Strategic Exchange: Some Starnet members shift to next gen as titans retire – June 2024

By Kemp Harr

When the Starnet group of commercial flooring contractors converged on Amelia Island, Florida in mid-May, the nearly 700 guests increased the 18-square-mile island’s population by about 2%. The last time this group came to Amelia Island was in 2004 and, in the time since, not only has the group grown, but the dynamics of the group have changed as well.

Starnet now has 171 members, up seven from two years ago. During that same two-year period, the number of branch locations has risen 48 to a total of 423. Diverzify, Lynx and Artisan Design Group (ADG) are each counted as one member, but they collectively now have 126 locations, so as these three private equity-funded entities assimilate more member locations, Starnet’s individual member count will decrease as the number of branches increases. The fact that Starnet’s member count continues to rise is a tribute to the co-op’s recruiting efforts outside of this consolidation.

Just as dynamic within the group are the number of longstanding, family-owned businesses that are transitioning to the next generation of leadership. Members like DFS Flooring, Howard’s Rugs, CB Floors, M. Frank Higgins and Master Craft-just to name a few-have named the next generations of family-member leaders, who are not only taking on more responsibility within their family’s businesses but within the co-op as well.

At the Next Gen lunch last month at Starnet’s meeting, one of the rising second-generation leaders asked his peer group, “How can a family-run, single-location flooring contractor compete against this new national, multi-location service model?” And you could hear the who-moved-my-cheese fear of the unknown in his voice.

As Steve Cloud, current chairman of Starnet, said in our recent podcast, “You can’t discount the successful track record of FloorDaily the family-run businesses within Starnet.” No one can accurately predict which model is best, but historically in the flooring business, the family model has prevailed.

A tribute was given during this meeting to the retiring member-leaders who have departed Starnet in the past year. Of the nine on the list, five retired after selling their business to Diverzify: John Becker, Duane DeJonge, Kevin Kenny, John Stanfield and Ed Woolley. The remaining four, who retired to make room for a younger leader, were Dick Eddy at Sergenian’s, Pete Larmore at Bonitz, Dan Ulfig at Master Craft and Mark Royerre at RCC Flooring.

DOL CHANGES TO INDEPENDENT CONTRACTOR STATUS
If much of your installation labor comes from independent contractors, it’s probably not new news that the Department of Labor (DOL) changed the classification law on March 11, 2024 for determining how a labor relationship can qualify for independent contractor status. As a refresher, there are six factors that must be considered when determining if a worker qualifies for independent status. This is called the “economic reality” test. Many of the tests are old news and easily complied with. The tough one, however, is whether the work the person does is essential to the employer’s business.
• The worker’s opportunity for profit or loss
• The relative investments by the worker and the employer
• The degree of permanence of the work relationship
• The nature and degree of control an employer has over the person’s work
• Whether the work the person does is essential to the employer’s business
• The worker’s skill and initiative

It’s not lost on most of the people who read this column that the DOL’s motivation for turning everyone into an employee is to maximize the amount of taxes the government can collect from both employers and employees. For some reason, the government feels it is missing out on a taxable exchange of funds under the 1099-type arrangement.

Even if both the employer and the worker want to remain independent so they can keep their options open with regard to what hours they work, the process they use or whether they only want to work for each other, the government, for some reason, feels a set of guidelines should be adhered to-even though, in most cases, both parties see the independent status as a level of freedom to work when and where they choose.

It’s this question of whether the worker’s services are an integral part of the employer’s business, a catch-all test, that is the cause of the greatest concern. Just as it would be hard to prove that a plumbing company can’t be in business without workers who install plumbing, it could just as easily be argued that commercial flooring contractors should have carpet installers on their payroll. But if, on the other hand, the contractor wishes to secure the business and pay a rate per unit to have it installed by a third party, they should have the freedom to make that decision.

Since this law went into effect back in March, there have been no high-visibility cases or penalties, but many feel that it is only a matter of time.

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

Copyright 2024 Floor Focus 

Related Topics:Starnet, Artisan Design Group