Even if farm workers are seasonal, if they perform a service that’s core to the success of your business, they should be classified as employees.
Maintain compliance and avoid penalties.
Agricultural operations face increased federal scrutiny of worker classification, which should motivate farmers to carefully document labor, experts say.
While labor is an issue year-round, the U.S. Department of Labor has been hiring additional investigators during the last two to three years to review suspected misclassification, says Joyce Grenis, Sikich LLP senior vice president of human resource advisory services in Naperville, Ill.
"We are also seeing a greater focus from the Department of Labor on the issue of independent contractor classifications," Grenis says.
At issue is whether workers are classified as independent contractors or employees. The Department of Labor estimates that up to 30% of employers incorrectly classify their employees, which significantly reduces the amount of tax revenue coming back to the federal government. Grenis says this has prompted the increase in investigative efforts.
If the Labor Department conducts an investigation and determines a person is an employee rather than a contractor, the employer must pay back taxes that weren’t withheld and additional penalties. These penalties can be costly to the farm.
Sikich Partner and CPA Tom Bayer adds that employers who misclassify employees as contractors would have to pay Social Security and Medicare taxes at a rate of 15.3% on all contractual payments, plus interest and penalties.
Employers who mistakenly classify hourly workers as salaried would be responsible for paying them time and a half or more per hour for any overtime—starting from the date of hire, Bayer explains.
While a farmer might be tempted to hire someone as a seasonal, independent contractor to avoid the time and cost required to add an employee to the payroll, several factors should be evaluated first.
According to the federal Fair Labor Standards Act, an employer must determine the degree to which a worker exercises control over their activities. In general, farm employees have scheduled work hours, are given the tools to complete the job and generally aren’t paid using invoices, Grenis says. More often than not, those criteria mean a farm worker will be considered an employee.
Do you have control of the work performance that’s being done? Do you decide their work hours? Can you give a promotion to the worker? Are the services performed considered a core business of the company? A "yes" to any of these questions means the worker should be classified as an employee, says Laura Cornille-Cannady, a family business coach and human resources specialist.
Human resource professionals, such as Grenis and Cornille-Cannady, help farmers to review worker classifications, examine job descriptions to determine proper classification and help maintain compliance.
The challenge for employers is staying up-to-date on federal law as Grenis says there are 40,000 pages of employment law. Even if a farmer read for eight hours a day throughout the year, he or she still wouldn’t get through all of the material, Grenis adds, noting that employment law is constantly changing.
- March 2014