If you’re one of the many green industry professionals who started out as a youngster, mowing the neighbors’ yards, your labor expense wasn’t much more than the cost of the after-school snack that kept you going—and your parents paid for that.
Your overhead? Not much more than the couple of bucks you shelled out for the gas you put in the mower, which was probably Dad’s. You lived at home, so you didn’t pay rent. Whatever you earned was all profit. Life was simple; life was good.
Now that you’re an adult, and the owner of a grown-up landscape contracting business, you might long for those Norman Rockwell-esque days. There are so many more expenses that go into serving your customers now, and unless you’re still a one-man show, you know that the cost of labor heads the list.
What factors into that labor cost? “That’s the million-dollar question,” said longtime green industry consultant Judith Guido, chairwoman of Guido and Associates (and columnist for this magazine). “Labor costs have to do with what the laborer is doing, how he’s doing it, where he’s doing it and with what tools.”
First, let’s consider the ‘where.’ It’s a fact that some states are simply more expensive to operate in than others. The labor rates in New York or California are a lot higher than they are in the Midwest or South. Not only is the cost of living higher in those two states, but they also have state income taxes and state unemployment insurance. Not all of the other 48 do.
Cost of labor includes Social Security taxes, Medicare taxes, federal (and sometimes state) unemployment insurance taxes and worker’s compensation insurance premiums. Also, any benefits you might be providing your people, such as health insurance premiums, 401K matching contributions, or anything else you include in their packages.
If you pay for training for certain employees to obtain certifications or licenses as pesticide applicators, backflow testers, irrigation technicians or the fees for CEUs to maintain those credentials, that figures in, too.
“If you’re paying someone ten bucks an hour, by the time it’s all said and done, he’s going to cost you more like 16, 17 dollars an hour,” said Kevin Pollack, owner of Pollock Landscaping, Ironton, Missouri.
“Once you figure in all the overhead costs of having that employee, you see that the cost of hiring people is just tremendous.”
Failure to ‘do the math’ vis-à-vis labor costs has been the downfall of many a novice contractor. Pollack’s talked to many over the years who didn’t realize the amount of money they were hemorrhaging on jobs, simply because they didn’t grasp the true cost of doing those jobs.
“A lot of guys just look at the bottom dollar, and say, ‘We made $1,000 on that job!’ But that’s not really the case,” said Steve Polte, owner of Knoxville, Tennessee-based Earthadelic Enterprises, LLC. “There can be a lack of sophistication with some operators. They don’t think things all the way through, therefore they don’t charge enough, and eventually, they have to close their doors. It’s a rampant problem, this lack of business acumen.”
Pollack says that they often fail to account for the cost of drive time between jobs. From the time the engine in the pickup turns over, the meter’s running—you’re paying for fuel, the wear-and-tear on the vehicle, and the wages of the truck’s occupants.
By contrast, Pollack figured out, “How much it costs per mile for one person to drive a truck to a jobsite, and how much it costs for two. It’s one of the biggest elements, and we incorporate that into our job costing when we’re bidding.”
He’s in a rural area, which adds travel time, and he has turned down jobs based solely on the number of back-and-forth trips that would have been required. For what he’d have been able to charge, the jobs would have ended up costing him more money than they were worth.
Fortunately, there are lots of ways to cut your labor costs. Guido says that one of them is embracing technology. This includes everything from using GPS to figure out the most direct routes to clients’ properties, to employing programs like Go iLawn and smartphone apps, tailored just for green industry professionals.
These tools will let you measure square footage, count trees, shrubs and other objects, and estimate the materials, equipment and labor needed for a job. There are also laser-measuring devices available now that will let you accurately do takeoffs without even getting out of your truck.
“Anything you can do to reduce overhead helps,” Guido says. “I’ve been to the offices of some maintenance companies, and they look like the Taj Mahal. If you’re not a highend design firm, with clients coming to your office, why are you housed in such an expensive piece of real estate? All of that adds to your overall labor costs.”
The ‘when’—the time of day that you perform certain services— makes a difference, too, she said. If your maintenance crews go out in the early morning hours to cut grass, it may be wet. It’ll take longer to cut, and there’ll be additional time spent stopping to clean out clogs. Waiting until later in the day when the grass is dry makes better sense. Of course, that’s not always possible.
Now we come to the ‘how’—the manner in which your employees carry out their work. How well they do it has everything to do with how well you’ve trained them. And the better trained your employees are, the more efficient they’ll be, thus lowering your labor costs.
That just seems like common sense. Yet Guido says she continues to observe staggeringly inefficient practices at many of the landscape companies she consults for.
“I can’t tell you how many times I’ve seen three people unpacking a truck. I’ll go into the owner’s office and ask why he has so many people doing that, when he could just have the driver take care of it? Or, I’ll notice two or three guys sitting in a landscape truck at a gas station, waiting for another employee to finish filling the tank. The whole time they’re sitting in that cab, they’re getting paid.”
Instead, Guido says crews should be instructed that only one person goes to the gas station at the end of the day, or first thing in the morning, before the other workers even get in. Some contractors get around this time-waster entirely by having their own gas pumps, right in the yard.
Polte teaches his people to plan ahead. “By being organized so you’ve got everything you’ll need onsite, you won’t have to make any trips back to the shop. On our part, we make sure we assign the right number of guys, with the right skill sets, to get the work done.”
