When it comes to workers' comp, “there are very few ways to win the game,” says Hanbury. However, he says that, “The best way to reduce premiums is to allocate the hours and dollars that your workers put on time cards into the insurance company’s rate categories. Some rates can go as high as $48 per $100 in wages for roofing and as little as $6.90 per $100 for a supervisor. If you can justify the breakdown, you will be audited on actual use and not an estimate or a lumping,” he said.
“You will need to get the classification codes from your insurance salesman or agent so that individuals can log the hours to the different types of work to take advantage of the lower rates,” he said. “Otherwise, the company will dump all of your wages or salaries into the largest category and it’s usually the most expensive per hundred.”
Hanbury estimates that savings can be as high as $10-$15 per $100 of wages, which would normally be $1,000-$3,000 per employee.
When the auditor comes, Hanbury has a spreadsheet showing exactly what work people did, and investing in a computer program to provide those records pays for itself, he advised.
There are a few states that do not allow this approach, he added.
Other approaches to reducing disability insurance costs: pay for smaller claims, such as a tetanus shot, out of pocket; have a good job site safety policy in place, which can reduce premiums by about 5%; and obtain certificates of insurance from all subcontractors showing coverage for worker’s comp and liability.
For subs who claim to have no employees, but seem to have workers on your jobs, Hanbury recommends making them retain minimum coverage workers' comp policies, which are usually as inexpensive as $700 and act as a firewall in case one of the “subs of a sub” is later considered an employee.
- Disability. “Use dividends to reduce premiums,” he says. “Extend the initial waiting period on existing policies to 60, 90 or even 180 days if you have decent personal savings. And lose weight, quit smoking and reduce new premiums that way.”
- Truck and Auto. Increase deductibles and drop collision insurance on vehicles that are more than six years old or worth less than $2,000. And “don’t allow employees with bad driving records to drive your vehicles.”
- Phone/Communication. Shop around for the best phone service. Your current provider may become more flexible when you tell them that you are going to switch to another company. Drop your answering service and switch over to an answering machine or voice mail.
- Utilities. “Treat your office building just like a customer’s house,” says Hanbury: “wrap the water heater, turn off the extra fridge, weather-strip and add sweeps to the doors, insulate access doors, add storms, etc.” Install a set-back thermostat for the office/warehouse, install lower wattage light bulbs or fluorescents and use timers or motion detectors to turn lights on and off.
- Advertising. “Discourage people who are looking for the cheapest guy in town,” Hanbury says. In a down market, advertising is one of the first things that gets cut, but it shouldn’t be because this is a time when the business should be seeking more opportunities to sell. Advertising expenditures should be 2%-5% of sales. Targeted marketing is better than a shotgun approach and personal calls or direct mail to past clients can produce good results. Hanbury estimates that 80% of his calls are from people who have seen the name of his company somewhere and the remaining 20% comes from the Yellow Pages. Web sites are inexpensive to set up and can be operated at a minimal cost, but they need to be updated.
- Dues and Subscriptions. A subscription to the Journal of Light Construction is worth the expense.
- Bad Debts. “You should plan for bad debts,” he says. “Nine out of 10 times, they don’t pay not because they don’t have the money, but because it’s a power play.” Hanbury says his business loses about $10,000 a year in bad debts.
To reduce bad debts: choose your customers carefully; dictate the payment schedule to eliminate more than a 10% holdback at the end of the job; use written change orders, including language allowing for the collection of attorney’s fees; write concise contracts; and don’t be afraid to stop work when payment schedules aren’t being followed.
- Sales and Administration. If you get 30 calls a year, you probably don’t need a full-time receptionist. You may not even need an accountant or bookkeeper. “Don’t build up this huge organization, when you don’t need it,” he advises.
Make Your Connection With www.nahb.org
Make your connection to the latest housing industry news and information with www.nahb.org — the official public and members-only Web site of NAHB.
Log in today to register for educational seminars, meetings and networking events; find important economic and housing data; and learn the latest developments in NAHB’s efforts to promote housing. It’s all available to you 24 hours a day at www.nahb.org. Just click the "Member Log In" button to get started.
If you are a member and need information about NAHB products and services, use the NAHB Staff Contact Directory to look up the direct telephone extensions for NAHB staff experts.