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By Richard Luck

Last week the Washington State Department of Labor andIndustries posted a nicely produced video on their websiteannouncing what they were doing to keep Worker’s Compensation rates low foremployers. 

Well … not really. 

The tag-line above the video states that they are proposinga 12% increase in premium rates. That works out to about six and a half cents per hour worked (assuming a40-hour week for salaried employees), nearly half of which is typically paid byemployees themselves.

But the video itself makes it clear that this 12% increaseis far less than what they reallyshould be charging employers, what with the high unemployment rate (ie: lessmoney coming in), the poor performance of their investments (ie: less moneybeing retained), and injured employees being hit with the double-whammy ofbeing out of work longer and having higher medical costs (ie: more money goingout).

When you remove all of the floating pie charts andslow-moving pans of caring state employees filing paperwork on behalf ofwheelchair-bound injured workers from the video, the message is downrighthorrific: L&I has become a black hole from which cash can not escape.   More must be dumped in.  The angry god must be satiated.

I don’t deride Workers’ Comp benefits lightly.  In my younger days I was injured on thejob while working at a ski resort. I was bed-ridden in and out of hospital for two months, required veryexpensive surgery to treat my burns, and suffered through several months of physicaltherapy to return me to “normal.” The state paid (nearly) all of my expenses. 

That said, I can’t help but think of the parable of The Grasshopperand the Ant when I mull over the reasons behind this latest rate hike.

When you add to the mix the recent revelation that employersare going to see an increase in their Unemployment Insurance rates inexcess of 40% in 2011 (due in small part to high unemployment and in largepart to extended benefits) I begin to wonder why any company would botherhiring an employee in this environment.

Would You Hire anEmployee in this Environment?

I recently asked this very question on the Seattle Tech Startupsmailing list.  The answers Ireceived were overwhelmingly one-sided:

“We’re all 1099, can’t afford all the headaches of hiring.”

“We need to be nimble and having employees doesn’t allow usto do that.”

“Why would I want the headache [of hiring employees]? ”

Jeremy Wadsack provided an interesting insight into bothsides of the story.  He told methat his company has done a mix of 1099, W-2, and contract-to-hire – all fordifferent reasons.

“In terms of the cost-to-hire,clearly the 2-person or even 5-person company is going to feel costs greateronly because adding one more employee is a significant change. … At 30-people,we were able to be flexible about hiring and I don’t think we saw much costdifference between a W-2 employee and a 1099 one.… [I]n any event, we were driven by market demands more than costs. “

That said, in this current environment where employers are at a premium, I don’t seea lot of startups hiring W-2 employees. I know a dozen companies whose employees are just the co-founders (andthey’re working for equity), two game companies fully staffed by interns, andmore companies than I can count who are having their software built bylabor outsourced to India or the Ukraine. 

Yes, there are posts for full time employees on Seattle 2.0, nPost and other job boards, but from thepeople I’ve talked with at some of these companies, they are taking their timeto fill the positions.  They have asurplus of applicants, after all.

What Does This Meanfor Startups?

Unless Boeing, Microsoft, Amazon or F5 goes on a hiringspree, I don’t see a big change in the cost incurred by startups when hiringemployees.  The financialrequirements of Labor & Industries and Employment Security are very high atthe moment, and the pool of companies contributing their share to the pot isnot keeping pace.  Given thisstate’s track record of miscalculating financial projections, too, my guess is thatthese rates will go up again in 2012.

This isn’t necessarily a bad thing if you’re on the hiringend.  You can afford to take yourtime vetting applicants.  Severalof the pre-revenue startup founders I spoke with told me that when they dostart hiring they’ll likely begin with a mixed approach: contract-to-hire, withthe “contract” part of that being between 3 and 6 months in length.

If you’re an employee looking for a job, however …

Well – this might be a great time to start a company.

Richard Luck is the co-founder and CEO of Loudlever, which is building an online service for magazine publishers to help them lower their content acquisition costs, while getting a better handle on their copyright, license and royalty obligations.
He is not currently hiring — but if you are interested in interning at Loudlever, he promises he’ll throw you into the deep end of the publishing pool, where if you’re skilled enough you’ll learn to swim with the best of them.

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