Braden Black CEO
Contractors and others who employ large numbers of Mexican and other immigrants long have supported an all-encompassing federal policy that would ensure an adequate supply of these workers, especially for jobs many Americans are often unwilling to perform. With the ongoing recession and resulting 25 percent unemployment in the construction industry this need for an adequate worker pool is not as pressing as it was a decade ago. Still, the construction industry is cyclical, and it is expected that the need for more qualified craft workers will again become critical as the recovery gains traction.
Like all loyal Americans, contractors support homeland security efforts and understand that keeping undocumented aliens out of the country is an important part of a workable immigration policy. Contractors support policies that strengthen the borders. So too is a better understanding of the impact illegal immigrants have on healthcare, the education system and employment of American citizens and legal immigrants.
But the issue is multi-faceted, and construction contractors, as much as professionals in any other industry, have a vested interest in protecting the rights of their workers. The vast majority of today’s federal immigration resources are spent on enforcement – Immigration and Naturalization Services raids on construction sites, restaurant kitchens and other places of business. Of course, workers who enter the country illegally and the companies that knowingly hire them should face increased penalties.
But the vast majority of contractors follow all the rules. The few cheaters who hire illegal aliens often pay them less than their jobs are worth and may even ignore basic safety measures, knowing workers in the country illegally have little leverage and will not go to the authorities. These few employers not only take advantage of their undocumented workers, they also enjoy an unfair advantage over good companies they compete with for jobs. These companies find it easy to classify illegal immigrants as independent contractors, skirting laws requiring them to provide workers’ compensation insurance and pay payroll taxes.
Because the reality is that these unscrupulous employers do exist, they must face severe penalties when they’re caught. Unfortunately, by-the-book contractors easily can find themselves employing an illegal immigrant because of our cumbersome, flawed system of immigration checks and balances. Currently, the government wants employers to use an inadequate, incomplete computer verification database to ferret out undocumented immigrants who apply for jobs. With this tool as their best resource, mistakes are inevitable. It would be unfair for force contractors to use this flawed database and then penalize them when an undocumented worker slips through the computer network’s cracks and find their way onto the payroll.
Without a safe harbor provision to protect employers if they mistakenly hire an illegal immigrant even after performing their pre-hire due diligence, a reform package would be worse than worthless. It would be counterproductive, presenting incentives for companies to discriminate against applicants who might appear to be of Latin extraction or who speak with a pronounced accent.
A fair immigration policy also must include a reasonably easy way for workers to enter the country legally. A guest-worker program should allow companies to look beyond America’s borders when U.S. workers are not available. The number of H-2B visas are woefully inadequate to fill the construction jobs that will need to be filled as the economy improves.
A workable system must provide an opportunity for those here illegally to achieve legal status and remain in the country to work. Amnesty is a hot-button word. Many hard-working Americans oppose plans to give immunity and citizenship to immigrants who have lived and worked in the U.S. for years – taking advantage of the nation’s health care and education systems while paying no income taxes. Still, those workers have contributed to the country’s productivity and have established ties to their communities. They deserve to be placed on a path to citizenship after meeting fair requisites.
Clearly, immigration reform involves much more than simply building a 30-foot electric fence along the Rio Grande. True reform will respect the dignity of those who wish to make better lives for their families, deal forcefully with those who take advantage of desperate people for their own unfair advantage and ensure the country’s security, education and health care resources are maintained.
Labels: Commercial, Construction Industry, Industrial
While some look for other sources of debt financing - hedge funds, insurance companies, pension plans, etc., others are turning to their equity and even their assets to make ends meet or take advantage of business or expansion opportunities.
Equity financing - raising money by selling shares of the company - has been a common method used by many types of businesses. It reduces or eliminates the monthly principal and interest payment, and it reduces the company owners' exposure by spreading the risk. Shareholders have no recourse if a construction company fails. Lenders still must be paid back. While attractive in these respects, equity financing also means surrendering some control of a firm. Many construction companies are family-owned and operated. Handing over autonomy may feel like turning over a child to a foster family. If equity financing is unavailable or too heartrending for you, you may consider capitalizing on the value of your assets. Loans backed by high-dollar assets such as real estate, contractor-owned construction equipment or supplier-stocked inventory make lenders less skittish in the down economy. When the economy goes south, banks are sticklers for maintaining strict standards for underwriting loans. When contractors need quick cash to fund operations, asset-based lenders become more amenable.
"The key for an asset-based lender is the collateral and its availability," Commercial Finance Association Chief Operating Officer Brian Cove told the Wall Street Journal. "Even in a tough economy where providers of credit are really tightening up lending, [asset-based lenders] are still out there. The key for an asset-based lender is the collateral and its availability. Most asset-based lenders keep a close eye on that collateral, with some even making regular visits to the client's warehouse to spot-check inventory."
Accounts receivable is another asset a financier may lend against. This is another common practice for many businesses, though it may not be as widely accepted for contractors because a significant amount of a builder's receivables likely will be in the form of progress payments due. Enter the factor.
