Most farm operations employ labor of one sort or another. Employing others on a farm opens up the operation to regulation from State and Federal agencies.
The minute a farm operation pays someone to do something as an employee, workman's compensation insurance needs to be secured. This insurance provides benefits and medical coverage for workers injured on the job. It is secured through a private insurance agent.
While the owner of a company can exempt themselves from coverage, this is often penny wise and pound foolish. Consider what would happen if a farm operator loses an arm or leg in a combine accident. Workman's compensation would provide medical treatment and perhaps a lump sum benefit to the injured farmer. As farming is consistently listed as one of the most dangerous occupations, is would be wise to consult with your agent before waiving this potential source of income protection.
If total farm wages (including non cash wages) are over $2500 for the year or if the total payroll is less than $2500, the cash wages of any one employee over $150 must be subjected to social security withholding, unemployment, federal and state withholding must be taken out as well. The only exemption from this requirement are children under 18 who are employed by their parents in a non corporate or partnership or LLC farm business. The business is required to keep these funds and then periodically deposit them and report them to the government. The government views the responsible parties as agents of the government when performing these duties.
Pay roll can be paid at different rates (bi weekly or weekly), but overtime comes into play if the employee goes over 40 hours in a week, regardless if it is in one pay period or two. Even if you have a policy of no overtime, if the employee works with or without your knowledge , you must pay them if it benefits the farm. Additionally, the employer must provide a paystub showing the deductions and other specific items.
The way the operator hires that help determines if the operator is responsible for federal tax reporting obligations. First, the help hired needs to be classified as a contractor or an employee. The IRS uses a 21 point checklist to help it determine if the relationship is a contractor or employee relationship. The parties proclamations of the relationship status is not controlling. The overall theme of the checklist is if the operator controls how, when and where the other party works, it looks a lot like an employer-employee relationship. If the party sets is own hours, provides its own equipment and takes work from other operators, it begins to look more like a contractor relationship. Consider if the person is told how to suck the egg or just told to get the egg sucked, as it is a good indicator of employee versus contractor. If they are an independent contractor and you pay over $600 to them, unless they are a partnership, LLC or corporation, you need to follow IRS 1099 reporting rules and send the contractor a 1099 for work paid for.
Consider the difference between a neighbor who combines for hire after his own fields are harvested and a retired farmer who combines for one active farmer that farmer tells him when and where to combine with the active farmer's combine. The first is more than likely an independent contractor and the second is likely an employee.
If the relationship is an employment relationship, then the farmer becomes subject to additional regulations. The farmer is subject under the Fair Labor Practices Act of 1938 (minimum wage) if more than 500 "man days" (labor for at least 1 hour) per quarter are worked on the farmers behalf. Generally, as long as less than 5 employees are present or it is a ranching situation, this act will not be triggered for minimum wage and overtime pay. And spouses, parents, children, stepchildren and siblings do not count towards the calculation.
As costs rise for labor, more and more operations, even small ones, need to keep an eye out and not run afoul of the IRS or federal wage laws. The penalties for non compliance are far worse than the burden of compliance.
The bottom line on this is to hire a book keeper or make yourself smart on these regulations. Failing to withhold when you should have been, or worse yet, telling your employee you have withheld and not turn it over to the government can land you in lots of tax trouble that is hard to shake.
Employees who are employed in agriculture are exempt from the overtime pay provisions. They do not have to be paid time and one half their regular rates of pay for hours worked in excess of forty per week. You can run into problems by not keeping/maintaining records of the names and permanent addresses of temporary agricultural employees, dates of birth of minors under age 19, or hours worked by employees.
The number and variety of federal and state laws that apply to employers can be bewildering. In order to ensure your farm's legal compliance, you should make an effort to understand the basics of these laws and consult an attorney with experience in agricultural law to review your operations and make sure you're in the clear.
Workers are protected by a number of state and federal laws. As an employer, it is important to understand and comply with these laws. The agricultural industry is exempt from some laws and others include exceptions. The complicated nature of this regulation makes it especially important for farmers to understand the laws governing their labor relations. You should consult an agricultural law attorney with any questions about farm employment.
Here is a short list of some federal laws that affect agricultural employment and a description of how they might affect you:
- Migrant and Seasonal Agricultural Worker Protection Act. The MSPA establishes work and wage regulations for agricultural workers. The MSPA only covers temporary agriculture workers. It requires employers to provide information on wages, conditions, housing, and other vital concerns. It details the records that must be kept by the employer and the contractor. It also creates "joint employment", which gives the employer and contractor joint say in work location, conditions, and hiring or firing decisions while making both parties liable for MSPA violations. The MSPA is enforced by the Department of Labor but private parties can file suit to enforce MSPA regulations.
- Fair Labor Standards Act. The FLSA regulates child labor, overtime, minimum wage, and other conditions, and covers the employees of any business involved in interstate commerce or the production of goods for interstate commerce. Some provisions do not apply to agricultural employers. Farmers that use less than 500 man-days of agricultural labor - a day in which an employee performs at least one hour of agricultural work - do not have to meet the minimum wage requirement. Agricultural employers do not have to provide overtime and can employ children. The FLSA does not override any stricter state laws.
- Occupational Safety and Health Act. OSHA protects workers from hazardous or unsafe working conditions. Farms operated by families or with less than ten employees are exempt from OSHA regulation.
- Federal Insecticide, Fungicide, and Rodenticide Act. FIFRA regulates the manufacture, labeling, and usage of pesticides. The Environmental Protection Agency (EPA) enforces this act. It requires workers who apply restricted pesticides to be certified. It also sets out rules for safer usage and application of pesticides and prevents employers from forcing employees to unsafely use pesticides. Safety requirements and licensing are overseen by state agencies where they have received EPA approval.
- Immigration Reform and Control Act. The IRCA of 1986 set penalties for employers who hire illegal aliens. It also created a responsibility for employers to confirm that all of their employees are authorized to work in the United States. IRCA also amended the older Immigration and Nationality Act to allow employers to import temporary agricultural workers.
- National Labor Relations Act. The NLRA grants the right to organize to workers. The act specifically excludes agricultural workers from the right to form unions or collectively bargain. Some state laws do grant this right.
Employers must also abide by a number of other laws, including state laws on workers' compensation and discrimination. Federal laws such as equal opportunity statutes and the Family and Medical Leave Act apply to larger employers. All employers must comply with federal tax law.
If you would like to schedule a initial consultation contact an Iowa Ag attorney, representing clients in New Hampton, Iowa at the Dillon Law P.C. Give us a call at (563) 578-1850 or complete our inquiry form.