It's really easy to not properly
understand what your employees really
cost you or your contractors. And that becomes
a problem when you don't charge enough
for them. So what I'm going to try and do
today is help you understand and get
some clarity on how much they actually
cost you and how much they actually cost
you, not just in terms of the hours
that you pay them but the hours that you
can get paid for them and relate that to
how much you charge in an hourly rate that
you charge out. I think that's a
meaningful equivalency for us to think
about here.
This is a long video, I think it's about
8 minutes so here's the short
version if you can't be bothered with
all that. Shit loads more. They cost you
shit loads more than you think,
almost double what you think you're
paying them in the... in the instance of an
employee and about half as much again in
a contractor. So lots, bucket loads of
more than what you thought. So let's
get stuck into the calculation. I'm going
to work out the cost of an employee per
hour that you charge. So we'll start with
an employee... a permanent employee. $60,000
a year's salary divide that by 40
hours a week,
you've got $28.85 an hour, that's what we
normally think when we do these sums,
isn't it? But you've got to add Super 9%
9 and a quarter (9.25%), that's
$5550, you've got
to pay Worker's Comp at about 5%
so that's $3000, so
you've already, before you've started got
$68,550
which is about 12% more than what
you thought. Well I'm finished. (This is so
much fun.) A full year is 52 weeks. You pay
4 weeks holiday so you've got 48 weeks.
We pay 5-day weeks, don't we? So 48
weeks is 240 days but you have to pay
10 sick days so down to 230 working
days and yet we have to pay 13
public holidays so we're down to 217
paid days but 8 hours
a day that's one 1736
hours that you're paying
people for. So if you divide your
$68,550
by 1736,
you've got $39.48
per hour
that you pay them, that they work
and I still haven't finished. Add a car.
Most trades people need to be given a
vehicle in order to properly do their
work. Cars cost about $12,000 a year.
Think about the lease, the insurance, the Rego,
the tyres, the petrol, the maintenance,
and you're talking $12,000 so divide
that by 1736, you've got to add another
$6.91 per hour, so that brings out hourly
rate that you pay them up to $46.39. But
wait, I still haven't finished. Do you
actually get to charge them out for 40
hours a week? I don't think so.
Do you have systems in place to
measure it for a start or are you just
saying, "yeah I think I do Jon"? Because I'm
going to tell you I've never met anybody
who is. Let's talk about travel
time to and from jobs. Let's talk about
smoko and lunch breaks, let's talk
about driving to get materials from
Bunnings or whatever. What about cleaning the
shed when there's no work to do or
fixing up the van and loading up the van
with stuff in the morning before they go
out? What about when you quoted a job to take
22 hours but it took them 24? What about
the apprentice and his days at TAFE? What
about RDOS? Even the best businesses
are lucky to get 80% of the time that
they're paying their staff back as hours
charged. I worked with an accountant and
she had three accountants working for
her and her target for them was 80% by
which they would achieve but they don't
have to drive anywhere, they don't have to go
and buy pipes or nails or anything.
They're sitting at their desk all day
long and she feeds them with work all
day long. She was very good at that and
they got 80%. So let's be generous and
say your guys do 80% on average.
So now we're looking at the cost
per hour charged out. So 80%
of 1736 is 1388.
So the hourly rate that they're costing
you per hour you charge them out,
is your $68,550 plus your
car, $80,550
divided by that 1388, (look at that)
$58.03 per
hour is what they're costing you. (Bloody
hell) $58.03
per hour that you get to charge
them out to your clients. This isn't
great, is it? If you're
charging 50 bucks an hour, you're in a
whole heap of pain, aren't you? You're
charging $65, you're not doing
real well because remember that that
margin, the 65-58, that $7 an
hour, needs to pay for the rent, all the
overheads of your business, the rent for
the office or the shed, the admin
staff, your salary, and your vehicle, your
insurances, your marketing, your
accountant, your expensive business coach (!)
which you should have by the way, your
tools, your IT, and your software,
that's before you make any profit. So $7
margin an hour, you can have to have a
lot of guys working a lot of hours
charging out a lot of hours, before you
start to get your money. I'm going to
stop because how much to charge and how
to charge more are different topics and I'll
cover them another day. I'll just quickly
run by the same calculation for a
contractor. So here's a contractor because I
know what you're thinking, "Oh I'll put them
on contract, I won't worry about all that
shit." But what happens is you don't have
any holiday pay to worry about or super
or compo, they bring their own vehicle
but they charge more per hour
and it kind of balances out. So I
pick $45 an hour, I don't think
that's unreasonable to be paying a
subbie or contractor, 80%
charge down again, that same rule still
applies, you pay them by the day or the
week not for every hour they clock on
and off, so the cost per hour charge
becomes $56.25 again, almost the same.
And you might fall foul of the sham
contractor rules. I know we think there
are ways around it if they're
proprietary or limited and if they quote
for jobs but actually the government's
trying to close those
new polls and you might get caught and
you might be pissed off when you do. I
had a client who got pinged by the ATO
and he got a $50,000 bill
and they audited him for the next 3
years as well so he couldn't get away
with anything else. So he was you know... it
was a significant risk he took and
that's before you consider the fact that
what you're saying when you've got an
employee who you really only pay as a
contractor is fuck you a bit, we don't
really care about you, you're not really
one of us, you're not really on our team,
and if there's no work on Monday, you
won't be getting paid. So you know, understand
the impact that has on the culture, and
on that person's loyalty, and on how your
team works as a group. Nearly finished. If
I'm coaching someone we try to make sure
we understand this, we understand how
that works in their business, how much
they're paying their employees compared
to how much they're charging out. We try
to understand if they're recovering that
money properly, if they're charging
enough, if they're quoting accurately.
We need to do it by job, and we
need to do it by working unit which
might be a guy or it might be you know a
vehicle and 2 people. So here's
my question for you and of course I'm
going to ask you to comment in the
comments... Do you know how
profitable your jobs are? Every job?
Do you know how profitable you guys are
or your girls and everyone or every
working unit that vehicle and 2 people?
And if you're all smart and
clever, and you've got systems in place
to measure this and you know you're doing a
great job, comment that and tell me and
I'll be impressed. And if you don't
really know and you kind of hope, then
comment that and fess up because I think
that would be interesting to see how
many of you are on which side
of the fence. Anyway, happy days! Have a nice
long one for you. See you!