Do you know your farm labour costs? You might need a raise

Do you know your farm labour costs?  You might need a raise.

Diving into the details of farm labour costs can feel like you’re opening a Pandora’s box.  But it’s an important Pandora’s box to open.  Just like calculating things like annual fuel costs, putting firm numbers to farm labour costs help you determine your overall production costs, break even point, and profitability.  And those are the keys to the financial success of your farm.

In my experience, I would say that for most farm businesses, salaries and wages are the single largest annual expense.  Now, some of you might raise an eyebrow at that when you think of your expenses for repair and maintenance of your assets and rolling stock, or when you think about your input costs.  But, if you take into consideration a fair wage for yourself and everyone else who contributes to your farm, it would probably come out on top.  Of course, depreciation might trump that if you have several newer assets, but from an actual cash-based view, farm labour costs would make their way to the top.  And that’s why it’s so important to get an accurate number for labour.

If you paid yourself first (and fairly)

I’m sure you’ve heard the saying Pay yourself first.  It’s common advice for all self-employed people or small business owners.    It’s usually easier said than done.

Most self-employed people underestimate their labour costs.  You don’t punch a clock or submit timesheets.  Do you keep a log of the hours you work in a day?  Probably not, but maybe you should.  When was the last time you gave yourself a raise? 

A quick way to put it into perspective is to ask yourself, “What would I have to pay someone else to do everything I do?”

Scary isn’t it. 

We cover some actual numbers below in this blog but think about the number of hours you put into your farm in a day, a week, a year.  What if you paid someone else $15.00 per hour to do it all?  Or even a portion?

And what about your family?  Think of the hours they put in helping with everything from day-to-day operations, daily chores, maintenance, book keeping, etc.  It doesn’t take long to add up.  And that’s why I’m pretty confident in saying that if you were to pay yourself a fair wage for every hour you worked, your farm labour costs would be the highest expense in your operation.

Wage averages for the industry

Many farms struggle with understanding what a fair wage is for on-farm labour.  Farm Management Canada does a good job breaking down some of the considerations and the numbers here.  Their highlights include:

  • Compensation should be linked to the skills required for the job and the experience of the employee
  • Farm labour salaries are often supplemented with perks like free or subsidized housing or a vehicle
  • In Alberta, a farm manager can expect between $14 and $35 per hour
  • A farm worker can expect an average of $21.43 per hour

We took a look at the Government of Canada wage reports for a farm labourer.  They suggest that in Canada, a farm labourer could expect between $10.96 and $24 per hour.  The prairie provinces are on the higher side with a range of $11.54 to $22.00 per hour in Manitoba, $11.00 to $28.00 per hour in Saskatchewan, and $13.60 and $30.00 per hour in Alberta.  The GOC site breaks down these numbers by region if you want to look deeper into the data, and they offer data specific to both a farm worker/ hand/ labourer and a farm manager.

What about overtime?

This might be the biggest elephant in the room.  There are labour rule exemptions for agriculture, and how you manage that on your farm might be different than your neighbour.

Given the seasonality of the industry, and the sometimes very narrow window for work during certain critical times of the year, it’s hard to imagine an average farm using a firm model of 1.5 or 2 times the hourly rate for anything over 37.5 hours in a week or over 10 hours in a day.

But, you do need to recognize and compensate for the hours spent.  You might consider an increased hourly rate for overtime hours, banked time to help with your cash flow and spread out your employee’s income, or other arrangements within what’s allowed, and you can negotiate with your hired employees.  If it’s for the purposes of paying yourself, consider what you’d settle for if you were working for someone else in the same role and use that for calculating your labour costs.

In some businesses, there is an expectation that employees will exceed the generally accepted 40-hour work week – sometimes by almost double – in order to complete seasonal work.  These scenarios become a safety concern and not only puts you or your employees at risk, but can also result in sub-par performance, mistakes, and damaged equipment.

The return on your investment

The Farm Management Canada article we mentioned above recommends assigning a ROI value to labour to understand the impact of labour expenses.  So, whether you hire someone else, are paying yourself or a family member, keep in mind that the work they do leads to value in the form of return on investment.  Here’s the example from the Farm Management Canada’s site:

“An example would be to calculate the value of additional farm labour to extend the use of equipment. Using a combine example with the Machinery Cost Calculator one finds that for a large rotary combine used 200 hours-a-year or about 2000 acres, the hourly cost is $295/hour. Extending its use by 10 per cent, or another 20 hours-a-year, the hourly cost is reduced to $275/hour. That would mean a farm manager could conceivably pay a combine operator an additional $20/hour over and above the base rate for those extra hours.”

When you take this into consideration, is it easier to justify a higher wage for a skilled employee vs a less skilled employee who can’t add as much value?  Or, does it help to define the value in training or mentoring a good, hard-worker who you can count on season to season?   Does it help you determine what a fair wage should be for yourself and your family based on the value you add?  Maybe you should be giving yourself that raise!

Finding the help and keeping them

You can read a lot lately about the lack of available labourers for farm operations in both Canada and the US.  For fruit and vegetable producers, who run very high labour-intense operations, this is even more so the case.  Farms compete with other industries which might pay more, offer year-round employment, and aren’t as physically demanding.  It’s tough to find people who want to work in the industry which sometimes leads to high turn-over or the need to look outside of the country for temporary help.  But, both of these have costs.  The Canadian Agriculture Human Resource Council has some great tools to help you out.  Here are a few:

  • AgriHR Toolkit: Tools to improve your people-management skills, find, retain, and support your employees.
  • AgriJobMatch: A job board for employees in the agriculture industry.
  • Cost of Turnover Calculator: What does it cost your business every time an employee leaves?

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Source: Ag Exchange Group