About a year ago, I wrote: "Several trends are quite clear in the broad area of farm management. More farms are using hired labor, family or non-family, regularly to accomplish their goals. Farm labor laws, while still retaining some exceptions, are becoming more consistent with non-farm laws and regulations. Human resource management is important in the long-run success of the farm, regardless of the size or type of farming operation." Let's review some major employment rules for agricultural labor including dairy farms.
Federal Tax Withholding (http://irs.ustrea.gov)
Since January 1, 1990, agricultural employers have been required to withhold Federal income taxes on their employees. Agricultural labor has always been subject to FICA taxes and its withholding, with a few exceptions, but the withholding of income taxes had been optional. Agricultural employers must now withhold, deposit, report, and pay income taxes and Social Security taxes on their employees.
Who Is Subject?
The withholding of income taxes will affect agricultural employers who are paying wages subject to FICA (Social Security) taxes. Those include any employee receiving cash wages of $150 or more during the year or all employees if the employer paid wages of $2,500 or more during the year. Cash wages paid to a spouse are subject to FICA taxes. Children under the age of 18 at the start of the year in the employ of a parent, who is a sole proprietor, are not subject to FICA taxes. Farmers who expect to exceed either of the tests should withhold income and FICA taxes at the start of the year. Wages paid in commodities are not currently subject to withholding or FICA taxes but do count toward the $2,500 test. See "How Do Employment Taxes Apply to Farm Work" from IRS Circular A, 2003.
Changes In The Employment Tax Deposit Rules
The IRS updated regulations in 2001 covering how often deposits of federal employment taxes must be made.
Under the rules, each agricultural employer will be classified as either a monthly or semi-weekly depositor of payroll taxes. Your deposit status will depend on the amount of employment taxes, including withheld federal income taxes, reported for a one-year "lookback" period. The "lookback" period for agricultural employers is the second calendar year preceding the current year. For example, the lookback period for calendar year 2003 is calendar year 2001.
If the employment taxes reported during the lookback period were more than $50,000, you will be classified as a semi-weekly depositor. If the employment taxes reported were $50,000 or less, you are a monthly depositor. The IRS will notify employers each November as to what your deposit status is for the coming year.
As an agricultural employer, if you accumulate less than $2,500 of employment taxes for the entire year, no deposits during the year are required. You can pay the employment taxes for the year with Form 943, Employer's Annual Tax Return for Agricultural Employees, by January 31st. An option is to make a deposit by December 31st to take the deduction during the current year for the employer's share of Social Security taxes.
If you are uncertain that your employment taxes will be less than $2,500 during the current year, make deposits under the appropriate rules (monthly deposits) to avoid the possibility of being penalized. That is, for any amount you pay employees, make a deposit of the employment taxes by the 15th of the following month. Doing so will avoid potential problems if your total payroll tax bill for the year turns out to be $2,500 or more. See Circular A (Publication 51), Agricultural Employers Tax Guide, Rev. January 2003.
State & School District Income Taxes (http://www.state.oh.us/taxfarm)
Farmers are not required to withhold Ohio income taxes or School District income taxes from their farm employees unless the employee requests it and the employer agrees.
If an employee's Ohio plus School District income taxes total more than $500, he/she must file an estimated tax declaration and make quarterly estimated tax payments unless the withholding will meet their obligation.
Ohio New Hire Reporting (http://newhirereporting.com/oh-newhire)
Under Ohio Revised Code (Sec. 5101.312), all employers including farm employers are required to report all new hires within 20 days of employment. The required report includes seasonal, part-time, and employees under 18 years of age and there is no exception for family members. Reporting can be by fax, mail, electronic, file transfer protocol, magnetic tape, or diskette.
Workers' Compensation (http://www.ohiobwc.com)
Workers' compensation coverage is required of all farm owners and operators with one or more employees. Employees covered include farm workers under the age of 18, part-time, full-time, and seasonal employees. Family members who are employees of the business must also be covered. There is optional coverage for the officers of a farm corporation.
Workers' compensation coverage does not extend to an independent contractor and his/her employees. Wages reported for premium determination must include any wages paid in commodities to farm employees.
Workers' compensation pays for all employees' medical care related to occupational injuries or diseases. Workers' compensation also provides compensation to the worker and/or dependents in the case of job related disabilities or death. The employer's own private health and accident insurance policy may not cover expenses that should have been covered by Worker's Compensation.
Federal Minimum Wage (http://www.dol.gov/esa/whd)
The minimum wage is currently $5.15 per hour. Agricultural employees who employ more than 500 man-days of labor in any calendar quarter of the preceding calendar year must pay at least the minimum wage. Agricultural employers using less than the 500 man-days of labor are exempt from the minimum wage provisions. A man-day is any day during which an employee does agricultural labor for at least one hour. Five hundred man-days is about equivalent to seven employees working fulltime in a calendar quarter.
The employer's immediate family who are employees are not included in the 500 man-day test unless the employer is a farm corporation.
Immigration Reform and Control Act (http://www.immigration.gov)
The Immigration Reform and Control Act affects all American employers. The law makes it illegal to hire unauthorized aliens. ALL employers must establish employment eligibility and the identity of new employees by completing Form I-9. Employers need to keep completed I-9's for three years or one year after an employee leaves. Form I-9 is available from the Immigration and Naturalization Service, Department of Justice.
There are other farm labor provisions such as Child Labor, O.S.H.A., E.P.A. and others that may affect farm labor. Here are some additional websites that provide farm labor management and regulation information:
Mid-American Agr & Hort Services, Inc., http://www.midamservices.org
Gempler's Alert, http://www.gemplers.com/alert.htm
Northwest Extension District, http://northwest.osu.edu
Department of Agricultural, Environmental & Development Economics,
The Ohio State University, http://aede.osu.edu/people
(go to Agribusiness/Farm Management and Bernie Erven publications)
Agr. Business Enhancement Center, http://www.ag.ohio-state.edu/~abe
Properly and legally managing labor will help dairy farms make progress toward their mission statement, goals, and objectives.