Installation: Contract vs Employee: Retailers weigh in on their strategies - Feb 2017
By Sonya Jennings
Installation is top of mind for today’s flooring retailers, not just because of the shortage of qualified installers but also because of new scrutiny by the Department of Labor on the regulations surrounding who qualifies as an employee or contractor-and the retailer’s respective liabilities and responsibilities.
Floor Focus reached out to four independent flooring retailers from around the country to find out about the considerations involved in choosing between working with contractors or using in-house installers, and how the decision impacts their businesses. Two of the panelists, Jason Fromm with Carpet Spectrum, based in California, and David Martin with Wisconsin-based H.J. Martin and Son, hire installers as employees of the business and detail why this translates into a win for service and reputation. The other two panelists, Jon Pierce with Montana’s Pierce Flooring & Design and Chuck Bode with Maryland’s CB Flooring, work with independent contractors and see this as a necessity for attracting expert installers who offer high quality workmanship. According to Bode, “This seems to be the method by which the large majority of installers in our area want to be paid.”
What do you see as the benefits of employing your installers? What, if any, is the downside from this arrangement?
Fromm: Commitment. As directly employed associates, full-time employment is provided by our firm. This allows us to schedule a full work week as needed, team up crews for larger projects and control recurrent training. One downside could be that our employed installation crews are staffed at levels of anticipated demand. When sales increase dramatically, the result will be longer lead times for installation.
Martin: Our installers are our best salespeople. We can do everything right in the sales process, but if the installation does not exceed the customer’s expectations, they will not return. When you have in-house installers, they are working for more than themselves, and at H.J. Martin and Son, they are upholding a tradition of quality where the standards and expectations are very high since we started back in 1931.
What is the benefit of using independent contractors as installers versus hiring employees to do the work?
Pierce: The benefit would be that it reduces overhead on a financial statement because we don’t pay salary and benefits to independent contractors.
Bode: The only benefit from the company’s perspective is the uneven workflow typical in our industry. This enables our firm to utilize the independent contractor as our workload requires. So flexibility is the key.
How do you create and maintain loyalty with your installation employees? Once you have trained an installer, are there incentives to prevent him from leaving your company to work as an independent contractor?
Martin: We do this in multiple ways, including yearly reviews, the best tools, the best equipment, technology, training, vehicles and benefits (insurance and 401K). Our yearly reviews are typically tied to raises assuming the performance goals have been met. We have great insurance with multiple coverage options. Our installers benefit from paid vacation and paid holidays. We also view our installation team as key decision makers. Before a product enters our showroom or a new adhesive, underlayment or sundry product is purchased, we make sure to test it out with our installation team and determine if we are going to move forward with a product or process based on their input. This way, they feel empowered versus our office demanding something be put in place that ultimately could make their job more difficult. In addition, we send two of our senior installers to the Surfaces trade show along with our VP of field operations to look at the best practices in the industry, and the latest tools, equipment and technology, rather than having our office team attend and force items onto our installation team.
Also, on large jobs we try to have our delivery team and helpers stage and deliver the materials so our senior team can focus on productivity and installing the end product. We are working to implement updated procedures to help this aspect and make it easier for our senior installers. We expect this will help with longevity.
Fromm: We train and hire from within when at all possible. Our apprentices have the opportunity to learn from highly skilled CFI certified mechanics and work into a position of advancement. We make every effort to take some of the burden away from a very challenging and often underappreciated career. We provide our associates with all of their installation supplies, using only premium materials to ensure that both the installation goes smoothly and the quality of the finished product is the highest standard.
Our company provides an open work environment that rewards effort. We consistently compare labor rates in each category in our area and remain well above the industry averages. We provide performance bonuses, company attire and recurrent training at no cost, and we subsidize the cost of new tools.
How do you ensure that independent contractors will give you first priority when there are multiple retailers that want to hire them?
Bode: We try to treat the independent contractors fairly and pay the agreed job price in a timely manner. We also provide clear professional installation paperwork, making their job easier.
Pierce: By law, we cannot dictate how and when a subcontractor performs; however, we form relationships based on give and take. We do our part to minimize job problems, treat them well, keep their calendar full with ready jobs and offer fair pay.
How do you make sure your independent installation crew isn’t disrupting the relationship between your company and the customer by offering to handle the next flooring project?
Pierce: This rarely is an issue for us because we are a reliable source of income, and most crews don’t want to damage that relationship. By treating the installers fairly, and paying installers fairly, we typically gain their loyalty.
Bode: It would be considered extremely bad form for an independent contractor to solicit your customers. This is not an issue we have to deal with on any regular basis. Should such a thing occur, a company can always elect not to contract with that subcontractor again.
How do you recruit new installers? Do you try to hire people with previous experience or training? If you hire installers who are not previously trained, how do you get them trained and qualified to do the work?