Factors are becoming the financing source of choice for many contractors and other business owners faced with impending obligations but far-off windfalls. Factoring allows contractors to sell an invoice (or more than one) in order to obtain cash in a hurry. It allows the factor to turn a profit (the greater the risk the invoice won't be paid, the greater the profit for the factor if it is). Similar to invoice discounting, where invoices serve as collateral for a loan, factoring can be a life saver when short-term debt comes due or when an attractive opportunity arises.
For example, a contractor's $50,000 payroll is due in two weeks, and he's out of cash. A $100,000 progress payment from an owner is due in 30 days. The contractor can sell that invoice to a factor, receiving $70,000 in the nick of time to prevent his employees from revolting because of bounced paychecks. In 30 days, when the owner pays his bill, the factor pays the contractor another $25,000 or so and pockets a tidy $5,000 profit - his fee for letting the contractor use his money for a couple of weeks and, in non-recourse factoring, for accepting the (usually slight) risk that the owner would default.
Alternative financing also can serve as a way to pay off debt more quickly, buy out a competitor, or lease or purchase equipment.
Still, as with any financial decision, you should consider the disadvantages of using factoring as a funding method:
- Factors are in the business to make money. They often charge an initiation fee as well as interest based on when the invoice is paid.
- If you don't understand the terms of the factoring agreement, you could be in for a nasty surprise. With recourse factoring, if the client defaults on the invoice, the factor can seek redress from you. "One of the most common traps for small businesses using factoring is the assumption that outsourcing the function means outsourcing the responsibility," writes Gregg Elberg, president of Gregg Financial Services in San Anselmo, Calif.
- Client relations could suffer if the factor uses business methods different from those used by the contractor - methods customers may have become accustomed to.
If your firm already provides a qualified healthcare benefit that does not include prescription drug coverage for retirees, the answer is, "not much." At least, not for several years. That's good news, considering the Senate version of the bill contained the onerous Merkley Amendment that would have forced all but the smallest construction companies to provide health insurance or pay a fine. The amendment, which singled out construction firms (it applied to companies with as few as six employees while the threshold for other industries is 50 workers) was removed from the House version and the final bill that was signed by President Obama.
While smaller contractors will be spared this additional expense, those with 50 or more full-time workers must comply or face a fine of $750 per full-timer. What's more, employees must be enrolled immediately to avoid penalties for imposing waiting periods.
Although the smaller companies will not be compelled to offer healthcare insurance, the new acts do offer incentives to entice them to provide the benefit to their workers. Companies with 25 or fewer employees can take advantage of tax credits for offering insurance. Down the road - starting in 2014, companies with 100 or fewer workers can form a "buyers group," banding together to act as one large company for insurance purchasing purposes. This pooling of assets and risks will allow them to take advantage of volume discounts from insurance providers. And businesses with 50 or fewer employees can access a "health insurance exchange," a one-stop shop for comparing rates and benefits.
If your company is small enough not to have to worry about this employer mandate, the most immediate effects probably will be felt by your company's benefits administrator and payroll department, as the Patient Protection and Affordable Care Act and the Health Care & Education Affordability Reconciliation Act of 2010 come online.
The bean counters will have to keep track of employees' flexible and health savings accounts to ensure they don't exceed the $2,500 yearly contribution limit beginning next year and that workers aren't reimbursed through the accounts for non-prescription drugs. The payroll department, beginning in 2013, will deduct another .9 percent from the wages of big earners ($200,000 or more per year) to cover an increase in the Medicare tax.
Additional recordkeeping will be required beginning next year to determine the cost of healthcare coverage the employer provides to each employee each year. Using a formula similar to COBRA calculations, according to international law firm Proskauer Rose LLP, the amounts must be reported on employees' W-2 forms.
The Proskauer firm notes that employer-run group health insurance plans may avoid some of the other new requirements. Plans will be "grandfathered" if it was in operation on March 23, 2010. According to Workforce Management magazine's website, new and non-qualified plans must offer coverage that extends to employees' children "up to age 26, eliminate lifetime dollar limits and remove pre-existing condition exclusions, if any, for children up to age 19."
Grandfathering provisions will exempt existing individual and group health plans from the age 26 rule, some lifetime limits, waiting period penalties, and required coverage of certain preventative care procedures.
Still, construction companies with grandfathered plans are not completely off the hook. For example, no employer group plan will be allowed to contain pre-existing condition exclusions from group health plans for children under the age 19 or drop coverage for a patient simply because the person's insurance claims for coverage become extraordinarily costly for the insurance provider. Of course, coverage still could be dropped in cases of insurance fraud.
All plans also must remove lifetime maximum limits on coverage of essentialbenefits and some other limits. Limits still will be allowed on the certain medical procedures
Additional costs and administrative requirements are in store for large contractors and those that offer high-end healthcare benefits. Builders who employ more than 200 workers must automatically enroll otherwise uninsured employees into the companies' health plan. Employers that provide "high-cost" health insurance plans (costing more than $8,500 per individual, $23,000 for families and $9,800 for retirees) eventually will incur a hefty tax of 40 percent of the excess benefit. These trigger thresholds will be indexed to inflation and will increase in states where healthcare costs are among the highest in the nation.
One of the biggest expenses the new healthcare law will impose will apply to companies that provide drug coverage for employees. The subsidies employers receive for providing these Medicare Part D benefits will no longer be excluded from taxation.