Labor issues influence profitability for farmers, ranchers

Senior Economist for Nebraska Farm Bureau Jay Rempe hosted a webinar Jan. 18 to help farmers and ranchers focus on issues that are key to profitability during NeFB’s Inside Profitability series.

The webinar focused on labor issues and labor shortages in agriculture and ag business.

Labor shortages can add delays and cost, along with increased stress to farms and ranches across the High Plains.

A panel of experts addressed the issue in a couple different ways. Joe Horner, an agricultural economist with University of Missouri Extension spoke about farm labor trends. Alice Roach, a senior research associate at the University of Missouri, covered how to recruit, interview and onboard, and train farm employees. Ryan Milhollin, also with Missouri Extension, shared the mechanics that are involved around paying, retaining and terminating farm workers. Horner, Roach and Milhollin authored the Missouri Farm Labor Guide to help employers navigate the farm labor process.

Horner said about four years ago he kept getting requests from farmers about anything to help the ag labor situation because they felt there was an extreme shortage. They managed to secure a grant from the USDA Risk Management education group to put together a teaching package to raise the skill set of human resource management on farms to help them compete in the labor market.

“Keeping agricultural labor is a real issue right now, because we’ve got such labor shortages across the economy and farmers—we’re about 90 days away from starting to plant corn and the busy season of the year,” Horner said. “Livestock guys are already finding extreme difficulty in finding labor.”

Prior to COVID, Nebraska was at an unemployment rate of about 3%, and now it’s at 1.8%. The lowest rate of unemployment in Nebraska is about 0.6%, Horner said.

The guide gives farmers and ranchers a quick reference for recruiting employees to be able to be competitive and give proper compensation. There’s also information on legal hiring practices—what you can and can’t say—and how to manage agricultural labor properly to reduce turn over. Horner said there’s also information on mentoring, onboarding and other topics.

“Finally, with this tight labor environment, we’re probably going to employ some people we really are not happy with and have to deal with some termination and looking at legal termination,” he said.

Farmers and ranchers deal with weather and marketing risks and growth can mean the need to add employees.

“But as we continue to grow in scale and we try to employ more and more people, operating bigger and bigger equipment with more and more dollars at risk, the financial risks, the human risk both from a human safety and from legal risks start to offer potentially major threats to our business,” he said. “So with that, we really (should be) focused on what we can do to reduce risk by being better human resource managers.”

Steps to employee success

Roach covered six steps of the employment process they outline in their guide, and shared some tips and best practices to consider during the process to make it as successful as possible. The first step of the process begins with recruitment. Roach uses the term recruitment because employers need to think about ways to attract new workers.

“What I would urge you to do is to take a step back and instead start recruitment with what we call a job analysis,” she said. “And a job analysis is an internal thinking process that you do alongside your farm team to answer three key questions.”

First, identify those unmet work needs on the operation.

“So are there certain tasks or duties or activities that aren’t getting done? Or are their responsibilities that aren’t being managed?” Roach said.

Second, what would an employee need to know to complete those tasks?

Third, think about the work environment for someone who was tasked with those activities and duties and responsibilities. At the end of that process consider with your farm team if current employees have the capacity to handle those unmet needs.

“But if you realize that you have more work than what your existing team can manage on its own, then it’s time to think about maybe bringing in someone from the outside—a new hire to help with your farm business,” Roach said. That means you need a job description.

Roach said it’s helpful to see what tends to be expected and required for a particular position. After the job description is complete, next think about ways to promote it so potential job applicants can be found.

“There are multiple channels for you to consider. Those include posting on social media or job or career websites,” she said. “You can place advertisements in media like newspapers or radio content, community bulletin boards, networking within your community or industry.”

After recruitment comes hiring, and by this stage, hopefully applicants have submitted some written applications for you to consider for the position. When gathering them, Roach suggests putting them in three different stacks—ones you want to definitely interview, the ones you maybe want to interview and the ones who aren’t a good fit.

Roach suggests during the interview asking open ended questions—those which can’t be answered with a simple yes or no response.

“For example, let’s say that you’re interested in hiring someone who has experience working on machinery,” she said. “You can ask something like, have you ever worked on machinery? But even if you get a yes answer, you still don’t know what type of machinery that person’s worked on, or the extent of what worked on means.”

The interviewer needs to continue to ask follow-up questions to get information needed to make a good decision.

