Now is the time to brush up on farm labor laws to avoid long unpleasant conversations with IRS agents, lawyers, and more your own lawyer.
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.
Under State Law: 14-15 year olds can work upto 4 hours per day when school is in session, for 28 hours a week, but school cannot be missed. Working in agriculture this is cut in ½.
16 year olds just need to avoid hazardous occupations list. (including for farm operations: Operating power driven wood working machines, power driven hoists, power driven metal forming machines, meat slicers, or balers, band saws or chain saws, demolition roofing and excavation).
Before my young readers get too excited, a child of any age may work in any occupation or business at any time doing any type of work in a business operated by child’s parents if parent is on premises.
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 and 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 pay-stub 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. 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.
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.