry could have their house back. I got into the habit before....that additional work and change order stuff wasn't started till the order was signed and payed in full. Good habit to keep. Jeff

28. 
    blue_eyed_devil_ | Feb 27, 2002 10:31am | #32

    *There seems to be quite a lot of anxiety attached to being a sub. Don't let it panic you.I've been a sub for more than two decades. I bid every job. Thats what subs do.If the IRS rules that the sub is actually an employee, the sub wins. It's the GC that gets hurt financially. All the monies spent with the sub becomes net income. The GC is stuck with the tax bill. This usually doesn't happen if the sub pays his taxes properly. If the sub doesn't take care of his books, and doesn't pay the tax bill, and doesn't have anything to attach, the IRS goes looking....the GC is in their sights....blue

29. 
    Robert_Haugen | Mar 04, 2002 08:03pm | #33

    *JeffYou said you would like to deal with the property owner. Logically, if the property owner does not perform the labor, then the property owner will have to contract with someone else to perform the labor. In the state where I live (Arizona), the mechanics' lien law states that labor can be furnished in one of two ways; First, at the instance of the property owner who contracts directly with the persons who perform the labor; Or, second, at the instance of the owner's agent. It further states that all contractors and subcontractors are agents of the owner. It is therefore apparent that it is inevitable that you must deal with the property owner since an agent works for his principal and all contracts entered into by the agent on behalf of his principal are the liability of the principal.If your own state has a mechanics' lien law, the language is probably similar.

30. 
    Jon_Blakemore | Mar 04, 2002 10:03pm | #34

    *Here we go again...

31. 
    Sunrise_Construction_Management | Mar 04, 2002 11:26pm | #35

    *I've been a GC for 17 years now and take it from a guy who's been through it all; if you want to be a successful subcontractor, keep your pricing fair. If you are too high initially, we're not even going to answer your bid requests in the future. Be competitive with your peers not GC's. Subcontractors have the beauty of doing what they do best without the headaches of dealing with the homeowners or winning the large projects that keeps you busy for weeks at a time. Don't look to retire on your first big job. If you do the right job at the right price, I know i'd be willing to work around your schedule. And when times become tough again, the subs who are there for me regarding price and avaibility, will get the work over another guy thats been to pricy or busy.Carpentry subs on Long Island get $250/$300 day per man; providing you maintain proper licensing,liability insurance and workerscompensation insurance if you have helpers.Best of Luck!Scott

32. 
    Jeff_J._Buck | Mar 05, 2002 02:39am | #36

    *Hey Bob.....who freaking cares? I'm pretty certain I wouldn't be the first guy to call him self a sub....and do work contracted as a sub....thru a general contractor. I'll have to check with some official office.....but I do believe there's atleast some other guy...here in the great state of PA....that has done work in the past as what he called a sub. Sooo....as long as that dude has paved the path.....I'm willing to follow. I think he's way over in the Philly region......so maybe I can horn in on some of his action......being over here in western PA. I've neem to Az....never worked as a sub there....but instead of focusing on such meaningless matters.....why don't ya see if they can make the hospitals and grocery stores in Pheonix stand out from all the office complexes. I mean....even the 7-11's blend in. Everythings that dirt color......I'm thinking hospitals should be.....I dunno....red...or something. Later, Jeff

33. 
    Jeff_J._Buck | Mar 05, 2002 02:44am | #37

    *Thanks for the insight Scott. Jeff

34. 
    Scrapr_ | Mar 05, 2002 05:14am | #38

    *Ahhhhhggggg He's been lurking in the shadows. Everyone be real quiet. Like when you are hunting snipe. Maybe he'll just pass on by. We can only hope. i think my head is gonna explode.

35. 
    Jeff_J._Buck | Mar 05, 2002 06:51am | #39

    *and stand real still..........Jeff

36. 
    GACC_DAllas | Mar 11, 2002 07:09am | #40

    *Jeff,I've been watching this one for a while now.There is some good advice here.I've been a carpentry sub since '89. I wouldn't change a thing.I don't get the chance to bid anything. Usually the house is too big with not enough detail, or it's a large remodel with change being the rule of the day.We bill by the hour to the GC. It works great. If the GC has his own crew of carpenters, he pays them by the hour doesn't he? Regardless of his bid price. Right? It's the same thing with us. But he doesn't have to mess with employee cost. Like tax witholdings, insurance and someone on his payroll to keep up with all that. WE keep up with all of that and he's not responsible. They LOVE that part.Another way the GC wins is because he has at his call a group of skilled carpenters that he doesn't have to worry about keeping busy during his slow periods. Sometimes they even ask me for certain carpenters by name. We win because one builders slow period is usually another builders peak time.With a few good employees and a few good builders as clients, you can stay REAL busy.It won't happen overnight, but it will never happen if you don't give it a shot.Those are the "pros". The "cons" are in how you might screw up this beautiful deal. And that is TOTALLY up to you and your business sense.Good luck, but stay outa Dallas. (I mean that in a caring way)Ed.

37. 
    Jeff_J._Buck | Mar 11, 2002 11:59pm | #41

    *Thanks Ed. I was wondering if the shot at hourly as a sub was out there. Nice to hear it happened at least one. Now I have a way to sell it. Jeff