With harvest inbound, your operation may be considering bringing on a person to help run the grain cart, help unload or do relief milking while you handle the harvest. Here is a refresher of the rules you need to be aware of.
Employee versus independent contractor is a something that has been covered here previously, but bottom line is that if you tell the person how what when where and in what order, they are an employee. If you simply tell them what the goal is (i.e. need the field combined and the grain in the grain bin) and they provide some or all of their own equipment, with no rules from you about the order, timing (other than a dead line) and who does the work, they may be an independent contractor and not subject to Employer employee rules.
Next do you have an ag employee?
The IRS defines an agricultural employer as an entity who:
Raises or harvests agricultural or horticultural products (including the raising and feeding of livestock);
Works in connection with the operation, management, conservation, improvement, or maintenance of the farm and its tools and equipment;
Handles, processes, or packages any agricultural or horticultural commodity they produce
The term “farm” includes stock, dairy, poultry, fruit, fur-bearing animals, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards.
Farm work doesn’t include reselling activities that don’t involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or greenhouse used primarily for display or storage.
Workers’ Compensation Exemption under Iowa worker’s compensation law
Iowa farmers do not have to provide workers’ compensation for employees unless the payroll amounts to $2,500 in the calendar year. When you have to buy it, all employees will be covered. There are large fines and possible felony charges for not carrying workers’ compensation. Federal law requires a farmer employing H-2A workers provide workers’ compensation to all employees. Workman’s compensation coverage does provide a benefit to you as it is the employee’s only recourse if they are injured and covered. Sometimes money spent upfront prevents greater problems later.
There are some exemptions to the statute for ag-related persons:
The employer’s spouse, parents, siblings, stepchildren (including the spouse’s stepchildren), and the siblings, children and stepchildren of the employer’s spouse whether they are in a partnership or corporation or LLC engaged in farming.
- A person engaged in agriculture, or as a person engaged in agriculture who is otherwise exempt while exchanging labor with another owner of agricultural land, farm operator or person engaged in agriculture who is also exempt-That means swapping labor with your neighbor.
Federal and State Unemployment Taxes
Federal Unemployment Tax is not required for employer’s parent or spouse or by employer’s child under age 21.
State reporting and unemployment insurance taxes must be paid by agricultural employers that paid cash wages of $20,000 or more to agricultural laborers, or employed 10 or more workers in some portion of a day in 20 separate weeks in the current calendar year or preceding calendar year.
Fair Labor Standards Act (FLSA) and Agricultural Employers-Overtime
Employees who are employed in agriculture are exempt from the overtime pay provisions. Agriculture does not include work performed on a farm which is not incidental to or in conjunction with such farmer’s farming operation. Think of the hired man dry walling the basement in the wintertime for the kid’s room.
Any employer in agriculture who did not utilize more than 500 “man days” of agricultural labor in any quarter year is exempt from the minimum wage and overtime pay provisions of FLSA for the current calendar year. A “man day” is defined as any day during which an employee performs agricultural work for at least one hour. Additional exemptions from the minimum wage and overtime provisions of FLSA for agricultural employees apply to the following:
Agricultural employees who are immediate family members of their employer
Those principally engaged on the range in the production of livestock
Employment of your children
If under the age of 18, a parent is not required to withhold social security tax and wages not subject to federal unemployment taxes until reaching the age of 21. As long as the total income doesn’t exceed $6,200 and unearned income doesn’t exceed $350, the child will not owe income tax on their income. You still need to send W-2 and pay a wage that is comparable to work done.
IRS Additional Information
Income tax withholding, Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) are exempt for employer’s child under age 18, but counted for $150 test or $2,500 test. Taxable for spouse of employer.
$150 or $2,500 Test
All cash wages paid to an employee during the year for are subject to social security and Medicare taxes and federal income tax withholding if either of the below is met:
You pay cash wages to an employee of $150 or more in a year for farm work. The $150 test applies separately to each farmworker that you employ.
The total you pay for to all your employees is $2,500 or more during the year.
Compensation paid to H-2A workers for agricultural labor performed in connection with the visa isn’t subject to social security and Medicare taxes and an employer is not required to withhold federal income tax.