Labor costs have become complicated by legislative mandates and persistent worker shortages.
It’s a myth that Oregon’s growers are minimum wage employers. The fact is, they often can’t afford to be.
To attract workers, many operations offer above-normal wages and salaries. According to a 2014 report published by the U.S. Bureau of Labor Statistics, the nursery industry paid employees an average of $10.26 per hour — well above the national minimum wage of $7.25.
“The perception is that all we want is cheap labor to replace American workers, but the reality is that we are not finding a home-grown workforce that wants to do ag — even when we are already paying above minimum wage rates,” said Jeff Stone, executive director, Oregon Association of Nurseries.
Now, wage levels are scheduled to rise even higher in many states — Oregon in particular.
In early March, Gov. Kate Brown signed a landmark bill that will increase the minimum wage between 50 cents and $1 every year over the next six years. By 2022, the minimum wage will be $14.75 inside Portland’s urban growth boundary, $13.50 in midsize counties and $12.50 in rural areas of the state.
“Some growers in the Willamette Valley could end up having to pay their workers upwards of $6 more per hour than a comparable nursery in another state,” Stone said.
Simple economics would seem to dictate that growers have little choice but to raise the prices of their products to offset higher labor costs. But it’s not nearly as simple as that, according to Stone.
“Ag is a price taker — not a price maker,” he said. “The raise does not take into effect the way that ag prices their products, which is set on a national or international scale. Where there are other producers in the U.S. growing plants, closer to the markets we serve, it puts at risk market share if costs get too high.”
Ballooning benefits — or bust
The trend of wage increases is just one economic factor putting the pinch on businesses today. Other recently enacted laws mandate that employers supplement compensation packages by providing health care coverage and paid sick leave.
Under the federal Affordable Care Act, employers must provide health insurance to employees who are “full time,” which is defined as 30 hours a week or more — a significant change
from the historically recognized standard of 40 hours.
“Congress imposed a totally different term, and that term is now cascading down,” said Amy Robinson, an attorney with Jordan Ramis PC who specializes in employment and labor law. “Thirty is the new magic number for a lot of other purposes too — for instance, paid sick leave, which accrues one hour for every 30 worked.”
Under these new laws, employers must keep close track of the benefits due to full-time as well as seasonal workers.
“Particularly for agricultural employers, the rules related to triggering these benefits weren’t crafted to address some of the practicalities related to a workforce that significantly employs seasonal employees,” Robinson explained.
For the new Oregon paid sick leave law, leave begins to accrue immediately at hire; however, employers are permitted to require that employees be employed 90 days before they can use it, and they don’t have to cash it out upon termination, provided certain carryover is permitted. But, if the employee is rehired within six months, all their previously accrued time comes back to them, and there’s no 90-day threshold.
Documenting such convoluted worker requirements has proven frustrating for many businesses, Robinson said, but it’s necessary under the new laws.
“These issues — ACA, the paid sick leave law, the minimum wage increase — have such significance and import to a business’s bottom line,” she said. “They’re truly game-changing propositions, and they’re not things you can get wrong and easily fix later, at least not without potential legal and financial consequences.”
Adding to these challenges, most of these new laws were implemented fairly quickly and require quick action to get into compliance, Robinson said.
Even before the new laws were enacted, many operations, including Alpha Nursery in Salem, offered health insurance as well as a simple retirement plan to its full-time employees.
“It’s always nice to be able to offer those things instead of being forced to,” owner Doug Zielinski said. “It used to be that you could build the type of workforce you wanted and needed for the long term to be a vital part of your company, and offer these amenities.”
Zielinski estimated that labor costs have increased about 15 percent over the past 10 years. Those increases have been manageable — until now. With labor costs about to surge, he sees few options moving forward.
“We’re going to have to figure out how to cut our costs. We’ll have to mechanize more,” he said. “I think you’ll see that in every business in Oregon. And most of the cuts will be to labor — more people will be laid off.”
The Oregon Association of Nurseries and the Oregon Farm Bureau raised concerns about the magnitude of the minimum wage hike. They argued, for instance, that the state’s labor-intensive produce — such as berries, broccoli, cherries and apples — will be phased out, and with it businesses and workers.
“There’s only so much businesses can spend on labor,” Stone said. “The unappetizing choices are to lose market share but keep employees, or automate, which is very expensive, and employ fewer workers.”
Agriculture isn’t the only industry that expects to be hit hard by the latest labor laws. Universities across Oregon are projecting heavy budget balancing to keep part-time student jobs open. Oregon State University estimated payroll expenses, due to the minimum wage increases, will exceed $8.2 million by 2021.
Compression and more changes
Another unintended consequence of escalating labor costs is wage compression. Compression occurs when there are small differences in pay regardless of experience, skills, level or seniority. This happens when the starting salaries for new employees are too close to the wages of existing workers.
“We give people cost-of-living raises and paid time-off packages, so for the most part we’ve been able to keep ahead of those minimum wage increases,” said Leigh Geschwill, owner at F&B Farms & Nursery. “But this is one of those cases where we won’t be able to keep everyone moving at that same pace. It may breed some resentment. We’ll have to try to solve it in a creative way that meets people’s needs and allows us to maintain our margins.”
Zielinski agreed. “Our business plan is good and we’ve always been able to pay above minimum wage through good times and bad. But now the people who are already making $15–$16 an hour, what’s going to happen to them? They’re going to want to see an increase too. The projection [of future labor costs] is a mess.”
On top of these pressing compensation issues, growers are also dealing with soaring transportation costs and looming EPA water regulations. Plus, the U.S. Department of Labor has proposed rule changes that would increase the minimum salary for employees to qualify as exempt from overtime, and changes to Oregon’s just-enacted minimum wage law are already being discussed, including lower rates for younger workers and trainees.
“The changes are happening at a pace where people don’t have a chance to adapt,” Geschwill said.
One change that Oregon growers generally support is an increase to the national minimum wage. “We would support a $12 minimum wage nationally, so then we can compete with other states on the same playing field,” Stone said.
Regardless of when, or if, that change comes to pass, it’s important for businesses right now to determine what’s most economically feasible for them given the new regulations.
“Businesses would likely benefit from a proactive analysis of the structure of their workforce, and the relevant definitions that implicate certain legal benefits, such as leaves and benefits, and evaluate alternative scenarios,” Robinson said.
“What would be the benefits to the business if every employee was full-time, and if not, do we need to more clearly define and plan for our seasonal workforce? It’s a lot of change to keep track of in the short term, but a way to chart future success.”