“Instead, pivot to asking open ended questions,” she said. “You could ask something like tell me about your experience maintaining machinery and then hopefully, the interviewee will feel encouraged to share some examples or stories or anecdotes that could highlight their work experience.”

By asking open-ended questions and following the 80-20 listening rule, the interviewer should spend the majority of their time listening.

“That gets back to the adage that you learn more when you listen than when you speak and because an interview’s purpose is to help you learn more about the candidate, you want to give the candidate ample opportunities to speak about his or her experience.”

Also using the same set of questions for all interviewees helps compare responses from all candidates. Focus the questions on whether or not someone has the capability to do the job instead of personal characteristics.

Due diligence practices after the interview could include a background check, running drug tests, asking for references and verifying eligibility. If an offer is extended to the potential employee it can be done over the phone, but Roach suggests following up with a written offer. That written offer should include compensation information and benefits, exactly what the worker will be doing and details about the work schedule.

Once the new employee is hired, employers should think about onboarding to help assimilate the person into the business.

“Some sample onboarding practices include things like explaining your goals, vision and mission, introducing the new hire to co-workers or vendors and suppliers, advisors, supervisors, anyone who they’ll interact with regularly in the business, and giving a tour of the operations,” Roach said. “All those details help position the employee for succeeding in the job that you hired them to do.

Training is different from onboarding, and training helps improve the skills of the workforce.

“You can select an approach to training that works best for your operation and the learning styles of your workforce,” she said. “You can consider training opportunities that are formal, for example, sending someone to a seminar that’s in person or maybe enrolling someone in an online course, where you can also consider spontaneous feedback as a type of training.”

Winning the wage war

Milhollin said an ag employer needs to consider compensation as a top priority.

“How do we offer a competitive wage?” he said. “It’s kind of trying to understand those local dynamics of who you compete with, whether it’s local manufacturers or a lot of other farmers.”

Milhollin said ag employers need to understand the type of wage—whether its salary or hourly—and compensation for over time.

“If it’s on farm type stuff, you tend to have an exemption for overtime, but carefully look at each position to make sure that it does fall under that Fair Labor Standards Act,” he said. “The U.S. Department of Labor has a really nice website (at www.dol.gov) you can go to kind of look up and understand if there’s times that you do have to pay overtime for certain positions or not, but that’s definitely an important thing for an ag employer as well.”

Then there’s non-monetary compensation for ag employees.

“It could be anything from housing to a side beef to work clothes, maybe use of a farm vehicle, other things like that as well,” Milhollin said. “But just some other types of perks or things that employees can have as well that can kind of be as part of the compensation package.”

Some ag employers offer incentive pay or a performance-based pay that relates to the operation goals.

“That could be things like formal or informal bonuses. It can be things like profit sharing, it can also be things like stock ownership into the business as well,” he said. “We just encourage people to make sure to tie the operational goals back to the pay, make sure that they’re in good alignment as well.”

Other benefits ag employers could offer might be things like health insurance, retirement, and paid time off, among others. But they really need to understand the true cost of those benefits and how to package them for the employee.

Milhollin stresses ag employers really should develop an employee manual if they haven’t done so—that way they have an official source for operational policies, practices, standards and other information about the business.

When it comes to best practices to support employee retention, some employers offer incentives contingent on performance and that’s a good practice to get into. Another thing to support retention is to promote employees who have earned it.

Training and continuing education are another opportunity to help retention. Same goes for spontaneous feedback.

“Just letting an employee know that they did a really good job on something and giving information back to them is really something that kind of helps employees,” Milhollin said. “Maybe if you’re having a formal meeting—maybe it’s recognizing somebody who did a really good job on something.”

Retention techniques don’t necessarily have to be expensive, but you want it to be something employees value.

If the end is in sight

What are the rules for terminating an employee? Nebraska and Missouri are employment at will states, and Milhollin said within that law, within the rules, employees or employers may terminate employment arrangements at any time provided no laws have been broken.

“That’s definitely something you can lay out in the employment manual as well,” he said. “So it’s very crystal clear for people for both sides.”

Milhollin said turnover for farm help can be around 25% depending on location, but it could cost up to 20% or more to replace that employee who quit—in addition to time invested to recruit and find a new employee.

The Missouri Farm Labor Guide can be found at https://extension.missouri.edu/m199.

Kylene Scott can be reached at 620-227-1804 or [email protected].