Understand the law; lower your risks
Many farmers don’t want the burden of withholding payroll taxes on part-time help; therefore, they frequently get classified as independent contractors, explains Gary Hoff, University of Illinois Extension tax specialist.
Farmers can run into trouble by improperly classifying workers, which might lead to additional scrutiny by auditors and then fines.
There are two types of workers: employees who receive a W-2 and independent contractors who receive a 1099, says Laura Cornille-Cannady, a family business coach and human resources specialist.
The difference is the degree of independence the worker has from you, your policies, your rules, your workplace and having the right tools to do the job—even independence from needing you to make a living. The other difference is control. How much control do you really have as the employer?
Pass the Test. There’s a simple test to determine who should be classified as an employee, whether full time, part time or seasonal, and who legally can be classified as an independent contractor.
The IRS test uses three criteria to determine independence and control: behavioral control, financial control and type of relationship. Do you have control of the performance of the work that’s done? Do you decide their hours of work? Can this person get a promotion? Are the services being performed considered a core business of the company?
If you answered "yes" to any of these questions, Cornille-Cannady says the individual should be
classified as an employee.
Let’s look at extra help during harvest, Hoff says. "Joe is hired to haul grain; he drives a fueled truck furnished by the farmer; the farmer tells him when to show up and where to haul the grain," Hoff says. "Except for that Joe is seasonal, he meets all the requirements to be classified as an employee." This means Joe should receive a W-2 and the farmer should withhold taxes and match them.
"The number of audits within small- and medium-sized businesses and agriculture are going up," Cornille-Cannady says. "Farmers need to make sure they understand the law and are in compliance."
When working with independent contractors:
- Create a scope of work and a call for bids.
- Always issue a contract.
- Have a W-9 filled out by all independent contractors.
- Ask for your business to be named as "additional insured," get an insurance certificate and have a "notice of insurance change authorization form" signed and on file.
- Issue a 1099 if you pay more than $600 in the year.
- Keep records for three years after work is completed.
For more information about properly classifying workers for your farm, visit www.TopProducer-Online.com/ProperClassification.
- November 2013