Detailed and accurate human resource or labor planning is vital to an effective and organized farm or agribusiness and aids in procuring employees of sufficient quantity and quality, both year-round and seasonal workers. Planning is the very heart of management as it helps owners and managers to reduce the uncertainty of the future, cope with change or improve upon current procedures. Planning allows the employer to define objectives, control them, and may lead to better employee performance and satisfaction. Proper planning can reduce the likelihood of work disruptions and having inadequate labor during busy times. Similarly, paying more careful attention to how and whom you hire and retain can greatly increase business efficiency, reducing the number of employees needed and overall costs for labor while increasing product quality at a time when profit margins for many are shrinking. Planning can help to reduce hidden costs such as high turnover and wasted training time on the job, damaged equipment from an inexperienced worker operating unfamiliar equipment, and lost output due to poor worker performance. A planned process for hiring and managing labor helps lead to a successful operation, not all the time, but studies have shown consistently that planners outperform non-planners.
In the past and present, some growers have experienced a labor surplus, often paying workers by piece-rate (especially for hoeing, pruning work, and harvest) and therefore have not been much concerned with worker effectiveness or numbers of employees hired, as long as the job gets done. However, hiring fewer and more competent employees means reduced costs in payroll taxes and workers' compensation costs per hire, less training, and fewer supervisors needed. Additionally, with relatively flat commodity prices, higher product quality restrictions imposed by many processors, continuing increases in minimum wage, recent changes in immigration law, increased enforcement of current law, and the lack of an adequate guest worker program, many growers will need to do more with less.
The agribusiness operator in the Sacramento Valley sees problems arising from: a possible shortage in skilled labor at a time when the number of jobs requiring agricultural skills is increasing, employee attitudes causing indifference toward work and the goals of the company, a great need to train and retrain employees with real time constraints on the farmer or manager to do this training, and a lack of time or familiarity to devote to pure management functions on the farm. However, the farmer of today cannot afford "hip pocket management" operating on a day-by-day basis. Plans for maximizing the use of expensive capital equipment and labor are essential if the operation is going to survive. By rearranging work tasks in a more planned and cohesive manner, jobs might be created or altered that would prove more economically feasible to the employer and allow the employee a more stable and skilled job position.
The economic concepts of value-added, diversification, and vertical integration may be appropriate solutions. Here we will briefly touch upon value-added labor. Value-added is that part of the value of products shipped actually created within an operation. Roughly, it is the selling price less the cost of production: labor, loans, purchased land, materials and supplies. One of the ways in which value can be added to an operation is through a reduction in costs and/or an increase in the productivity and skills of your employees through labor planning.
What is Labor Planning?
Labor planning is a two-step process:
Need forecasting involves gathering information about the market's labor supply, examining current labor requirements, and forecasting the future demand of labor requirements within your operation. Need forecasting allows for effective program planning where policies and procedures are created to increase worker productivity and the effective use of limited resources while reducing costs.
External Labor Market Supply
The actual size of the available agricultural employment pool can vary as influenced by a variety of factors such as: the weather, time of year, market situation and competition, recruitment strategy, pay rate, immigration and other government/legal restrictions, cultural and operation practices, geographic proximity of the operation to similar employers, and non-ag work during the off-season. The availability of non-ag work during times of unemployment will become more and more important to agricultural employers and employees alike as welfare reform legislation is further enacted. Political "goings and comings" of a guest worker program also merit additional attention and discussion.
A study completed in 1991 by UC Agricultural Economist Jeffrey Perloff evaluated the impact of wage differences on choosing to work in agriculture. The findings suggested that if employers increased their pay rate by 1%, the probability of seeking agricultural employment by a non-urban male would increase by 4%, while a 10% increase in wages would increase the proportion of those males choosing agricultural work by more than 25%. Pay increases would be difficult at best given current constraints, but other improvements such as better working conditions and the use of worker benefits could attract an even higher level and number of job applicants.
