Building Service Contractors Association of Australia Ltd

July 2022

July 2022

The New Cost of Labour

Be it cleaning or security, BSCAA members face the tightest labour market in more than 50 years. 4 per cent unemployment is providing employees significant leverage when looking for pay rises or promotion within their organisations, or pursuing new job opportunities that readily present. The ABS seasonally adjusted estimates for February 2022 highlights that total job vacancies were 423,500, an increase of 6.9% from November 2021. Private sector vacancies were 386,200, an increase of 6.7% from November 2021 and Public sector vacancies
were 37,300, an increase of 8.6% from November 2021. Quality candidates will receive multiple offers and have the ability to demand pay and benefits that would have been otherwise unavailable pre Covid-19.  

Given BSCAA members primarily sell labour, increasing wage pressures will have a significant impact on the ability to run profitable businesses and service clients. Customers budgets are already fatigued due to the additional cost incurred during covid. This coupled with inflationary pressures within and external to their organisations, will see a greater focus from procurement professionals surrounding their spending choices.  It is likely they will pick and choose even more than in the past to ensure they are getting the best return on their already stretched budgets. Accordingly, it is important that sellers and purchases alike recognise the ongoing financial and human resource impacts and build sustainable plans to manage the situation.

While wages within the cleaning and security industry are tied to award arrangements, firms are currently required to pay above award to attract and retain entry level operators. Students and internationals who once readily filled these roles are absent and slow to return post border re opening. Current job seekers have their pick of professions with some firms offering $20K signing bonuses in their desperate search for new starters. Middle and upper management engagements are requiring the offer of more money and benefits, with lower skills, placing more strain on productivity outcomes. There is little doubt that all these factors have and will continue to push the cost of labour, and therefore our services higher.

This outcome must be acknowledged by all stakeholders within the industry as a failure to do so could see the ongoing support and increased use of illegal subcontractors who price work at attractively cheap, but unlawful rates. It may be unpalatable from a purchasing perspective, however those organisations that expect excellence in service delivery may be forced to pay above award rates to ensure excellent standards are maintained. At a minimum procurement specialists must dissect the hourly rates and services being offered to ensure that they are not supporting modern day slavery in search of budget savings. Sustainable productivity rates must be investigated, as the expectation to complete untenable workloads is often used to hide illegal practices where insufficient time results in unpaid work to complete specified jobs.    

It is also important that BSCAA members have a clear understanding about their cost of labour when engaging direct employees or sub-contractors. Be aware of the contractual mechanisms that determine if your prices can be varied in line with wage, statutory on-cost and consumable price increases. If your contract is based on a fixed price, then you will need to absorb any increases until the specified review date. If there is no review date built into your contract, then it is important to include this clause and approach your client to discuss the potential of a pricing review. Understand what contracts are profitable and actively make changes when a contract does not meet your return expectations. Even if your turnover reduces, you may find your business is more profitable without the effort of maintaining a contract that does not contribute to your
bottom line.  

At the risk of sounding too political, it is hard to understand why both political parties are beating their chests about the creation of new jobs during the election campaign when we can’t fill the ones currently on offer. Many organisations are bypassing new opportunities based on concerns around reputational risk due to
staff shortages. Surely this money is better spent ensuring there are suitable inflows of skilled and unskilled labour from abroad. We live in the best country in the world and people would move here in droves given the opportunity. There are many BSCAA members who have built their businesses with eastern Europeans as the cornerstone of their operational workforces. I’m sure there are many Ukrainians refugees that would relish the opportunity to make a new start in Australia given their desperate situation. No doubt there would be many BSCAA members who would welcome them with open arms if provided the opportunity. 

This article first appeared in the July/August 2022 issue of INCLEAN magazine.

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