People often wonder why it costs so much to have a tradesman (or any other worker for that matter) come to perform work, or why a company needs to charge for consulting or just talking with them. The educational system does not seem to teach some basic economics, the effects of Government regulations and how business works so that people have a good understanding of the process. This discussion will focus on small, service oriented companies. The larger companies with management taking a disproportionate income is another matter, but the basic economics apply there as well. We will use a 4 person electrical company as an example, and set the journeyman rate at $ 35.00 per hour for discussion purposes.
The view from the customer's perspective
- The worker showed up and did 1 ½ hours of work and sat in his truck afterwards and I got charged for 2 ¼ hours at $ 115.00 per hour. That company is making a killing, after all, he is only getting paid $ 35.00 an hour and only worked for 1 ½ hours.
The view from the employee's perspective:
- The employee arrives at the shop at 8:00 AM, has lunch from 12:00 to 12:30 and is done at 4:30, so he expects to be paid for 8 hours and is legally entitled as such as well. During this time there is a 15 minute paid break in the morning and a 15 minute paid break in the afternoon according to Government regulations.
- When he gets to the shop, he needs to load up for the scheduled work for the day, be briefed on those jobs and then proceed to the jobsites. Additionally, safety concerns for the worksites need to be addressed according to the Government regulations.
- For the purposes of this discussion, let's assume the worksites are ½ hour from the shop and each other and there are 3 service calls that he needs to perform that day.
- The Government regulations also have a lot of safety regulations, training regulation etc. so in order to comply with the regulations. The employee is trained by the employer and of course, expects to be paid to be trained on "company" time.
- Government regulations have a lot of requirements for the safety of employees, so many jobs that could be done by one person, may require two because of the regulations.
- When the employee gets to site, he has to complete a "hazard assessment" before he can proceed. Additional requirements apply to ground disturbance, working at heights, working in confined spaces and so on.
- When he is done the job, he needs to fill in the sheet and mark down all the materials that he used and the work he did so the office staff can bill out the job.
- So, the employee's actual "working" time for the day comes to 8 hours minus
- ½ hour for loading, fueling the vehicle, receiving instructions for the jobs
- 2 hours of traveling to and from worksites
- ½ hour for paid breaks
- ½ hour for hazard assessments
- This leaves about 4 ½ hours of actual "work" time. If you were the worker, would you expect to be paid for 8 hours or 4 ½ hours?
- If additional training time and some other factors such as the washing of vehicles, safety meetings etc. were factored in, the average daily work time may go down to about 4 hours.
- The person answering the phones and interacting with the customers also needs to be paid. So when someone calls to line up a job, ask questions about products or services, this is also "work" that has to be calculated into the service rate or be charged for separately.
- There are many "behind the scenes" costs involved in operating a business, the cost of which must all be calculated into the hourly rate of the service electrician. The following list is not comprehensive, but does list most of the major items.
- The building from which the company operates, whether it be leased or owned
- The utilities for the building
- The vehicles for the employees
- Maintenance of vehicles and equipment
- The tools for the employees
- Stock for the vehicles and the shop
- The training for the employees
- Cell phones for each person in the company
- Land line
- Office equipment
- Employer's share of CPP, EI, WCB
- Holiday and vacation pay for employees
- Insurance for the business
- Business licenses
- Accountant fees
- Lawyer fees
- Interaction time with customers
- Managers time in lining up jobs, ordering materials and instructing the employees
- Shipping and receiving of materials
- Keeping up with Government regulations and codes
- Keeping up with advances in technology
- Safety person
- Since the Government requires businesses to "ensure, as far as it is reasonably practical, the health and safety of all workers", and to document all that is being done, the safety person needs to do the following.
- Research all the applicable safety regulations that apply to the particular business.
- Develop and document a safety program.
- Perform workplace hazard assessments.
- Supervise employees to "ensure, as far as it is reasonably practical, the health and safety of all workers".
- Ensure that vehicles and tools are safe and are used in a safe manner.
- Ensure that employees use the proper personal protective equipment.
- Ensure that, when a safer means of doing work is available, the safe way is used. A good example of this is using a man lift rather than a ladder when working on roofs or other heights.
- "Working alone" regulations may in some cases require that 2 people do the work of one, whether the person is actually one site or just available depends on the location of the workplace and the type of work being performed.
As we look at all the expenses that a business incurs, we can see that the actual "work" that is being performed is only a relatively small part of the overall cost of doing the work. In order to cover expenses, an employee then needs to be charged out at a minimum of $ 115.00 per hour. This is more than 3 times what he is actually being paid. With the increasing focus on regulation and safety, the charge out rate for employees could easily go to $ 150.00 or $ 200.00 per hour since the cost to the consumer of implementing safety programs and documentation is not a consideration when regulations are written.
The more "service orientated" or "specialized" a company is, the higher the cost per hour needs to be to cover the expenses.
A construction only type of company may have $ 70.00 to $ 80.00 per hour break-even point, since there are not as many employee costs such as vehicles, training and travel costs.
If a company does not charge enough to cover the costs of operation, it goes out of business, and is no longer able to service its customers.
There are different business models that are applied to different types of businesses to cover the costs of operating a business. The model that is used depends largely on what will attract the most business since we as people always gravitate to cheap or "free".
- A retail store does not charge separately for the time that individual clerks spend with customers since the interaction time with customers if fairly low in relation to the volume of sales.
- A car salesman does not charge for his time since he gets paid out of the profit of the vehicles that are sold, and there is enough sales volume to make that work.
- Realtors are paid commission on sales, rather than by the time they take with each customer.
- Engineers and lawyers are paid an hourly rate for the work they do, since there are no sales from which to pay them.
- In the Solar industry, it is generally a combination of both. If all the costs of operating the business were to be covered by sales, the cost of the product would need to be quite high because of the low ratio of sales to the high ratio of inquiries and time involved in interacting with customers and the high ratio of behind the scenes work required. Normally, the website provides all the basic information. The initial inquiries are handled by email or phone and then the detailed design of a system is handled through a consultation process. The costs of the consultation process may then be applied to the purchase of a system. This model keeps the overall cost of the systems lower and still allows for the business to pay its staff and bills.
- In the case of solar installations, there may be quite a bit of time that is spent working on looking at the job, planning the installation, filling in the forms, permitting, required documentation, labeling and inspections. This process usually adds hundreds, if not thousands of dollars to the price.