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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

It's Total Farm Compensation - Not Wages - That Counts

Apr 25, 2011

I think that every farm operation should have an employment contract with each of their farm employees including all family members employed in the farm operation.  As part of this document, there should be an exhibit that outlines the total compensation package to each employee.  Most farm operations offer much more than a wage such as housing, medical insurance and medical expense reimbursements, meals, and other non-taxable fringe benefits.

This is especially true with family members and sometimes the family members are not aware of the actual pre-tax value of the compensation provided to them.  Some may look at the paycheck and think they can do much better working off the farm, however, when the total compensation package is presented, in most cases it is usually better than what they can do off the farm.
 
For example, let's assume a son works for his dad on the farm and receives a $2,000 per month salary.  In addition, the farm provides the following (with monthly values):
  1. Housing        $1,500
  2. Utilities             300
  3. Food                  600
  4. Med. Ins.           900
  5. Med. Reimb.      500
  6. Farm Truck        500
 
The total monthly value of these items is $4,300.  On a pre-tax basis assuming a combined 30% federal, state and payroll tax rate, this results in an annual pre-tax value of $73,715.  This plus the annual salary of $24,000 results in total compensation of about $97,715.
 
As you can see, this farm worker would need to make close to $100,000 off the farm to be equal to what they are making on the farm.
 
It is important to let your employees (including family members) know what their true compensation package is each year.
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