One of the many, many things that have changed over the generations for family farmers is the climate in which they must compete for labor. Often, farmers and ranchers faced with an inability to recruit and retain the necessary staff they need for a variety of reasons. It’s not work that everyone wants to do, and it’s not work that everyone can do.
On-farm roles consist of both manual and skilled labor, require excellent risk analysis and decision-making skills, and are hard to define and quantify. They certainly aren’t always 40-hour per week gigs, and they don’t always offer a ladder to climb. All of that said, family farms have much to offer their staff such as autonomy, opportunity to build endless useful critical thinking skills, a dynamic “no day is the same as the one before” environment, and the immeasurable value of actually doing something valuable.
And, with a little help, farm families can offer a competitive compensation package on top of the undeniable qualitative perks. I’ll outline three approaches to consider to enhance your compensation offering, and perhaps provide you with a beneficial tax outcome along the way.
1. Offering a retirement plan
A retirement plan sounds complicated and perhaps intimidating, but it doesn’t have to be. It also doesn’t have to be expensive. And if you offer a plan to your staff, perhaps you’ll find it easier to participate in one yourself. Not enough farmers and ranchers do, and it makes succession so much harder for the lack of an asset to use as an income stream.
You don’t have to offer a retirement plan to every employee, so you can set parameters for eligibility — and in the case of a SIMPLE IRA, you don’t have to match the employees’ contributions every year if you run into a tough one. Administration of this type of plan is simple, and it gives you the advantage of a realistic benefit plan offering.
If you’re a large enough operation, you may even consider a 401(k). These are governed by the tax code and the Department of Labor, making administration a bit more complex, but they offer higher contribution limits and greater plan design flexibility. Often the costs are bundled into the plan and are tax deductible to the employer. Matching provisions are more stringent. You’ll need a financial advisor and an accountant for either one, but they’re not as difficult as you might have thought, and once they’re up and running, you’ll be a stronger business for having one.
2. Profit sharing or other performance incentives (ownership, bonuses, etc.)
This one is a bit more straightforward but comes with a few pitfalls. The basic premise is that a portion of the profits are distributed to employees as incentive for driving higher revenues through their diligence and dedication.
You can structure these in several ways, but the most important thing is to have an actual structure. Don’t shroud it in mystery, don’t wing it, don’t be arbitrary. Plan out the conditions for payment, the benchmarks that must be met, who is eligible to participate, etc. Communicate those terms as part of an employee handbook. (Hint: Maybe have an employee handbook if you’re employing more than one or two seasonals.)
Profit sharing can also be built into a 401(k) plan design if that particular tool fits your needs. You can also provide partial ownership based on performance or longevity benchmarks, annual bonuses, and non-cash compensation such as housing, etc.
3. Golden handcuffs
This one gets a bit more specialized, and the world is your oyster. The idea is that you build a long-term financial incentive for a key employee to stay. Tools for handcuffs can be cash value life insurance, investments held apart from retirement plans, or equity ownership in the business.
You’ll need the help of a qualified advisor, but if you have an employee or two whom you view as essential to the long-term success of your operation, it might be a worthwhile discussion.
» Related: Making labor management work for your farm
You can also consider succession related tools that work in a similar way. Say, for instance, you don’t have a family member who’s interested in taking over for you some day, but you have staff that might be up to the job. In some very specific cases an Employee Stock Ownership Plans (ESOP) might be a consideration. ESOPs are becoming a popular approach and are a valuable tool that serves the purposes of retaining employees and providing an exit plan for an owner.
In conclusion, you have tools at your disposal to build competitive compensation plans, and if you’re finding recruiting and retaining the staff you need to be a challenge, you should find the help you need to put one or more of them to work.
Katie Ogden owns and operates Wildcatter Wealth Management LLC in Laramie, Wyoming. She’s a 2007 graduate of the University of Wyoming with a bachelor’s degree in Agriculture Business and has been working in financial services to help ranch and farm families ensure a prosperous future ever since.