Examining Labor Requirements and Availability
One requirement of an effective labor planning system is a means of assessing the existing numbers, experience, skills and abilities of the current workers. A Personnel Inventory can be culled from existing personnel files, from payroll or benefits information, or from personally interviewing workers. The inventory could contain employee-related information such as: hire date, starting or current salary and total wages paid, any certifications or education level if applicable, mechanical knowledge, language, mathematical, and other abilities or skills that are used for effective work performance in your operation. If new equipment is purchased or a function is added to the operation, such as a ranch pack house, skills should be added to the inventory so that current workers can be placed into appropriate positions or a recruitment process started. A question that each employer should ask: Does my current staff and seasonal work crew have the skills and attitudes that I desire? If not, what can I do to change this?
Forecast of Future Labor Demand
Labor inputs, that it takes "x" amount of employees or time to harvest 300 acres of almonds, prunes, or peaches of specific quality, must be known to project human resource requirements into the future. Labor inputs are found through the examination of past operation and industry records, experience, and data supplied by UC research. Labor input is the amount of labor, measured in hours, that the producer expects to use per acre or per ton in the production, harvest, or processing of the crop.
While labor requirements and labor input data reflect a physical or production relationship between crop acreage or tonnage and the labor required, the demand for labor reflects a relationship between the cost of labor (which is rising) and the quantity and quality of hired labor used. An appropriate business factor (tons of product per acre, per shipment, thousand pounds of fluid milk, cwt. of slaughter cattle or rice) is multiplied by the productivity ratio (workers per ton, per acre, head of cattle) to arrive at the effective number of personnel required.
To forecast future demand, it is the rate at which productivity is changing that is important and should be computed from the previous five or ten years if possible to allow for an accurate labor demand forecast. If productivity changes significantly, the causes for such change need to be identified so that further improvements may be made. Adjustments to the estimates should allow for the influence of special factors (e.g., alternating crop yields, newly purchased equipment or the amount of contracted labor) to yield a net number of future personnel required. The types of skills that will be needed and the duration of employment (seasonal vs. year-round) should also be included.
To summarize:
Increased employee productivity through program planning and technological production advancements allows an operation to reduce costs and time by employing fewer and more skilled and motivated workers. Program planning can increase labor productivity through achieving greater work quantity and quality from each individual employee, labor contractor, or whole operation. Along with reducing cost inputs, program planning is necessary to increase profit margins and operation viability. Procedures and tools under program planning include: the recruitment and selection of personnel, training and development, compensation and benefit strategies, reward structures, job design and motivational activities, performance evaluation and plans, coaching and supervision, work relationships, standards of work, and safety management. These important topics will be continually addressed throughout this newsletter and my program more generally.
Cost Estimates
If an employer wants to know whether the costs of using particular personnel procedures or practices are offset by the benefits gained from using them, the Utility Analysis method may be used to estimate the economic value of job performance in regard to the overall return on investment. Contrary to common belief, all aspects of labor management can be measured and quantified in the same manner as any operational function or production cost. Financially, it is in an employer's best interest to optimize the value of personnel in contributing to the success of the overall operation. The Utility Analysis represents a means of measuring this contribution.
To help gauge and plan labor inputs and production costs, farm advisors in most Cooperative Extension offices maintain commodity-specific "Cost Studies" for growers and agribusiness owner/managers in northern California. The Cost Studies provide a general idea of overall labor and production costs per acre of commodity. Keep in mind that these gross labor cost estimates often ignore the significant individual differences between employees in work performance, severely limiting the usefulness of projecting labor costs with these studies. In the "real world" the results you get from each dollar spent will vary greatly by program planning or how the work crew is chosen and managed.
For general information, I have compiled several brief examples of the average labor hours and costs required per month of operation for several commodity groups. If operators maintain records of their own production costs, I invite comparison and comment. Additionally, any operators who are willing to share their costs confidentially with me to update production information would be appreciated. If interested in obtaining additional information about planning and measuring labor costs and productivity, or to order copies of the general Cost Studies, call the Butte County office.
