By David Hair, President and CEO, nGROUP performance partners
Labor-intensive businesses in today’s economy are up against a number of revised tax laws, making it increasingly difficult to maintain or increase profit. The Affordable Care Act alone places additional costs and compliance burdens on businesses with 50 or more employees. Adding to this weight is the increased litigation and costs associated with labor unions and “permatemp” employment. So, how can a company stay in compliance, reduce or maintain labor costs, AND increase their top line? Here’s a look at three innovative labor strategies that may be a viable solution for current companies to reach top line business growth:
- Reduce the Workforce
Reducing the workforce is the “solution” that many political and business leaders quickly cited in response to the ACA’s “50 or more” mandate.
A reduced workforce decreases ACA cost but hinders the ability to keep up with demand which may well exceed 50 workers. Simply put, if a business grows or has a peak production season, it needs a larger workforce. Beyond reducing hours or limiting the workforce to 49 employees, businesses may want to consider splitting their companies into smaller entities.
Entrepreneur Magazine noted that during a webinar on Obamacare, Bob Graboyes of the NFIB Research Foundation “advised participants that entrepreneurs may not be able to avoid the large-employer fines by splitting their companies into smaller, separate businesses. Even an entrepreneur with completely separate companies may find his or her workforces combined for the purposes of the health law.”
With the law being unclear as to how the government will treat multiple companies with the same owner, reducing your workforce or splitting your company into smaller, separate businesses is a very limited, short-sided approach to begin finding real solutions.
- Hire Independent Contractors
In a recent article, “Data Spotlight: Independent Contractors on the Rise,” Jeffrey Eisenach, an economist at George Mason University, cited that “the number of so-called independent contractors is up by more than 1 million since 2005.” Independent Contractors work on a contract basis, file a 1099-MISC with the IRS and don’t draw the benefits of a full-time employee. When a service provider is classified as an independent contractor, the company is no longer liable for:
- State workers compensation
- Federal unemployment tax
- Federal employment tax
- State income tax withholding
- Employer Civil Liability (wrongful discharge or entitling the employee to benefits plans)
- Minimum Wage Laws
While avoiding these liabilities sounds like a winning solution, any HR Director can quickly point out that the legal requirements of hiring independent contractors is limited in scope. The popular website, LegalZoom, states, “Should employers incorrectly define a worker as an independent contractor, they may find themselves liable for past taxes including FICA and federal unemployment tax.”
In relation to labor-intensive operations, retaining Independent Contractors is particularly limited in its ability to provide solutions. Typical distribution and plant workers do not fit the legal definition of an Independent Contractor.
- Partner with a 3PHL
Third Party Human Logistics (3PHL) is an innovative business model that offers services with best-in-class practices for a fixed cost. Most often they operate on site in the client’s facility. These amenities include labor solutions for manufacturing and distribution facilities and process management.
Unlike traditional temporary labor providers, 3PHLs are experts in engineering labor standards and production efficiencies. It is the responsibility of 3PHL firms to provide expert analysis and oversight of the production systems that provide a safe, efficient, and compliant-based operation that meets quality standards.
Additionally, 3PHL firms are financially accountable for delivering efficiency by means of process improvements and human (workforce) improvements, making a firm more competitive in speed, quality, cost and capacity.
When it comes to meeting compliance, remaining profitable, and increasing the top line, the 3PHL model is an attractive new solution. 3PHL produces the same flexibility as temporary labor while going a step further to provide a company with efficiency. The model offers reduced cost and liability with increased throughput and quality.
Workforce optimization is no longer just an HR issue. It touches all aspects of the business and requires the strategic input from top executives. Companies must concentrate in staying compliant with ever changing labor laws, controlling payroll cost while being competitive for good workers, managing risk for an increasingly ligatious workforce and avoiding the pitfalls of a collective bargaining table. They must do all this without losing focus of their business. In 2016 CEOs and CFOs will want to consider the competitive advantages of the innovative 3PHL production model to maintain labor effectiveness and efficiency.