Greg Scharf, CEO and owner of Greg’s Lawn and Landscaping in Cedar Rapids and Iowa City, Iowa, says he does “a ton” of training, constantly showing his employees more efficient ways to do their assigned tasks.
We can’t leave this topic without mentioning safety. Injuries stop work cold; however, many, if not most, work-related accidents can be prevented with the proper equipment and training.
Guido says making sure your crews have the right equipment they need to do their jobs is vital. While that seems like a no-brainer, she often sees “guys out in the field with these small, small mowers, cutting huge swaths of grass. With bigger mowers, they’d get it done in a quarter of the time.”
Whenever necessary, Polte makes capital investments in labor-saving equipment. He now has one employee placing boulders with a mini skid steer, instead of three or four guys with crowbars lifting them manually (and taking the risk of getting injured). Owning the skid steer cuts his labor costs in half.
When we spoke with Scharf, he was on the road, in another state. While there, he observed several snow removal companies at work. “These guys would hate having me come into this market, because none of them would have a job,” he said.
“The crews I’ve been watching are all using truck plows,” he explained. “But there’s definitely much more effective snow removal equipment in our industry now than there was ten, or even five years ago. Yet here they are, using 15- to 40-year-old equipment. They’d move a lot more snow a lot faster using skid steers and end loaders.”
Scharf gave another example of how the right equipment makes a big difference. “You get a pallet of fertilizer and try to unload it with a skid loader, the guys end up poking a lot of holes through the pallets. Or, they tilt them wrong, and the pallets slide off and break open. Instead, you should invest in a forklift to do that type of work.”
He also does a lot of research on mowers, looking at what types are going to give his crews the most production in a day for the types of terrain they’re mowing.
Properly maintaining equipment is no less important. Mowing with dull blades, or using machines that are prone to breakdown, slows down the workflow. Improperly maintained equipment can also cause injuries.
H-2B wages and fees
Many contractors find themselves having to turn to H-2B workers to fill holes in their staffing. The H-2B visa program permits employers to temporarily hire aliens to perform nonagricultural labor or services in the United States. The employment must be of a temporary nature for a limited period of time, such as a seasonal need.
But these employees come with a steep price tag: a government-mandated minimum wage and substantial fees, based on what county you work out of.
Scharf uses H-2B labor. “The government increased the pay rates dramatically last year, 45 percent over what we were paying. They want us to pay our H-2B workers more per hour than our American workers.”
“We bring in ten guys every year. It’s a huge expense for us, but how else can we get the work done? We maintain a lot of high-end properties, and that’s what we have to do to properly maintain those landscape beds.”
Dalton Hermes, CEO of Hermes Landscaping, Inc., in Lenexa, Kansas, also uses H-2B workers. He said that in 2015, the U.S. Department of Labor altered some of their regulations, and effectively raised the minimum wage he had to pay them by 30 percent. The problem with that is, if he pays his H-2B workers this increased wage, by law, he’s required to pay all his employees that same wage.
Then there are the ‘transaction fees’ the government makes contractors pay for every H-2B worker they employ. Last year, Scharf paid $1,750 apiece for each one of the ten he hired. Hermes was charged less— $1,000 apiece—but he needed 100 of them, adding $100,000 to his labor costs.
Scharf thinks that these fees are intended as a punitive measure. “They don’t want us bringing in H- 2Bs; they want us using American workers. But you ask an American to go pull weeds five days week, and it’s beneath them.”
It’s not for lack of trying. Scharf’s ventured as far from home as Michigan, trying to pull in laid-off auto workers. Even when the economy was at its lowest ebb, with doubledigit unemployment rates, he had little success.
He praised the H-2B workers he’s hired, saying they do “a phenomenal job.” Some of them are in their fifth year with his company, and he’s been able to turn those individuals into excellent hardscapers.
Finally, there’s employee retention, an oft-disregarded factor that can silently inflate your labor tab. “Probably the most expensive, hidden cost for any business is turnover,” said Hermes. “When you consider the time it takes to hire and train new people, and the loss of efficiency that represents, the cost is extraordinary.”
Therefore, he does everything he can to encourage good, productive employees to stick around. “We love them, take care of them, show them that we care about them. We give them a safe place to work, treat them with dignity and respect. There are a lot of things we do organizationally to make sure that’s done.”
His company must be doing something right; Hermes Landscaping has had many of the same workers coming back every season for the last 19 years. Hermes says it’s because they know he’s truly concerned about them and their families.
Polte has a similar philosophy.
“We’re a high-end landscape service provider, so it’s part of our business plan to retain our employees. We invest a lot in our culture to create a desirable place to work. We also pay a little bit more than everyone else in the area.”
This strategy has paid off. Earthadelic experiences very low turnover.
Polte says that all the landscape people in Knoxville want to work for him.
Pollack lets his employees share in his success. “Of course I want to do more than survive; I want to do really well, set myself up for the future.
But equally important to me is to do that for the people who work for me.”
He doesn’t want his guys making just enough to scrape by, but to keep getting paid more and more, increasing their skill sets and moving up. As his company wins bigger, higher-dollar contracts, he shares those profits with his employees, believing that “we wouldn’t have these jobs if it wasn’t for them.”
“If they’re continuing to learn new things and make more money, they’re more likely to stay with you,” says Pollack. “You won’t have to find as many new people every season and train them, starting over from scratch.”
Paying for labor is one of the costs of doing business. Thankfully, there are ways to get that cost under control, or at least, lessen the burden, so that you can keep on doing business.