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On December 5, 350 or so people attended the Cal/Work (linking California agricultural labor needs to welfare-to-work reform) Summit in Fresno along with the USDA and state of California Department of Food and Agriculture Deputy Secretaries, among others. The conference was sponsored by the Ag Labor Network (Farm Bureau, Nisei Farmers League, Sun-Maid, Raisin Bargaining Association, the California Grape and Tree Fruit League) and the California State Department of Social Services. The purpose was to bring agricultural employers and the various state and county government agencies together to discuss, debate, and possibly tie together two problem issues: seasonal labor shortages and the future reduction in the number of eligible welfare recipients due to recent reform efforts (see "Unresolved Issues Hinder Welfare-to-Work Plans" in the September issue, Vol. 1, No. 3). Can former welfare recipients plug the holes of a slowly but ever-expanding farm labor shortage?
Given the seasonal nature of many jobs and the average size of many agricultural firms, questions abound about what role agriculture can really play in reducing the welfare rosters, not to mention the fact that most employers are unsure about hiring the stereotypical welfare recipient. They would need thorough training for most of these workers first entering the industry and the rigorous physical work involved with most positions might not fit well with this particular group. Employers worry about legal problems and workers' compensation claims increasing due to unscrupulous workers; all of these are legitimate concerns. "However," Eloise Anderson the California Director of Social Services stated, "both farmers and welfare recipients are sometimes stereotyped in a negative manner that is not often very accurate."
The conference participants were split into four discussion groups to cover four key topics:
The groups raised several issues during the meetings such as: the need for child care, transportation, reducing or altering employer legal liabilities, government-provided incentives to attract major ag employers, use of contractors and agencies such as EDD to supply, train, and coordinate the placement of workers, the need to attract able-bodied workers with strong work ethics and the ability to learn, and the use of non-ag businesses during the off-season to further full-time employment.
A plan was made to identify available jobs and workers, set up a referral and placement mechanism, provide skill training and ag work orientation, and to discuss the problems of child care and worker transportation. Subcommittee meetings are scheduled to take place in March and participants plan to meet as a group again in June to report on the progress. We will wait and see what happens.
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According to the processors, prune growers must be aware this year that there continues to be an oversupply. To help in reducing this problem, they are urging growers to reduce yields and grow bigger fruit through pruning, mechanical thinning, and field sizing. Although UC commodity farm advisors are assisting owners through field meetings, employees must also be properly trained and supervised in these activities for prune operations to be successful in growing fruit sizes with less than sixty (60) count/lb.
Another way to help ensure that all crops will be effectively and efficiently pruned and thinned is by using an organized employee hiring procedure called the job-sample. A job-sample is a situational test or demonstration that helps the employer decide whether or not the potential worker has the ability to do a particular task or job. It is most effective if the job-sample mirrors the same important tasks that will be performed on the job.
A study reported in 1988 by UC Labor Management Advisor Gregory Billikopf found that more efficient pruners could be selected by using a properly designed job-sample test. A job-sample test can accurately predict worker performance on the job. The studies, which took place during the winter dormant season when pruning is normally done, used both "predictive" and "concurrent" analyses. In the predictive study, job applicants' test results were later compared with actual on-the-job performance. Test results from the predictive studies were used to make hiring decisions. In the concurrent study, the work of present employees during a trial period was compared with their regular on-the-job performance. Participation in the trials was voluntary, but all workers participated. In both cases, workers were aware they were being tested, but did not know when their on-the-job performance was being measured.
On three separate farms with nearly identical conditions, workers were asked to prune (in this case grapevines) during two identical 46-minute periods. Workers understood they needed to prune as fast as possible and still maintain quality. Performance was measured in the numbers of vines pruned per each 46-minute period for every worker. Work performance information was obtained from each farm's payroll records (piece-rate) using two randomly selected days and two randomly selected grape varieties, after the pruning season was over. This research showed that job-sample tests in agriculture could be extremely effective in selecting personnel, as workers who pruned well on the job-sample also pruned effectively on the job while slow workers did poorly in both. Some workers outperformed others by completing eight times as much work in the same period with equal or better pruning quality.
