THE MAGAZINE FOR PROFESSIONALS

Subcontractors? Employees? Or Both?

Debra Gelbart

Work SmartWhen it comes to getting renovation and repair work done, remodeling and property management companies around the U.S. have found that hiring employees, as well as subcontractors, gives them the most flexibility to complete projects.

Remodeling contractor Nathan McGranahan founded and co-owns Cornerstone Remodeling in Omaha, Nebraska. Since 1999, his company has focused on midsize residential remodeling projects. As much as he appreciates his staff of 10 full-time construction workers, the first subcontractor he hired seven years ago helped him understand the value of relying on a job specialist. “We were busy enough that we needed to hire a drywall sub,” he says, “and we were so impressed by the quality of work he did for us. It was just perfect, and I realized that there was no need for my guys to struggle with that task when we could sub it out to an expert.”

Cornerstone completes up to 10 remodeling projects a month, he says, with an average value of $15,000 each. Overall, McGranahan says, he prefers having full-time employees over hiring subcontractors because, “I have direct control over the quality of work on the job. At the end of the day, I think I have more leverage with an employee over a subcontractor, because it’s easier to demand a certain level of craftsmanship from an employee than from another businessman.”

THE ADVANTAGES OF USING SUBCONTRACTORS

McGranahan trains his employees to perform every task associated with remodeling. Yet, he acknowledges, “Subs help us increase our volume of work. Typically, they’ll bring their own crew and that allows the job to get done faster.” In addition to drywall specialists, he uses framers, flooring specialists, plumbers, electricians and painters. Some subs are independent, he says, while others work for companies. In either case, he says, it’s vital to make sure the sub carries proper and adequate insurance coverage.

If or when you do hire subcontractors, advises business consultant Lynn Fife, founder of Evergreen Technology in Kent, Washington, make sure you are in compliance with all government regulations applicable to contract labor in your state. “It can be tricky—especially with regard to taxes and liability—to navigate hiring outside labor,” says Fife, who helps painting contractors become more successful.

Caron Beesley, a community moderator at sba.gov (U.S. Small Business Administration), points out that using the specialist skill set of a subcontractor can allow your business to more appropriately meet customers’ needs. By hiring specialists for some tasks, your customers are happier, and you’ve kept your own experts focused on the work they perform best.

McGranahan and other contractors know the additional benefits of each hiring approach. When you rely only on subcontractors, you save the cost of benefits (paid vacation, health insurance, bonuses, etc.), and payroll is simplified in part because you avoid having to deduct Social Security and Medicare taxes from subcontractors’ pay. You also typically save the cost of equipment and supplies because subcontractors often provide their own. You can adjust the manpower of your organization easily based on your needs at the moment.

Beesley says subcontractors can also be useful when you are in a start-up or expansion phase and can’t afford to take on full-time employees. And, she says, subcontractors can also help out during busy seasons when you simply don’t have enough hands-on staff.

“Hiring subs is a lot like casting a movie,” says Paul Lemmel, national sales director for FTK Construction Services in suburban Dallas, a company that rehabs older mid- and high-rise, apartment complexes in 20 states. FTK uses only subs for the actual construction work. “Getting the right ‘actors’ for the right job can be a challenge,” he says, “but we’ve cultivated a unique group of subs that we keep busy year-round who understand the quality performance that we require.”

FTK has a staff of 35 full-time employees that include portfolio managers and project managers. The portfolio managers oversee the project managers and the project managers supervise the subcontractors. It would be impractical for FTK to maintain a staff of field workers, Lemmel says, because the work comes in waves and, “the year-round overhead would be overwhelming.”

Lemmel says his company takes a “strong hands-on approach” with subcontractors, asking them to sign a scope-of-work document. “It details exactly what their responsibilities are,” he says, “and what the time frame is.” After subcontractors establish themselves at a job site, FTK project managers visit twice a week or so to ensure that the work is proceeding as expected.

Tim Gleason, the construction project manager for CTL Management, a property management company in Portland, Oregon, says large projects lend themselves to hiring subcontractors. “Because of the sheer size and scope of painting the exteriors of the 26 apartment buildings that we manage in three states, we have to subcontract those jobs,” he says. “We don’t have the expertise or the manpower for that.”

CTL Management, a division of The Randall Group, Inc., relies on its employed maintenance staff at each apartment complex in Oregon, Washington and California, however, to paint the interiors of the apartments. That task is more manageable, Gleason says, than exterior painting.

THE BENEFITS OF HIRING FULL-TIMERS

Maintaining a small, full-time staff—in addition to hiring subcontractors—appears to have distinct advantages. McGranahan says his employees bring stability and continuity to projects. “I’m a lot more concerned with an employee’s attitude and character, because I can teach skills and train him … character and integrity are a lot harder to teach.” Once an employee is hired, McGranahan says, “we watch him pretty closely to see how he handles stress and how he reacts if I ask him to redo something. We want our employees to become part of a team … teamwork is a huge part of the success of our business.” Repeat customers sometimes will request a specific employee be part of the job, he says. “It’s absolutely critical to have happy customers.”

Jon Rice, owner of Georgia Painting Contractors in Atlanta, agrees that relying on employees and subcontractors is the best approach. He’s been in business for 30 years; based in Atlanta for the past four years, and in Augusta for the previous 26. He has five full-time employees but uses subcontractors from almost every trade every day.

Yet, like McGranahan, Rice prefers the employment model. “You do have more control over jobs when you’re depending on your own employees,” he says. “Because we offer health insurance and retirement benefits, our employees feel a sense of stability, and that makes them more productive.” He added that once in awhile, a subcontractor walks off a job before the job is complete. “An employee doesn’t do that,” he says.


FIT MATTERS

McGranahan believes one of the best ways to ensure that a subcontractor is happy on your job is to develop a relationship with him or his boss before you hire him, so you can learn what types of jobs he prefers. Whether you’re hiring an employee or a subcontractor, you’re likelier to engender success by learning about the types of work and work environments they prefer. “There’s no perfect world,” McGranahan says, “but being careful and thoughtful about hiring and letting subs supplement your staff seems to work very well.”

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