Martin: We recruit new installers through strategic hiring campaigns utilizing online ads, newspaper ads, social media, radio, referrals, word-of-mouth, career fairs and technical colleges. We have made the commitment to have one of our experienced installers go into the classrooms at Northeast Wisconsin Technical College and Fox Valley Technical College. Through donations of materials and time from our installers, we bring real life experience to the classroom. We also have worked closely with a local high school on instruction within the classroom, and hope to expand our outreach to other high schools in the region. Partnering with local veteran’s associations and job centers has been effective. Our hiring team makes itself available and is responsive, so it makes it easy for outside organizations to send people to us and to partner with us.
We hire people of all skill levels and then work to train them with our senior installers and foremen. We do extensive on-the-job training.
Our company developed an online application that is accessible on mobile phones. We have online applications custom to office employees or installers with the ability to pre-assess skill sets, review job history and experience, and accept resumes or cover letters. In addition, we’ve created custom landing pages, with custom URLs to make it easy to find information, easy to apply and easy to direct people to those areas. We also have teams set up to conduct full interviews via phone, if necessary.
Fromm: Most of our crews have developed from within the company. Several of our present mechanics started on a part time basis, having worked for competitors, and eventually came to work for us full time. We have minimum standards for each category of flooring installation and will provide training to ensure that all installations are completed in a workmanlike manner to exceed industry standards.
How do you find installation crews? Do you run recruitment ads? How do you vet a new installer to be sure he can perform the job to your standard?
Pierce: We find new crews from word of mouth, reputation and offering an above-average pay. We’ve utilized organizations like Starnet, NFA, CFI and we’ve also reached out on Craigslist. Many installers like the lifestyle in Montana. Our state offers hunting, fishing and recreation in a beautiful setting, and we pay the highest rate for installers in the country. Our climate and schools also help to attract installers to our area. To vet new installers, we use references, referrals and photos of past jobs.
Bode: We are located in a major metropolitan market [Baltimore] and we pay fair labor rates. Our company pays contractors consistently and in a timely manner. We are a busy company with lots of flooring to install, so we do not have a problem attracting installers. Our company checks references before hiring any new subcontractor, and it is routine to send one of our field personnel to inspect work quality on the first few jobs that a new subcontractor performs for us to ensure quality.
Do you provide continuing education for your installers? How important is this to you?
Martin: Education is very important. We utilize our vendor partners, who require certain certifications to install their products, such as Armstrong, Nora, and Koster. For our residential team, we focus on the CFI training along with Schluter certifications. Internally we all have the understanding that we are a guest in a customer’s business or home and have to act in a respectful manner. To strengthen this further, we offer communication and leadership team building exercises like Dale Carnegie courses. We also perform training in first aid, CPR and OSHA 10/30 for our new hires.
Fromm: Continuing education is very important at our company. As techniques change, we are always open to adopting advancements that not only improve the work experience but continually improve the quality of the finished product.
How do you ensure that installers are up to date on recent installation methods?
Pierce: On a periodic basis, four to six times per year at each location, we bring suppliers in to host installation training. These events are held before or after working hours so that installers are more likely to attend. There are also lots of opportunities for installer training on the Internet, and many installers take advantage of that.
Bode: Under most state and Federal tax laws, we cannot pay for training for an independent subcontractor, only an employee; however, we encourage our subcontractors to attend training sessions with our local distributors. Many independent contractors have manufacturer certifications for the specialty products that we sell.
Is the cost per job higher or lower due to the fact that you employ your installers? If higher, what makes this worth the added cost?
Martin: The cost is higher, but the risk is lower. We can spend large amounts of money on advertising, have the best showroom, the most polished design team, but if we do not execute on the installation, the cost to repair or replace this work is much more expensive than having it done correctly in the first place.
Also, the opportunity cost is much greater if you are constantly focusing on installation issues rather than looking forward to the next job or opportunity. We find that most of the time, our in-house installation team allows us to do this. Some of the largest warranty and installation problems we’ve had in the past happen with subcontractors. As a result, our in-house installers need to go repair the subcontractor’s work, which costs us time and money.
Fromm: The overall cost is higher. Based in California, we experience one of the highest employment costs (taxes, workers comp., insurance) in the country. To our company, the difference is well worth the benefit of consistently having some of the highest skilled mechanics available to us on a daily basis. In-house installers offer a tangible difference to the offering of the home centers with which subcontracted installation is generally associated. Our clients appreciate our direct knowledge of the employees that will be spending extended periods of time in their residences or places of business.
Is your total cost of installation per job higher or lower due to hiring independent installers as opposed to employing them?
Pierce: I’d say it’s higher because the “A-level” installers require “A-level” pay. An independent installer in our market could make $200,000 per year. Now business expenses would have to be taken from that, but there is no way we could pay an installation employee at that level. So if we want the best installers in our area, we have to use subcontractors. There is no way of convincing them to come on as an employee.
