How can I explain this to my boss?
July 26, 2014 11:18 AM   Subscribe

In short, the better I am at my job, the less money I make. I need help explaining this to my boss, and advice on offering him a solution.

Part 1 (Main)

I am a craftsman, working for a very small business. I am the only employee who does what I do.

The business (my boss) bids projects by the job, but pays me by the hour. Numbers to follow are for illustration only.

So let's say our shop rate is $100 per hour, and my pay rate is $25 per hour. Boss bids a job for $1200, of which $200 is for materials, and $1000 is for shop labor. That means he expects the job to take 10 hours.

If I were to do the job in 10 hours, $750 of that $1000 goes to the shop, and $250 for me. That $750 includes all allowance for overhead and profit.

If I were to do the job in 6 hours, now the shop gets $850 of that $1000, and I get $150.

I only get paid for doing work on these bid jobs. When the work runs out, I am out of work.

So by being faster, I've lost $100 and the shop has gained $100.

I want to discuss this with my boss. I would like to have advice on how to do so in a constructive manner. Constructive would mean having links to economics articles or other professional discussion of this kind of problem, along with suggestions for solutions.

I have been reviewing my work log to help establish some meaningful standards for an objective bid basis, if we were to go forward with a bonus system.

Part 2

A second, but related problem: The boss tells me that I will be inheriting the business from him. I haven't seen anything in writing, but let's pretend it's true. The businesses current assets and liabilities nearly cancel each other out, so there's not a lot to inherit, aside from the value of continuing operations.

Let's suppose I have ideas that could turn the business around, improve profitability, hire more employees, etc. Why would I share these ideas with my boss? I would continue to get my current wage, all increase in profit would go to the boss, and then when I inherit, I would have to pay a hefty tax bill on business value that I created.

I hope this is clear enough to understand. I am reluctant to put more detailed personal or actual information in this post.

Any help with clarifying my thinking and understanding would be greatly appreciated. I am worried about how to address these issues when talking to my boss.
posted by yesster to Work & Money (14 answers total) 2 users marked this as a favorite
It sounds like you should be paid like other tradespeople. For example, auto mechanics and plumbers both receive hourly wages from their employers and the shop rate pays for the downtime between jobs. (More to the point, paying you for the downtime is supposed to function as added incentive for your shop to find you more work so that you're not paid for "doing nothing.")

If you are an employee, and not an independent contractor, being paid for the hours while you are at work versus just the time when you have work, is the default under most employment rules. If you're not, you may want to see if you can arrange a part-time arrangement with your boss. Under such a scheme, you would be at the shop for, say, 20 hours per week so the other 20 hours could be devoted to other income pursuits.

I have no advice for your second part.
posted by fireoyster at 11:35 AM on July 26, 2014

Basically you want to set up an incentive system where your interests and his are aligned. Currently they are in opposition.

Properly aligned incentives could benefit you both. Ideally you shouldn't have to worry about doing what's best for you versus doing what's best for him: they should be the same thing, at least in most cases.
posted by Nerd of the North at 11:38 AM on July 26, 2014

Auto mechanics are not necessarily paid an hourly rate. I have a family member who's a mechanic, and when he worked for a dealership, labor was paid a 'book rate' which was a fixed number of hours per job. So, let's say that the book rate for a job was 4 hours. The mechanic completing the job got paid for 4 hours' worth of labor, regardless of whether the job took him 2, 4, or 5 hours. This system was effective, because it made it so experienced mechanics made more money (due to taking less time to complete jobs) while inexperienced mechanics (who would complete jobs nearer to the book time) still could feed their families. Consider proposing fixing your pay rate to the bid; if you are able to complete the work faster, bid on more jobs, thereby making more money.
posted by axiom at 11:48 AM on July 26, 2014 [14 favorites]

I think you want to paid in terms of piece work, with a certain chunk of money for each unit. It's a pretty common setup.
posted by sebastienbailard at 11:57 AM on July 26, 2014 [4 favorites]

Let's suppose I have ideas that could turn the business around, improve profitability, hire more employees, etc. Why would I share these ideas with my boss? I would continue to get my current wage, all increase in profit would go to the boss, and then when I inherit, I would have to pay a hefty tax bill on business value that I created.

I'd rather inherit a healthy business doing lots of trade than a mediocre one. And I'd seek to learn as much as I can from him on how to run a small business.
posted by sebastienbailard at 12:01 PM on July 26, 2014

For #2, it's all just blather until something's on paper. A possible positive of taking over the shop is that you can change the pay structure and incentives. Being the boss and not having to pay him means you can hire a regular sales staff who works for hourly+commission rather than current boss getting all the gravy. You could consequently choose to be better to your salespeople than your current boss is being to you, while still reaping rewards.
posted by rhizome at 12:55 PM on July 26, 2014 [4 favorites]

For this situation to be fair in your eyes (and I agree that it doesn't seem fair), you need to stop being compensated hourly.

Could you suggest a percentage of the overall fee goes to your labor? Say you get 25% of an item's cost, so if a piece costs $1,000, you get $250. Work out the percentage as needed with your boss.

You can find outside articles to support your case, but ultimately, you need to convince the boss of your value. That should be the goal in this discussion.
posted by Leontine at 1:26 PM on July 26, 2014 [1 favorite]

Regarding the second part of your answer, I would hold off on implementing any new ideas, at least any major ones, for all the reasons you mention. Also it's not your business yet, and he's not thinking about the future of the business like you are. Any ideas you come up with will receive pushback, or they will be implemented by him poorly.
posted by Leontine at 1:31 PM on July 26, 2014 [5 favorites]

I would ask for a raise, because you are able to do the work more efficiently, which will create a lot more profit. That way, you can afford the downtime. Also, maybe you could start doing side jobs. Advertize on Craigslist to custom make things, or do repairs, etc. Even if you inherit the business, it will need a salesperson, and you should learn that skill. An alternative is to ask him to make you a partner in the business, which would give you an incentive to work faster and do some sales, as well as preparing for ownership.

Since the business relies on your skills, you should also ask for disability insurance, and he should carry some, as well, so both of you are protected.
posted by theora55 at 1:47 PM on July 26, 2014 [2 favorites]

If he is bidding a set amount, you should just get a cut of that.
posted by KateViolet at 2:17 PM on July 26, 2014 [2 favorites]

If you work an hourly wage as a desk clerk, you are there 8 hours, nevermind if there is work for you. What you describe is you are practically on call, which is bullshit. You should get paid the amount he is writing into the bid for your services. If he starts underbidding your time, that's another issue. Otherwise, make sure the work magically takes the amount of time he estimated.
posted by Foam Pants at 2:33 PM on July 26, 2014 [3 favorites]

Why do you think you'll pay a hefty tax bill on business value that you created? Are you in the U.S.? If so, there's no estate tax on amounts less than $5,340,000 this year. From your description, it seems like it would be easy to value the business at less than that. And the estate tax is paid by the estate, not by the beneficiary.

So, as sebastienbailard said, you're better off taking over (and in the meantime, working for) a better-run business than a less well run business.
posted by Jasper Fnorde at 7:58 PM on July 26, 2014

For your part 2, I would consult with a lawyer familiar with business succession issues. I agree with rhizome that it seems like pie in the sky at this point, but there may be some substance. You do not mention if this is a 5-year or 15-year timeframe, or if the owner has a wife or children that he needs to provide for.
posted by yclipse at 8:05 PM on July 26, 2014

I had a friend who felt that way and was also made promises. He got tired of waiting for a change and went into business for himself. He's doing really well and is very happy.
posted by myselfasme at 8:52 AM on July 27, 2014 [5 favorites]

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