~ A Commentary by Skip Stein ~
The business world has been changing and will continue to change more dramatically as the new Health Care Laws kick into effect in 2013 and beyond. How will this and pending tax increases and more big government regulations impact business? No matter what happens, smart businesses will find a way to continue operation and to grow, expand and make a PROFIT. Others will shrink and continue to fall by the competitive wayside as smarter, better managed organizations increase market share and advance in the Free Enterprise marketplace.
The 'Law of Unintended Consequences' often comes into play when big government takes more and more control over individual liberty and business activities. More regulation causes increased prices in end products as the costs of regulatory compliance is passed on to he end consumer (business or individual) creating an inflationary spiral that is difficult to manage.
Also, it is usually the case, that the middle-class and lesser skilled workers will be the most impacted.
"The insurance mandate applies to companies with the equivalent of 50 or more full-time workers, a calculation based on the number of people employed by the company and an average of hours they work in a week. Companies are adjusting schedules now because they will have to review employment rolls for up to a year in advance to determine which workers will be deemed full-time under the law.
A company will have to pay a penalty of $2,000 for every such worker, after the first 30, if it doesn't offer qualifying health coverage. If a company offers health insurance but the coverage is deemed sparse or unaffordable, the company must pay $3,000 for every worker who gets a federal tax subsidy to purchase coverage as an individual."
-Wall Street Journal November 4, 2012 in article "Health-Care Law Spurs a Shift to Part-Time Workers"
In late 2012, companies have begun to restructure the workforce, cutting back hours of hourly workers to make them 'exempt' from the health care mandates. This restructuring will do more than save a company health insurance premiums, it will also have an 'unintended consequence' of further alienating employees by reducing their means to provide for themselves and their families. This will, in all likelihood, impact worker productivity and customer service (already is terrible shape).
Is there a 'golden lining' in this devastating storm cloud of further big government intrusion into the American Free Enterprise system? Possibly!
I have long encouraged individuals to start a small business that in the future may act as a 'safety net' or even a career path to greatness and enhanced lifestyle. Many if not most believed that this was impossible or too difficult/expensive to take on. Some did as I suggested and have done for over 25 years, and are so much better off; especially now in the light of Big Government intervention into the economy.
As the Government continues to castigate the 'rich' or those who actually produce, create jobs and make a legal profit with their businesses, many small businesses and individuals who took the route to 'Free Agency' or self-incorporation (sub-S Corporation, LLC, and Sole Proprietorships) are now anticipating a growth in business as larger companies, wanting to limit their 'W2' employee liabilities (insurance, benefits, retirement, etc.), turn to individual and small businesses who provide the services that the current staff of 'full time' employees currently do.
It is anticipated that as natural turnover in higher end positions occurs, companies will seek to fill those vacancies with 'Free Agents' or Independent Contractors and other small businesses who provide replacement services.
Benefits of breaking current 'job/positions' down into project or work assignments allows for a company to better manage resources and to identify work and productivity components. Most organizations view staff/employees/workers as robotic equivalents doing work but never have taken the time to actually understand the true work components that their labor force really performs!
The Project term for analyzing work to be done is called a 'Work Breakdown Structure' (WBS) and every capable project manager understands and knows how to take any 'job function' and analyze it and 'break it down' into component work product structures.
If we examine most of the office worker tasks today, it is difficult to analyze much of what is actually done. Most office/clerical activities are performed 'on demand' as managers or supervisors make requests of the individual, like create/update spreadsheets, enter groups or stacks of data into systems, or other clerical activities. This means that most workers sit and wait on instructions while others are over burdened by work assigned with little thought as to the time and effort required to perform the task(s).
By analyzing the work currently being performed and breaking it down into individual work components and deliverables, you can begin to assess the time and cost associated with each task and begin to review and consider the cost of replacement workers.
This analysis will often show (as many off-shoring companies have done) that the work can be accomplished with less expense by re-assigning it to an 'outside contractor'. If more individuals would consider themselves as Free Agents and offer their services to companies in this time of regulatory control, it may be more cost effective for companies to retain a previous 'employee' as a Free Agent instead of just reducing hours or total replacement by an off-shore agency.
We have seen it happen frequently when an individual decides to become a Free Agent, the first and oftentimes, the best, first customer is the previous employer. The previous employee now has a great 'first client' and the company is able to retain the services of the individual. The company saves substantial dollars in benefit expenses and the individual usually sees a compensation increase of better than 35% over the previous wages.
A Project is usually defined as a series of tasks and deliverables to be performed within a certain time frame and within measurable budgetary limits. If we define the clerical, administrative and operational tasks as work components in a project we can then begin to assess what the project/work costs and deliverables need to be to accomplish the work assigned in selected time periods (fiscal quarters).
If we define the project as ‘ongoing business activities’ and the general administration necessary to all business organizations staffed by full-time or ‘W2’ employees, we can do a cost analysis of what a 'Free Agent' replacement would be to deliver the same (or better) work product.
Because a Project has very focused objectives that are complete with resource requirements, time line and specific budgets. There is also (or should be) a definite return on investment (ROI) associated with each and every project initiated within an organization. The view that a 'W2' employee is more stable or lower cost than a Free Agent when utilized on a project for an organization just does not hold up under analysis. Consider the cost of overhead, fringe, benefits, and 401K plans. Since we have a WBS to complete the work, we can perform a traditional Return on Investment (ROI) projection based on fully loaded costs/performance of a 'W2' to a Free Agent over the same period of time!