Bode: Overall, it’s lower, but that has nothing to do with why we use subcontractors. This change was not of our choosing. The industry has evolved over the past ten years or so from mostly employee installers to 80% of the entire industry using subcontracted labor. There are multiple reasons for this monumental change, as this same thing is occurring in many industries (see Uber) as we speak. This seems to be the method by which the large majority of installers in our area want to get paid. We would hire more employee installers if that were even possible.
What are the tangible benefits from your installation crew arriving to a job in your uniform and with your branded vehicle?
Martin: If our in-house crew was not installing a job, I would worry about an installer showing up to our job in a vehicle leaking oil with a sloppy appearance acting in his or her own best interest just to get the job done, because they are paid by the square foot.
Fromm: Our crews actively promote to our clients that they are employees of our company. We all understand that a professional appearance and demeanor and quality workmanship lead to ongoing referrals.
Do you feel that you miss out on a branding opportunity when your installers are not wearing your company uniform or driving your branded vehicle?
Pierce: Yes, we miss out on branding. We do offer hats and t-shirts to our installation crews, but of course it is their choice whether or not to wear these items.
Bode: Absolutely we lose a great branding opportunity by not being able to put our subcontractors in uniform. But the potential risk of doing so far outweighs the benefit. Our salespeople are the ones that maintain the relationship with the customer, and they are very attentive and responsive.
What are your installation employees doing during the slow times of year (such as around the holiday period)? Are they helping in other areas of the business?
Martin: We are fortunate to have many installers that are willing to travel with us through our other departments (retail fixture installation, walls and ceilings, polished concrete, glass and glazing, and doors and hardware). We try to forecast our schedule as best we can, and if there are slow periods in our schedule, our team flexes to another department to avoid turnover. This also provides cross-training to expand our installers’ skill sets.
This cross-training makes us more competitive because, while other companies are sending multiple employees, we can send someone with the skills to perform drywall, flooring, ceilings and more.
From my perspective, I always think about the next job. I know if we do not have a steady workflow, our installers will go to a competitor that keeps them busy. I try to never let that happen.
In addition, we hold training during our slower times, and our installers lead the classes. They also help with career fairs, so that prospects can speak directly to someone who is doing what they would ultimately do in the field.
Fromm: In previous years when business moderated, we would schedule to have our crews assist in updating the display floors within our facilities. We also take advantage of slow times of the year to provide continuing product knowledge and installation training.
Is it difficult to maintain loyalty from your installers during slow periods when you may not be using their services as often?
Pierce: We’ve not experienced a problem around the holidays, but in the fall during hunting season, there can be a shortage of installers. Fall is one of our busy times, so this can be a challenge.
Bode: I think most installers understand that occupied retail work pretty much slows down over the Christmas holidays. Subcontractors can find work from other companies as needed during slow periods.
When you consider payroll expenses, benefits, vacation and health insurance, why is this still the best solution?
Martin: While it’s more expensive, we have consistency in our people and performance. We don’t have to spend as much time and money recruiting, interviewing and then hiring.
Fromm: Installation is one of the most challenging segments of the industry, and our ability to maintain consistency and quality, and to control scheduling, has allowed us to focus on other opportunities to enhance our organization. When you consider the challenges that the industry is presently facing with a shortage of skilled mechanics, we are very thankful to have on staff company associates to consistently schedule for our installations.
How do you ensure that you are in compliance with labor laws when dealing with independent contractors?
Pierce: We have a checklist of items such as vehicle insurance, work comp, business name, and more on file for every subcontractor that we use. We keep this information updated and it proved to be effective at keeping us in compliance with labor laws when we were audited recently.
Bode: We spent a lot of money in legal fees, spend lots of time in seminars, attended industry training events, and got our state laws clear on misclassification. You have to know the rules and you have to abide by them. Our subcontractors cannot work for us without a complete package meeting the established state and federal guidelines.
In what ways does your installer give the customer a better overall experience than an independent installer would provide?
Martin: Our installation team members carry themselves with professionalism, as they know they are representing themselves, the company and our retirees that came before them. They are upholding our tradition, and this creates a sense of pride. We have multiple generations of employees, and our average employee’s tenure with the company is 20 years.
Fromm: We believe that an enriched work environment, the consistency of full-time employment and above-average wages all encourage our associates to ensure that our clients are satisfied. We have a very low call back rate and can have a mechanic return quickly to resolve an issue that may have occurred. Clients often voice their comfort in dealing with one entity handling their project from start to finish.
How do you make sure your independent installer takes care of your customer? Is there any follow up with the customer to determine the level of service?
Pierce: We have “gatekeepers” who call customers after installation to get feedback on sales, material, and installation. If there are any issues, problems are addressed quickly.
Bode: We follow up on the general state of a customer’s happiness on every job with a telephone call. This includes gaining feedback on installation.
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