Agricultural Businesses: A How To Guide On Running Farm Payroll
If you run a farm business or are thinking of starting one to capitalize on the opportunities for profits for the first time in years, one of your most important business functions you need to consider is payroll. From different overtime rules and tax forms to additional forms for certain types of employees like youth or foreign workers, there are a lot of unique features to agricultural payroll that you’ll need to understand.
Complete Payroll Solutions has been providing payroll solutions to small and mid-size companies for over 18 years. Since we’re headquartered in New England, we have many farm clients so we understand the specific challenges that you may face as an agricultural employer. To help you get payroll right for your business, here’ we’ll cover:
- What is considered an agricultural business?
- How does payroll differ for agricultural businesses?
- What are the tax rules for agricultural businesses?
- Are there special minimum wage and overtime rules for agricultural businesses?
- What do I need to do when employing youth and foreign workers?
After reading this article, you’ll understand how to process payroll correctly for your agricultural business to ensure accuracy and compliance.
What is considered an agricultural business?
While a farm may immediately come to mind when thinking about agricultural businesses, there are actually a lot of other types of operations that fall into the same category. That’s because, generally speaking, any type of business that is involved in raising or harvesting produce, livestock, or other agricultural or horticultural commodities is considered an agricultural business. So this can include businesses such as:
- Nurseries and greenhouses
- Maple syrup harvesters
It’s important to note that not everyone who works for one of these businesses is considered an agricultural employee – only those who perform agricultural activities.
For example, if you have a dairy farm, the employees who milk the cows or maintain the farm equipment would be considered agricultural workers. However, those in other roles like selling ice cream or items at a farm stand would not be. And that’s an important distinction when it comes to payroll, which we’ll discuss next.
How does payroll differ for agricultural businesses?
The process for running agricultural payroll is essentially the same as for any other type of business. Once your business is established as an entity with federal and state regulatory bodies, you’ll need to complete several steps before you can run payroll:
- Pick a Pay Frequency: Before you start running payroll, you’ll need to decide how often you want to pay your employees such as weekly, biweekly or monthly. Your state may have specific requirements for your pay schedule so be sure to check with your state’s Department of Labor.
- Gather Employee Information. You’ll need several pieces of information about each employee in order to set them up for payroll. These include their name, address, date of birth, compensation, and Form W-4. If you plan to give your employees the option to receive their pay via direct deposit, you’ll also need to have them complete the necessary forms to process their requests.
- Determine Whether Workers are W-2 Employees or 1099 Contractors. Typically with agricultural businesses, workers are employees but it’s important that you properly classify them before you start payroll to avoid liabilities for unpaid payroll taxes, fines, and penalties.
Once you’ve completed these actions, you’re ready to run payroll. To do that, you’ll first need to calculate an employee’s gross pay, which, for non-exempt workers, is the number of hours they worked multiplied by their hourly rate.
From this amount, you’ll need to account for deductions and exemptions from income such as:
- Federal, state, and local taxes
- Social Security
- Benefit contributions such as health insurance premiums
When you subtract these amounts from gross pay, you’ll have an employee’s net pay, which is also known as their take-home pay. You can pay this by cash, paper check, direct deposit, or even non-cash items like the products you produce.
The last piece to payroll is filing tax withholdings. And how you pay taxes is the primary difference with agricultural payroll, which we’ll discuss next.
What are the tax rules for an agricultural business?
In a non-agricultural business, you would file a report with the IRS every quarter that shows how much money you withheld from each employee’s pay for federal income tax, Medicare, and Social Security. You do this on Form 941.
With agricultural businesses, you instead file Form 943, which is annual filing. You’ll be responsible for this form if the total wages you paid to any single employee in a year is greater than $150 or the total paid to all employees is more than $2,500.
It’s important to note that, in some cases, you may need to file both a Form 941 and Form 943. Using the dairy farm example we discussed earlier, you would file Form 941 quarterly for your retail employees and Form 943 annually for those who perform agricultural activities.
You may also be responsible for payment of FUTA taxes, although the rules are different for agricultural businesses. You’re only liable for FUTA if you paid wages of $20,000 or more for agricultural labor during any calendar quarter in the current or preceding calendar year or you employed at least 10 workers for some portion of a day in 20 different weeks during the current or preceding calendar year.
If the amount of FUTA taxes you owe for a quarter is $100 or less, you can add the tax to the amount due the following quarter. If the amount due is greater than $100 for a quarter or two consecutive quarters, then you must make a deposit by the last day of the month following the close of the quarter.
While many states also require payment of unemployment tax, known as SUTA, there are some exceptions for farm payroll. For example, in New Hampshire, agricultural businesses are exempt from state unemployment tax.
Are there special minimum wage and overtime rules for agricultural businesses?
Agricultural businesses are responsible for paying workers the federal minimum wage or state minimum wage if it’s higher. (There are special considerations for youth minimum wage, which we’ll cover next.) Keep in mind that this requirement applies even if you are paying employees a piece rate.
So, for example, let’s say you pay a worker $10 for every bushel of apples they pick and they pick 20 bushels over the course of 8 hours. Their pay would be $200. To figure out their hourly rate for minimum wage purposes, you’d divide $200 by the 8 hours worked to get $25 an hour – which is well above minimum wage. If, on the other hand, the hourly rate comes out to be less than the minimum wage, you’d have to pay the difference.
When it comes to overtime, the rules under the FLSA are different for agricultural businesses. Employees employed in agricultural work are exempt from the FLSA’s overtime pay provisions so they don’t have to be paid 1.5x their regular rate for working more than 40 hours in a week.
What do I need to do when employing youth and foreign workers?
In agricultural businesses, it’s very common to employ youth and foreign workers. And that can mean additional steps you need to take to ensure compliance with applicable laws and regulations.
- Youth Workers: Under the FLSA, you can hire youth age 16 during school hours and at age 14 outside of school hours (or age 12 with written parental consent on a farm where a parent is employed or a farm exempt from federal minimum wage provisions). Some states have different minimum ages for employment as well as maximum daily and weekly hours for minors so be sure to check your state law.
- Foreign Workers: If you plan to hire foreign workers for seasonal or temporary help, you’ll need to apply for the H-2A Visa program. This program allows you to bring foreign workers to the US if you anticipate a lack of available domestic workers. When you have these employees, you’ll need to comply with the Migrant and Seasonal Agricultural Worker Protection Act, which specifies standards for things like wages and housing.
Getting Agricultural Payroll Right
As you can see, there’s a lot to consider when managing an agricultural business, and payroll can be one of the most complex. Since there are specific rules when it comes to paying agricultural employees, you may consider outsourcing payroll to ease your burden and ensure accurate and compliant payroll.
If you decide to go this route, Complete Payroll Solutions could be a good fit for you if you:
- Want paperless payroll options
- A team of local payroll specialists with deep experience in agricultural farm payroll
- Solutions beyond payroll such as outsourced HR and compliance assistance
To learn more about what we can offer, read our next article on our 4 payroll packages.