Recruitment, Housing and Workplace Culture

Labor Cost Benchmarking

Labor is one of the largest expenses on a dairy, so owners want to know whether theirs is in line. Good benchmarking compares like with like and looks past the single number.

What does benchmarking mean for labor?

Benchmarking means comparing your labor costs and productivity with a reasonable reference, such as your own history, similar farms or published data. The point is to ask better questions, not to chase a number.

Because every dairy differs in herd size, parlor design, automation, housing and local labor market, one farm's number rarely transfers to another. This article gives no figures. It describes a method.

Write down the question you want benchmarking to answer before you collect anything, so you do not end up with a pile of numbers and no decision.

What to count

Count more than wages. A fuller picture can include payroll taxes, workers' compensation or other insurance, benefits, housing, vehicles, training, recruiting, overtime and the cost of turnover. Decide what to include, write it down and keep it consistent.

The IRS explains employer tax obligations, the Texas Department of Insurance Workers Compensation page covers coverage options, and your accountant can help you sort categories. Do not guess at rules. Keep the categories identical from year to year so your comparisons stay honest.

• Wages and overtime
• Payroll taxes and insurance
• Benefits, housing and vehicle support
• Recruiting, training and onboarding time
• Turnover costs, including lost production while a role is empty

Choosing measures that make sense

A common approach is to look at labor cost per unit of something you produce or manage, such as per hundredweight of milk or per cow. Pair it with measures of quality and retention, because a cheap crew that leaves quickly is expensive in disguise.

Track the same measures every month so you can see trends. The dairy management guide and the farm money guide describe related ideas for records and budgets.

Be honest about the limits. A single ratio hides differences in herd size, parlor design, automation and housing, so always read it alongside your own notes.

Where to find reference data

The Bureau of Labor Statistics publishes labor data by occupation and area, the USDA NASS runs farm labor surveys, and the USDA Economic Research Service analyzes farm labor topics. Read the definitions carefully so you compare like with like.

The Texas A&M AgriLife Extension service and industry groups may offer farm management tools or workshops. Ask what is current. Published data describes groups, not your farm, so use it as context only.

Keep notes on which year, region and definition each reference uses, so you never mix them.

Pay rules sit behind the numbers

Before you change pay, hours or benefits to fit a benchmark, check the rules at the Wage and Hour Division and with an attorney. Overtime and agricultural exemptions have conditions, and careless changes can create liability.

Never copy a competitor's wage or discuss pay in a way that raises legal concerns. Ask an expert how to gather information properly. This is general education, not legal advice. Write down the reason for any pay change so the decision can be explained to anyone who asks.

Hypothetical example: reading your own trend

Imagine a dairy owner compares labor cost per cow over three years and sees a rise. A closer look shows more overtime caused by unfilled jobs, more training because of turnover and a second housing unit. The owner decides to focus on retention and scheduling instead of cutting wages.

The example is invented, but the lesson holds: a number points to a question, and the answer usually lies in how people are hired, trained and kept. Compare notes with a trusted adviser or peer group.

Make it a routine

Review labor cost measures quarterly with your accountant or adviser, and write down what you learned. Share relevant findings with managers so they understand the constraints and the goals.

For stories about the business side of farming, see farm agribusiness at farm.FM, plus dairy stories. A piece like a farm.FM piece on farm labor costs can start a conversation.

Keep it simple: one page, the same measures each quarter, and a short note on what you decided because of them.

Sources and further reading

• IRS: federal tax guidance
• Texas Department of Insurance, Workers Compensation: Texas workers comp information
• Bureau of Labor Statistics: labor and price data
• USDA NASS: agricultural statistics and surveys
• USDA Economic Research Service: farm economy data and analysis
• DOL Wage and Hour Division: federal wage and overtime rules

Ask locally: Your accountant, farm management adviser or county extension agent can help set up a fair benchmarking method.