A Canadian grain farm wanting to maintain net profit of 10 per cent of total revenues will have to increase revenues by $300,000 to cover the cost of an employee paid $30,000.
You’ve decided to hire help. You’ve done your homework so you know what that person will do, and you’ve put these details into a written job description. Now you are ready to take a hard look at how much you’ll have to pay to get a person with these qualifications and whether hiring an employee makes economic sense. What should you pay? Can your farm afford the wage costs of an employee?
You need to pay competitively so that you can attract and keep a dedicated employee with the right skills. It will be very hard to keep an employee who knows he or she can earn more elsewhere for similar work. You also need to consider that you are competing for workers with employers in other industries in your area that may need similar skills. You may need to pay a bit more, or do a good job of explaining that you offer other rewards. You want to be fair because if you or your employee starts your new working relationship believing either of you is at a disadvantage, it is going to be hard to build trust, respect, and a productive working relationship.
Early in my career, I was negotiating with an employer. I was offered “15” so I agreed to take the job. I thought the wage was $15 per hour. With my first paycheque, I learned the employer meant $15,000 per year. The employer thought they were being fair. I didn’t. You can probably guess whether I trusted and respected that employer and if we had a productive working relationship. I got out of that situation as fast as I could!
Depending on where you are, $30,000 is competitive for a “general farm worker” to plant, fertilize, cultivate, spray, irrigate and harvest crops, tend livestock and poultry, maintain and repair farm equipment, and maintain farm buildings. Consider this needs to cover employer contributions to the Canada Pension Plan, Employment Insurance, the cost of applicable Worker’s Compensation premiums, and any monetary benefits you may want to offer. A quick review of provincial websites provides some basic information on a competitive range. A general farm worker in Saskatchewan earns an average of $23,800 per year. In Manitoba they earn $26,600 and in Alberta the average pay is around $31,600. Those with less experience earn less, and the more skilled earn more.
CAN YOU AFFORD IT?
With a ballpark idea of a competitive wage for a general farm worker, consider this formula to determine what your farm can afford:
Cost of compensation ($) divided by net profit (%) equals the revenue increase required to pay for that person ($)
Here’s the simple explanation: A Canadian grain farm wanting to maintain net profit of 10 per cent of total revenues will have to increase revenues by $300,000 to cover the cost of an employee paid $30,000. You don’t just have to find another $30,000 or another $60,000. You have to generate another $300,000 because wages come right off your bottom line and you will need more sales to offset the increased expense and maintain that 10 per cent profit. (Note: According to Industry Canada, the Canadian industry average net profit for a grain farm is 10.2 per cent. This formula for calculating required revenue increase is from MNP.)
In addition, you are likely hiring an employee so you can do more work — which means the
additional expenses of investing in cultivating more land, with more seed, fertilizer, herbicide, pesticide, equipment, etc. You are probably also bringing an employee on to free your time to do more important and more valuable tasks, in which case you become overhead — something called “management.” To maintain your profit margin, your revenue increase has to pay for the employees wages, any related additional expenses, and your time spent on negotiating with suppliers, planning, marketing programs, record keeping, and training the employee to do the work they way you want it done.
It is perfectly reasonable to choose sacrificing your profit margin for your sanity. But you need to understand that this is what you are doing and how much profits will decrease. Otherwise, you won’t just be sacrificing some profit. Poorly estimating the costs of hiring help and the increase in revenues needed to cover a new employee’s wages and related overhead can result in having to lay-off your employee, which impacts the employee and their family. In the worst-case scenario, you could lose your livelihood as well. Take the time to do some relatively easy calculations now and you can save a lot of stress and pain later. Of course, this is just the financial investment. What about your time investment? Are you ready to be a farmer and “management?”
Barbara Weselak, CHRP, was raised on a mixed farm in Manitoba and is now a senior manager in the Consulting Services area of Meyers Norris Penny. She specializes in helping clients in a variety of industries improve their human resources. You can contact her at 204-788-6061 or [email protected]