Labor Trends 2024: Retainage is Key At Waterford Business Solutions, we work with multiple contractor industries in all areas of the country. We have over 200 clients, providing valuable insight into sales and costs nationwide. These industries include HVAC, plumbing, electrical, landscaping, cleaning, power washing, construction industry, and other home service professionals.
Last week, we discussed sales trends HERE, but costs are another major factor in your business’s profitability. One of the highest costs for businesses is labor costs.
The Labor Market
In prior years, the market was more robust for employees than employers. That means that employees switched jobs more often, and it took more work to hire them.
More businesses needed employees than employees required work. In 2024, things have changed to be more like pre pandemic. We are seeing less turnover and a lower demand for raises than in the past two years.
Some issues we are still seeing regarding labor are companies poaching employees who are passive candidates. However, their experience makes them attractive to other employers, who may contact them with better job offers.
What do employees want?
The other change in the workforce is regarding compensation. Monetary compensation has always been essential, but benefits and retirement have become more prominent over the last few years.
Employees are seeing how essential benefits and retirement are. Employers must offer attractive wages that match the market. They also need a competitive benefits package. These incentives help maintain a strong work environment and company culture.
Work-life balance is also a hot topic for improved employee retention these days. Work-life balance is less common in contractor industries than in office settings. However, we still see more overtime incentives than before.
Retaining employees is especially important because posting a job ad on a job site has become more challenging. Another hindrance to job postings is finding highly skilled labor to fill the opening.
Many employers discuss the benefits and drawbacks of hiring workers who need more skills. Some have chosen to train these workers from the ground up. This requires spending more money to help new hires learn their jobs.
If you follow the recommendations to keep employees, training them will be worth the extra money.
HVAC, Electric, and Plumbing Future Labor
The U.S. Bureau of Labor Statistics released the predicted increases in employment of different industries we covered in August:
Industry: Employment % of growth from 2023-20233 Openings per Year
Electrician 11% 80,200
Plumbing 6% 43,300
Heating, Air, and Refrigeration 9% 42,500
For more labor statistics on these specific industries, please view the links below:
https://www.bls.gov/ooh/construction-and-extraction/plumbers-pipefitters-and-steamfitters.htm
https://www.bls.gov/ooh/construction-and-extraction/electricians.htm
The growing employment numbers mean that the labor shortage could become even higher as the years go on. Since the job market is expected to grow faster than average. These facts suggest that long term employee retainage will remain key to the labor market.
Last week, we discussed sales trends, which directly affect the ability to hire new employees. Sales have been down a bit, or your business may have had a slow season. Fewer sales have led to a strong desire to keep employees.
This results in a much higher labor metric because they pay the same rate as in prior years. These prior-year pay rates, like training and tools, are less costly than new hiring requirements.
The Effect on the Business
This higher labor metric is not necessarily due to the higher raises we’ve seen in the past few years. We’re seeing the same wage level as in the prior years compared to the 2024 sales decreases.
The higher labor costs hit the company’s profitability harder, reducing its net profit margin from about 20% to 15%. To put that into perspective, if you made $10,000 in one month, you would have a 5% loss in net profit of $500.
Net profit is an excellent metric for assessing the business’s health, but a 5% cut in net profit can be a positive. The higher labor costs mean the company will pay fewer taxes by the end of the year. The lower taxes are due to net profit is different from what it was in the past.
New Staff – the more the merrier
Even if you focus on retainage, you still need to hire new staff in some instances. Those instances include seasonal employee hires and new hires for expanding segments. Those segments may add electrical or plumbing to your already thriving HVAC company.
These two factors increase the number of employees your company will need. Adding employees for seasonal or new segments should keep your metrics the same for labor costs.
Seasonal Employees
Extra hands are always a good thing, especially during the busy season. Hiring employees for your HVAC company who can come out and help with emergency repairs during the summer may be necessary. The balance is always ensuring that your seasonal employees have enough work that they are worth having on call.
When you decide to hire for seasonal, set your prices for the extra work. An example is pricing emergency calls at a high enough cost to cover the possible overtime costs. Another example is if you take on a one-time large job. The business will want to ensure it manages all the labor without underbidding.
New segments
In 2024, we have seen multiple clients succeed by adding new business segments.
There are two ways to do this. You could hire an expert to start the new segment, or you could buy out another business that specializes in the segment. Both methods require new employees.
Once again, the retention of skilled employees steps in. When you purchase the entire company, you get the employees who came with it. These employees have been working in this industry for a while.
When you have no choice but to hire new employees, looking for those with the skills for the industry is essential. Having more skilled new employees can save costs besides wages. When you hire someone who needs training, there are other hidden costs. These hidden costs can include training, tools, or damage to the customer’s home.
The business will still want an overall labor cost of 30%- 33%. Otherwise, it would help if you charged more to have the staff, or the company needs to do more work to offset the expense of the staff.
Luxury Trades & the Labor Market
We see less retainage when evaluating more luxury trades, like housekeeping and landscaping. There are multiple reasons why this may be true, including the discussion on luxury trades in our SALES TREND blog.
The market is shifting because consumers of luxury trades are tightening their wallets due to a lack of cash flow. The second reason is that more consumers are turning to do these household tasks themselves or have started looking into robots.
The idea of having robots do these jobs started with the Roomba craze. Roombas have removed the need for human involvement in cleaning activities like sweeping and mopping.
The next step in this trend is robotic lawnmowers. According to GMI, in 2023, the robotic lawnmower market reached 3 billion. The expected growth per year of 5.7% up to 2031. https://www.gminsights.com/industry-analysis/robotic-lawn-mower-market
But what does it mean?
Overall, 2024 shows that retaining long-term skilled employees is the key to essential industries. While the market is shifting back to an employer’s market, there is still a great need for contractors with experience and skills.
The employee’s level of skill will save the company money in the long run. If you need to hire new people, looking for skills may be worth the higher wage than initial training costs.
Technology is stepping up in 2025, so the labor market in more luxury industries must be flexible. Businesses should also be adaptable to technological advances. For example, a landscaping company may create a new robotic lawn mower repair segment. This will create new jobs in the luxury industry.
There are many overlapping factors when it comes to sales, labor, and materials. Please review our SALES and MATERIALS blog for more guidance on the trends Waterford is seeing for businesses like yours.
Check out our youtube video Labor Trends 2024: Retainage is Key with James to give you a first hand recap
If you need additional help or have any questions, Waterford Business Solutions is happy to help. Feel free to call us at 864-351-0852 or email us at Info@WaterfordBusiness.com.