Hard labor

The growth opportunities are there, but contractors say the labor they need for the new work is passing them by. How are owners dealing?

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A crew from English Garden Care in Rancho Cordova, California, was servicing a client’s property, just like always. A competing landscaper pulled up, waved one of the guys aside, and offered to pay them more per hour, but only if the whole crew came to his company.

The crew did not take the competitor’s offer.

“Convincing them to stay isn’t that difficult,” says Robert Munn, president of the 15-year-old company, which employs about 60 people and pays its workers at least $15 per hour. That’s up 17 percent from last year, when the typical hourly labor rate at his company was $13.

Munn explains to his people that if they leave, they have to start from scratch at the other company. They’ll wait 90 days to get benefits, if the company even offers them. “Maybe you make $1 more, but take into consideration the benefits you’ve worked for here,” he tells them. And they get it.

If laborers ask for more money, hedging the competing offer for a raise, Munn reminds them of the review process. “We’ll discuss your salary at that point,” he says.

Upping pay on a whim to keep a few workers is a slippery slope. “If you start giving in, it sends a bad signal to your workforce,” says Jim Huston, a green industry management consultant at J.R Huston Consulting. He’s also the author of a series of books related to pricing and benchmarking.

Labor is so tough now that wages are higher than ever, the pool of available qualified workers smaller than ever, and owners are perhaps more frustrated than ever. Huston says of the competition in the industry, “I don’t think we’ve ever seen it this bad.”

Karl Schottler, president of Paramount Landscape in Kansas City, Kansas, took a photo of his team the day of a training rodeo, organized because the company had on-boarded many new employees to fill gaps after its H-2B workers fell through.

“Yesterday, I looked at the picture, and with the exception of permanent staff, only four out of 20 seasonal workers in the picture are still here,” he says.

Schottler says his people have been approached by competitors while fueling up at the gas station. “At lunchtime, there are competitors that camp out there and try to hire employees, and we warn our people about that,” he says. “We let them know, ‘They might offer to pay you more, but as soon as they can get someone else at a lower wage, they’ll let you go.’

“It’s not a stable workforce by any means,” he says.

© Jeannie Phan
Labor market dynamics

When the unemployment rate is hovering right over 2 percent, filling service industry positions is a challenge. The simple law of supply and demand drives up the labor rate. During the past two years, owners report that hourly pay has climbed to a level they never expected to offer before. But they do now – because if you want good people, you’ve got to pay for it.

Kerry Hasegawa, president of MGT Landscaping in Littleton, Colorado, has 48 employees and pays an average of $16 to $17 per hour, up from about $12 to $13 a few years ago. “It’s increasingly difficult to find people because if someone is unhappy with his wage, he can pretty much find a dollar more an hour anywhere that afternoon,” he says.

Schottler adds, “I usually have to pay guys $16 per hour just to get them in a truck, and some of them don’t last a week.” His hourly wage is approaching double what it was six years ago.

Greg Strong, owner of Strong Landscape in Salt Lake City, Utah, says his market is an anomaly, mainly because of the region’s DIY culture and frugal nature. People want to pay Walmart prices for services, he says. So, that pushes pricing down, making it harder to pay more for labor. Strong goes in at $15 per hour minimum, and he’s only looking for people with one to three years of experience in the industry. A couple years ago, that labor rate would have been closer to $12 per hour, Strong says.

“We usually tend to pay $1 to $2 more than other landscaping companies, so that is a motivator,” he says, adding that he demands more, so is willing to pay more. For skilled labor, such as landscape installers who specialize in pavers, he will pay significantly more – upward of $22 to $24 an hour.

“The landscapers who can install irrigation systems, landscape walls, work the equipment, set grade – you can’t find that guy sitting at a Starbucks,” Strong says. “Our only work pool is amongst each other’s work pools. We have a limited amount of workforce in the landscape industry.”

In California, the mandatory minimum wage by 2022 will be $15 per hour. But as soon as mandatory increases began in 2017 (then $10.50), many workers adopted the higher rate as the new normal and began demanding it of employers. Munn says most service industry employers in his area are already paying $15, or much more. And, “as long as there is a shortage of workers and a demand, our labor rates are going to continue to rise,” he says.

