Competing for business against other contractors is tough enough but there are two factors that can make the effort more challenging, worker’s compensation and the unemployment tax rate. The former is for another day but the state specific unemployment rate otherwise known as SUTA has held my attention for some time. It can sneak up on you and defy your efforts to generate a labor estimate on next project bid that has an acceptable profit margin.
Depending upon the situation and in what state you pursue your next project you can find your company saddled with a heavier labor burden than you had the last time you worked in that state. The fact that the SUTA rate is not calculated the same in all states doesn’t help. There are a number of factors that contribute to the “adjustments” a state can make to this figure; is the business a construction or non-construction company, what is the length of time your company has done business in the state and what are the amount of benefits that you have paid previous employees who have drawn on your unemployment insurance relative to your total payroll in the state. Of course, there may be other things influencing your SUTA rate in any given state. I highly recommend a consultation with an attorney or CPA licensed in the state in which you are bidding business if knowing the details of what is affecting your SUTA rate there is critical to your pricing strategy there. The bottom line is that your SUTA rate can change drastically, impacting positively or negatively your competitive pricing position in a bid battle and profit margin on a project.
I learned the hard way that if you only have just the personnel needed in a state for a particular project and then leave the state for the rest of the year after the project that you can find yourself with a whopping SUTA rate for the next several years. All it took was one person filing for unemployment due to a lay-off at an individual worksite and my labor burden was torpedoed for three years which is usually the amount of time it takes for an individual unemployment filing to leave the state books. I am glad I didn’t have more former employees file against me! That was a lesson I learned the hard way that unless I was simply going to cease doing business in a state for several years after a project was over I had to come up with a better plan. Taking on projects in various locales away from a company’s main market concentration carries with it this additional risk: Personnel hired locally for the project will be laid off at some point and will then file for unemployment benefits from your company.
As a construction company you have a few options to protect that part of the labor burden. First, if competitive margins allow there is always the option of bringing in the company’s own team. Of course, this means providing housing and per diem. Again, this is a good choice if the margins will bear it and local projects don’t have the labor you need busy elsewhere. Another option is to hire personnel local to a worksite with the plan and keep them on your payroll to travel to other projects when the initial project is completed. Some of the contractors do this and so long as they have projects that can keep these employees busy and the employees don’t decide they can no longer travel everything will go smoothly. Unfortunately, in many states the unemployment commission deputies may view leaving a company due to it requiring travel from home as a valid reason to draw unemployment. A third option is to partner with a staffing firm that has experience with providing personnel in construction.
Obtaining tradesmen and other skilled people from a staffing firm will free your company from the potential of a SUTA rate increase generated by lay-offs at the end of the project. There are other benefits to partnering with a staffing firm to obtain labor for specific projects but that is also a topic for another day. At this point it is enough to know that if you can obtain talented personnel that work well with your regular team and get the job done without it risking a SUTA rate increase at the end of the project you are ahead of the game. Your labor burden will not suffer because you wanted to take that project 200 miles from home. After all, we all want to do business in a way that does not reduce our margins or make it more difficult to do business in the future.