MYOB: Uncovering the Hidden Costs of Hiring

Robert (Bob) Greenwood is president & C.E.O. of E. K. Williams & Co. (Ontario) Ltd., which has six offices across Ontario specializing in business consulting and training in the independent installer sector of the automotive aftermarket. Bob also works with jobbers to understand the installer side of the industry and address what is required from both parties to set up a relationship that grows future business. E. K. Williams (Ontario) Ltd. is on the Internet at www.ekw.ca. Questions and inquiries can be made in full confidence via fax c/o Jobber News (416) 442-2213 or via e-mail to aross@southam.ca.

f our trade customer doesn’t know what it costs for them to hire a new employee, how can they balance that against the costs of efficiency-increasing equipment, or volume-raising business strategies, or know what door rate to charge?

The cost of running an installer business has increased dramatically over the past 10 years. Everyone is aware of the high capital costs required to operate a professional installer business; however, one area that is rarely discussed in the industry is the high cost of the employer “burden” when an employee is hired.

The employer burden is the out-of-pocket costs incurred by and legislated to the employer by various government bodies. This number changes every January 1st and must be factored into the payroll costs of the business.

Many installers are not properly informed by their accountant as to the true cost of hiring an employee and what their burden number is. The reason for this is that most accountants are not familiar with the specifics of our industry and the number of strategies required to allow an installer business to operate profitably. The jobber can assist the installer customer by ensuring he is informed about the correct details of the “Employer Burden” costs for his business.

The accompanying chart breaks out the minimum installer burden for the year 2000 in Ontario. While the burden on the automotive service business employer declined slightly in Ontario, it is still considerable. For example, if a technician is hired for $19.00 per hour, the minimum true cost to the employer is an additional $3.26 per hour ($19.00 X .1717%) for a total real cost of $22.26 per paid hour.

If the business owner provides additional benefits to the staff, such as group insurance plans, paid sick leave or tool allowance, then these amounts must also be factored into the burden figure. For an average shop in Ontario, we find that the rule of thumb for the year 2000 of 20% burden is acceptable at ensuring these additional costs are covered. If a technician is being paid $19.00 per hour, then $3.80 per hour is being incurred to cover the basic burden and the average additional benefits.

As you can appreciate, the burden is an important cost factor to the installer that must be understood. These costs must be reflected in the retail labor door rate of the shop. As a guideline for the year 2000, the minimum retail door rate should be 3.75 times the basic wage cost of the technician. If the technician is being paid $19.00 per hour, then his time should be charged out at $71.25 ($19 X 3.75). This multiplier ensures that this one “hidden” cost is properly covered.

It is when these hidden costs are not understood that we end up seeing door rates in the $35, $40, or $50 area. As hard as it is to admit, surveys continue to show that most repair business owners do not fully understand the financial aspects of their business. Help your installer customers understand their business. Share this knowledge with them and encourage them to understand the labor component of their business. When the labor component is truly understood, the parts margin issue starts to disappear, because the installer now realizes where the real money is made in his business.