For more information about creating and evaluating job sample tests and other employee selection and training procedures, call the Butte County Cooperative Extension office. Also, see the APMP website under "labor management."
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A new tax year is approaching so I thought that this would be a good time to update everyone on the new payroll and employment taxes and regulations. Under common-law, farm workers are considered employees if they perform services subject to the employer's control. The employer is not, of course, required to pay employment taxes on independent contractors (to determine whether your relationship with a contractor is an independent one or not see "Working with Contracted Labor" in last July's issue).
State Unemployment Insurance Tax (UI)
Enforced by the state Employment Development Department. Taxable wages under the Unemployment Insurance Code remain at $7,000 for 1998. The Employer Contribution Tax Rate Schedule for next year has been announced as "Schedule D." Each individual employer will be notified by EDD of its specific tax rate, ranging from 1.1 % to 5.4% based upon past unemployment claims experience. The rate notice should have been mailed out this month.
State Disability Insurance (SDI)
Also enforced by EDD, employers are required to tell each employee the amount of wages withheld from their pay through the use of IRS form W-2 in box 20. Maximum taxable income rates remain the same as last year at $31,767 per employee as does the tax rate per employee at .5%. The maximum annual amount of wages that can be withheld from an employee is $158.84.
Federal Unemployment Insurance (FUTA)
The FUTA taxable wage rate remains at $7,000 with a per employee tax rate of 6.2%. By subtracting the maximum state UI credit of 5.4% the net minimum FUTA tax rate is .8%. Farm employers must pay FUTA under two conditions: You paid cash wages of $20,000 or more during the past or current year, or if you employed 10 or more farm workers for some part of at least one day during any 20 different weeks. Wages paid to alien farm workers who are contracted to work and admitted into the U.S. and then return to their country of origin are exempt from FUTA taxes.
Social Security Taxes (FICA) and Medicare
SS and Medicare taxes are required if you paid any employee $150 or more during the calendar year or $2,500 or more to all of your employees. However, an individual seasonal employee's pay is exempt from being summed into the $2,500 total amount if you paid that worker(s) less than $150 and he or she: worked as a hand-harvester, was paid piece-rate, and worked in ag less than 13 calendar weeks during the preceding year. An employer is liable for the payment of these taxes whether or not employee wages have been collected.
Once again the FICA tax rate is 15.3% combined, 7.65 % contributions each from employer and employee (6.2% Social Security and 1.45% Medicare.) In 1998 Social Security taxable wages are up to $68,400 (from $65,400 last year). Medicare tax wages have no cap so that all earnings are subject to the 1.45% rate. Thus, maximum employer and employee contributions stand at $5,232.60 each plus 1.45% over $68,400. For self-employed persons the FICA rate is the same as the combined rate, 15.3% up to $68,400 and 2.9% over $68,400. Exemptions from Social Security and Medicare taxes are available to "recognized" religious sects if both the employee and employer are members.
Earned Income Credit
Employers are required to notify certain employees whose wages are not subject to income tax withholding that they may be eligible for an earned income tax credit. The information may be given to the employee along with the W-2 form. Earned Income Credit (EIC) can be paid in advance or received on an employee's annual tax return. If an employer desires to pay advance EIC to employees, the employee must fill out a W-5 form.
Paying Taxes and Penalties
According to the IRS, when paying taxes you should write the following information on your check or money order: Your employer identification number (EIN), the type of tax you are paying and the period covered by the payment. If you are responsible for paying withholding taxes and fail to do so, you can be liable to a penalty equal to 100% of the tax not paid plus interest. Make payment with form 8109.
Federal Forms Needed
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