In the December 2022 issue of AWCI’s Construction Dimensions we took a close look at supply, cost and quality of construction labor around the country.
In this article we focus on the cost of hiring and retaining personnel in the office, administration, accounts and other support staff, as well as estimators, project managers and superintendents. Without these personnel in adequate numbers and skilled at their jobs, no project can run smoothly or profitably.
So, what is the cost of hiring and retaining these personnel, and how is it trending? This is not just a matter of salaries or hourly wages, but also includes all the other overheads involved, such as the cost of the hiring process itself, health care, retirement plans and other benefits, bonuses and morale boosters such as outings, trips, lunches and tickets to ball games.
We asked some of our AWCI members around the country to give us firsthand, frontline information on the situation.
Direct Cost of Hiring and Retaining
Has the cost of hiring and retaining new staff changed over the last few years?
The answer is yes, according to Bobby Skyles, director of human resources at Marek in Texas. Skyles says, “With regard to hiring, we are not experiencing as much wage pressure for early career candidates right out of college as we are when trying to bring someone in from the outside who might be mid-career or more senior. In many of those situations we’re having to bring new folks in at substantially higher rates than our existing employee base. Additionally, the time to fill for mid-career has lengthened and has forced us to utilize additional recruiting sources, both of which add to the cost. On the retention side, we have had quite a bit a pressure in some of our markets where we’ve lost some up-and-coming talent to offers from others that were 30% to 60% higher than we could give them. In several cases, this has resulted in the team members left behind pressing hard for significant increases.”
Gene Cox, president of Custom Drywall, Inc. in California, has a somewhat different experience. “We don’t have a problem with our support and accounting staff,” he says, “but estimators and project managers are a different story. I have tried training new people out of college but they quit as soon as they reached the point of being able to work on their own.
“LinkedIn has headhunters constantly looking for people. One person had been with us for less than a year and was just learning to estimate when somebody from LinkedIn offered him a job for way more money than he was worth because he now had experience on his résumé. We hired two experienced estimators who had worked long-term for other firms. One of them had no computer skills although he said he did. The other wanted to move to the Bay Area but after being here for two days decided he couldn’t afford it.”
Shawn Burnum, vice president of operations at Performance Contracting, Inc. in Kansas, says, “All our costs have certainly risen, and we have to contend with increased competition when it comes to finding solid candidates. We are having to put considerable resources into our internship and recruiting efforts at the college level. We also work hard to prepare, train and develop our resources so that they can learn essential skills and feel valued in our teams.”
“Office staff cost has risen about 10% overall,” reports Bill Fritz, president of Mission Interiors Contracting, LLC, in Texas. “We offer bonus incentives based on production and the overall profitability of the company. Perks such as game tickets, employee lunches and the like are definitely appreciated by the staff.”
Adam Barbee, senior estimator/project manager at Daley’s Drywall & Taping in California, explains, “In our field of work there is a significant cost for hiring new blood. Generally, just the baseline will be at least 5% to 10% of the salary. This includes the necessary steps with department supervisors, HR, training, etc. In addition to the significant cost of the hiring and training process, which is the largest cost, we pay sign-on bonuses for certain positions in order to secure needed talent. This, of course, increases our recruitment expenses, but we always aim to come out ahead one way or another.”
David Sparacino, production manager at Marek in Texas says, “There has been an increase in the starting wage of new hires at the entry level. Our trade requires heavy use of transportation and personal tool investment. These costs have increased substantially over the last few years. New trade members understandably expect the starting wage to take into consideration some of these considerable rising costs.”
In Hawaii, Michael Mazzone, president of Statewide General Contracting & Construction Inc., says he has not noticed an increase.
Hawaii notwithstanding, there definitely seems to be an overall increase in the cost of hiring and retaining new employees throughout the industry.
Salaries and Wages Versus Cost of Living
Have salaries or hourly rates increased over and above the cost of living?
“Generally speaking, no,” says Skyles. “There have been targeted situations for some high potential employees where we have gone over and above the cost of living, but for the most part, we are struggling to keep up with the cost of living as it relates to our pay increases.”
“Wages have increased but any gains have been negated by the rising cost of fuel and housing along with other necessities,” says Sparacino. “As wages have gone up, these costs are harder to pass along to the end user of the projects due to competition in the marketplace.”
Cox says, “For estimators and project managers I would say yes. There is a shortage of people to fill these positions. Anybody who is looking for a job right now either is not very skilled or qualified, or wants too much money.”