Drew Keenum operates Rainbow Lawn Care and Landscaping in Alabama, where minimum wage is $7.50 and he pays $10 per hour. “It’s not hard to find people who want a job, but it is hard to find people who want to work,” he says.

Keenum is competing with manufacturing. With Honda facilities nearby and other Tier 2 suppliers, along with Goodyear Tire & Rubber, people can get paid more on the line than they would at McDonald’s or mowing in the heat. “Then, take into account people on government subsidies who can make as much money sitting at home as working, so where’s the motivation to work?” he says.

Beyond the paycheck

Cash in the pocket is the biggest incentive, Hasegawa says – more important to most hourly workers than getting a few vacation days or sick pay. Money talks.

Still, offering a professional environment, career path and benefits can provide the type of stable employment that some workers seek. That’s the goal at Smith & Enright Landscaping in Selina, California, says business manager Selena Herrin.

The company introduced a wellness benefit of $400 per year for employees who stay longer than three months. That money can be used toward doctor appointments, medications and glasses. Employees simply bring in a receipt and are reimbursed by the company. “We tell them they can use the benefit for anything that makes them feel safe and healthy,” Herrin says. The company once reimbursed a crewperson for new work boots.

Smith & Enright also added two paid sick days to the state’s mandatory three paid sick days. And, after three months of employment, workers qualify for six paid holidays. “I don’t know if this draws people into our doors, but we are trying to create stability and a good work culture – something they can count on,” Herrin says.

Strong also instituted sick and personal time off days this year. “Some larger companies in our area offer health insurance and paid sick days, so that is why we are offering those types of incentives,” he says. “For every year you stay, you acquire more time off.”

At Paramount Landscape, Schottler makes sure people know the potential career path if they commit to the company. “We also let them know what kind of training jobs require,” he says. “We make sure they understand our vision so they understand we are on this journey together, and why they are doing what they do each day.”

Keenum is considering implementing a creative pay incentive for workers that mimics how mechanics are compensated: getting paid commission for every job. “My goal is to incentive employees to work fast but I won’t pay if the employee has to go back to do the job because it wasn’t done right the first time,” he says. “The thought is to make employees more efficient, and if a worker has five days to complete a schedule but finishes it in four days, they can get an extra day off without losing pay.”

Rising rates

Companies report they could grow 30 to 50 percent more in sales if they had the people to do the work. Strong says, “Last year, we could have easily done 40 percent more business if we had the labor force.” Though, he adds, “This makes us more profitable because while I can’t do the job that’s in demand, no one else can either – so it creates a supply and demand for services.”

Huston says one contractor in Idaho raised construction prices per hour from $45 to $65 in the last year. The key is to raise prices to keep up with labor so that you don’t lose out on profit margin.

Schottler, like many, says keeping up with contract pricing so it aligns with labor rate hikes has been difficult. “Every year, we get another wage increase, so every contract we have out there is a little less profitable,” he says.

Munn increases customer prices 3 to 5 percent each year, and he’s consistent about this hike. “I know exactly where I need to be every year to pay for my employees and to grow, so every year I give price increases to our clients,” he says. “In order to keep up with the pace of payroll, you have to raise prices. There’s no way around it and you have to increase your prices on products as well.”

If you don’t raise prices gradually, year after year, you’ll wind up in a hole and could be forced to institute a price hike that customers can’t swallow, he says. “If you wait to raise prices until you realize how depleted you are, and then you have to increase them 15 percent, you’ll never win that battle – customers will definitely go out to bid,” Munn says.

Jim Webb, president of Valley Landscape Service, Jackson, Wyoming, will raise prices by 8 percent this coming spring. “I sucked it up this year,” he says. “What I usually do in situations this year is, I offer the same prices for existing clients, and as I pick up new work, I raise my pricing structure on those. But, next year, it’s an 8 percent increase across the board. And, I’ll probably only lose less than 1 percent of my client base.”

Munn adds that loyal clients who value your services will stick with you even if the prices increase slightly.

As for what’s ahead, hourly wages are expected to continue hiking, Huston says. “The thing is, we have a phenomenal economy right now,” he says. “But the tragedy is, we can’t fully take advantage of it because what it’s doing is driving up labor rates and supply-and-demand.”

November 2018
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