Many corporate managers evaluate a 'W2’ individual’s compensation as an hourly rate as computed in the employee's paycheck, but fail to recognize the normal 'cost of doing business' that companies must bear for ‘W2’ employee expenses:
Paid leave--vacations, holidays, sick leave, and other leave.
Supplemental pay--premium pay for work in addition to the regular work
schedule (such as overtime, weekends, and holidays), shift differentials, and non-production bonuses (such as referral bonuses and lump-sum payments provided in lieu of wage increases).
Insurance benefits--life, health, short-term disability, and long-term disability.
Retirement and savings benefits--defined benefit and defined contribution plans.
Legally required benefits--Social Security, Federal and State unemployment insurance, and workers' compensation.
Other benefits--severance pay and supplemental unemployment plans.
These same benefits are either paid by the Free Agents out of their own earnings or forgone as unnecessary (except of course for the Federal, State and Local legal requirements). Employers' benefits costs in 2012 averaged between 29% to 35% of payroll according to the Bureau of Labor Statistics September 2012 analysis (http://www.bls.gov/news.release/ecec.nr0.htm).
Doing a proper analysis will usually show that retaining a previous employee as a Free Agent, will garner benefits for both and make a future dependability and business arrangement a solid strategic business relationship.
Working with a Free Agent (who may have been a former employee) has both benefits and obligations that will dramatically change the relationship between the company and the Free Agent. There are legal definitions that much be considered as well as how the Free Agent resource is managed and assigned work components (WBS). We will not go into this here but both the IRS and other resources have provided a wealth of information on this subject. Also consider Free Agent Services as a starting point: http://free-agent.msc-webservices.com/
Free Agent Consultants, who are properly managed under a written project document, will often outperform a 'W2’ employee due to their focus and commitment. Working for oneself means that the individual has taken responsibility for their livelihood and has more motivation to succeed and perform project tasks well. Experience counts and directly correlates to cost-effective solutions. Successful Free Agents will bring not only their own professionalism and experience to the project but knowledge of companies where they have previously worked. Free Agents often enter projects equipped with the methodologies, processes, tools and aides that have proven successful on other projects. The benefits of this experience can be many:
Fully experienced consultants frequently outpace less experienced people, and are more conscious of quality in the process. While you may pay more for an experienced consultant, you get your money's worth in deliverables design, usability, documentation, quality and effectiveness.
Fully experienced consultants design and develop material and deliver projects with an eye to the future, incorporating usability and maintainability that less experienced people are often unable to accomplish.
Fully experienced consultants often spot issues before they become problems. The expression ‘been there seen that’ may ring a bell. A key reason to utilize an experienced consultant is not only to produce on the existing project but also to foresee other issues that may help the organization bypass problems, bottlenecks or other roadblocks previously encountered on similar projects. Less experienced people may have limited awareness of potential issues and the appropriate measures that may be taken to address them.
Fully experienced consultants can grasp overall project goals to better ensure that their own deliverables complement and support the project scope and planned deliverables. Drawing from experience, they can generate creative solutions based upon the current business environment and need while anticipating future demands. Less experienced individuals are more likely to work on deliverables as isolated items rather than a creative piece of an integrated project solution.
Experience from other projects, methodologies and tools, makes the professional consultant adaptable and ready to adopt organizational standards of the current project. This project history enables the experienced professional to ‘hit the ground running’ and become productive at the very earliest stages of the project.
A Project is usually undertaken by a team of highly skilled individuals charged with completion of the defined scope and objectives within the designated time frame and budget. This is very different than the ‘doing business as usual’ found in most office and corporate environments. There may be a 'sense of urgency' lacking in someone who expects to ‘be there' year after year. While ‘W2’ employees often staff many successful Project Teams, they become most effective when fully extracted from their ‘normal’ corporate environments and assigned to the Project. As a pervious employee transitions to work as a Free Agent they gain the best of both worlds. They are extracted from much of the daily office routines and are able to focus/concentrate on the project tasks to be performed. As they are now fully responsible for their own destiny, office politics become irrelevant or less important and time is better utilized to deliver work objectives.
When an organization has defined a project and cannot identify appropriate resource availability within the existing organization, they often attempt to ‘hire’ a person to fulfill the defined project staffing objectives. This is where many companies make a resource allocation mistake. When individual commitment and knowledge transfer is an objective and timely completion of the project is desired, then recruiting a Free Agent to augment existing workers from within the organization can be most cost effective. When assembling the Project Team, a marriage of experienced Free Agents (individuals under contract to the organization) with internal workers can be the most cost effective resource combination. The organization accomplishes multiple objectives:
Timely Completion of the Project.
Project Completion within Budget.
Knowledge transfer from the Professional Consultant to the ‘W2’ Project Consultant.
Commitment and Focus.
Natural reduction in staffing cost upon project completion when the Professional Consultant proceeds to the next assignment.
Reduced overhead for taxes, liability and benefits by virtue of the Professional Consulting contract arrangement.
Utilizing Free Agents on any project team impacting an organization can be an extremely cost effective means to complete the work while retaining all the benefits the project team delivers.
Skip Stein is the President of Management Systems Consulting Inc. a Florida based company.