Burnum explains what his company is doing: “Last year, we took an aggressive look at all our markets and evaluated our compensation levels per market. Some cities that have seen dramatic shifts in the cost of living were adjusted accordingly for overall compensation: Denver, Austin and New York are examples. It will take a few cycles to implement these increases, but the changes are underway. We use several resources to evaluate our compensation across the industry: FMI, the Economic Research Institute, Korn Ferry and PAS, Inc. to name a few. These outside consultants keep us abreast of movement in the construction market.”
“Salaries and hourly rates have gone up about 22% since early 2020, says Fritz.
Mazzone says, “Our contracts have always been close to the cost of living. With the disastrous policies of the current administration and the World Economic Forum, we are far below cost of living.”
“Over the short term, the rise in salaries and wages have not exceeded the cost of living,” says Barbee. “But overall, based on an average growth over many years, there has been a healthy increase.”
Other Costs
In addition to direct financial compensation (salary or hourly rate), what are the other significant costs involved, and how have these changed (health, benefits, retirement, bonuses, paid leave, etc.)?
“The cost of health benefits continues to increase at an unsustainable rate,” says Skyles. “And we have increased the vehicle allowance amounts provided to our construction operations staff significantly, in some cases more than doubling what they were receiving.”
Cox confirms the general situation: “Health benefits are going higher every year. As far as bonuses are concerned, I find that most people don’t want to wait for bonuses based on what they accomplish but want their money up front and on their paycheck.”
“Healthcare continues to be a driver in employee costs,” agrees Burnum. “We have added more parental paid time leave, but we did so because we felt it was the right time to recognize this benefit in our company. PCI has historically been very generous in terms of retirement and bonus opportunities.”
Sparacino says, “Overhead cost has risen with inflation, and the realization that these costs are not transitory in nature has made the use of outside labor sources in our market more attractive.”
“Increases of 10% across the board on these items has been the norm over the last three years,” says Fritz.
Mazzone says, “As a union signatory, we have been paying these benefits for years, and they all have increased every year.”
“The costs of the benefits package we offer, including healthcare, retirement, paid leave, etc., have been set in stone for many years,” says Barbee. “Of course, there is an increase commensurate with the cost of living, but this is always figured in.”
Overall Effects on Business
If it is costing more to recruit and retain staff, how is this affecting business overall? Have contractors had to make other changes to compensate for higher personnel overheads?
Skyles says, “These factors, coupled with others, have significantly eaten away at our profit margins. When we lose someone, it takes a lot longer to find a replacement, which adds work and pressure to the rest of the team for longer periods. With overhead continuing to increase, we are having to take a hard look at all of our spend and determine if we’re really getting the bang for the buck that we need and expect—and where not, making some tough decisions.”
Sparacino says, “I believe the cost of recruiting and retaining staff has made us more revenue driven to help compensate for this expense.”
Burnum says, “Luckily, we don’t live in a vacuum and the costs we are spending are competitive in the local markets, meaning everyone is having to spend them. With that, the cost of construction has increased but we are not being impacted financially in a significant way. My concern is what happens when the market turns and owners are no longer willing to pay these prices. Do we have to self-adjust in a negative way? Only time will tell, but I don’t see the demand for labor softening in the near future.”
“Of course, we have raised the level of overhead cost and passed this on indirectly in our clients’ quotes,” says Fritz. “Costs were up on every level with the exception of materials. The number of projects available to bid on has been significantly reduced since August with a continuing decline through November. This has led to a reduction in material costs since suppliers’ inventories are at a higher level now with the lower volume of sales. We are seeing next-day delivery on many of our projects.”
Fritz adds, “I feel this will have been one of our least profitable years (2022) due to increased cost of labor and overhead. Materials were up in the first two quarters, with reductions in the last two quarters.”
Barbee says, “Our biggest change to the company is re-evaluating job sharing. This is huge! This can sneak up on you over time (usually when the fruit is plentiful). It’s very important to re-evaluate all your departments/organizations. Most of the time you will find workers are sharing a task that rightfully belongs to only one person. Sometimes hiring more staff is adversely affecting the business overall. You need the right people at the top to make the right moves because this will affect the entire company.”
“We haven’t had good luck with headhunters,” Cox notes. “They charge a lot of money and the applicants are not honest about their abilities. My advice is that if you have anybody working for you that is good, pay them enough to stay because it’s difficult to find good people who can do the job.”
Good advice when one takes into account all of the information presented above. Hiring new people is expensive in many different ways. At the moment, these costs are mostly being passed on to the customer in the bids. But, as Burnum pointed out, if the market turns and owners are no longer willing to pay these prices, only time will tell.
David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.
