Organic Broadcaster

Setting up payroll for farm employees offers more protection than using volunteers, interns

By Paul Dietmann, Badgerland Financial

A challenging day in many farmers’ professional lives is the day they have to hire their first employee. The thought of having to figure out payroll taxes and cut paychecks can be a terrifying proposition.

Some farmers try to avoid payroll challenges by bringing workers onto their farms as unpaid volunteers, or as unpaid or low-paid “interns” or “apprentices.” If structured properly, these options can be beneficial to both farms and workers. However, there can also be a tremendous amount of legal risk to a farm if it isn’t careful about how it treats the people who are working on it.

Volunteering on farms has become popular in recent years. Some people will volunteer to work in exchange for a reduction in the price of a CSA share or to gain farming skills. Some volunteer through organizations such as World Wide Opportunities on Organic Farms (WWOOF) as a way to see the world on a tight budget. Regardless of the reasons that someone volunteers on a farm, it may not be the best means of filling a farm’s labor needs. Volunteers may not be available when the farm is most in need of their labor. There is a risk of a volunteer being injured while doing farm work. The farm’s insurance may or may not cover any liability resulting from injury.

Internships—and to a lesser extent, apprenticeships—have been used as a more formal arrangement between farmers and workers as a way to provide needed labor for the farms and needed training for the workers. Due to a number of recent lawsuits over whether workers were actually employees rather than interns, these arrangements have come under increased federal and state scrutiny. It isn’t sufficient to just give a worker the title of “intern.” The intern, not the farm, must be the biggest beneficiary of the deal. If it is determined that an intern didn’t receive training similar to the type of training they would have received in an educational environment, or that an intern displaced a worker who would have been paid to do the same work, the farm employer could face significant penalties.

If you have more work on your farm than you can handle on your own, perhaps the best course of action is to bite the bullet and hire an employee. If you are paying an employee, you will have the right to expect that person to come to work when needed rather than when it fits his or her schedule. By having an employee officially on your payroll, you can more easily comply with labor and tax laws, and can deduct employee expenses on your tax returns.

The process of creating your payroll may be a bit intimidating at first as there are many items to consider. Yet many small businesses in the United States have managed to successfully establish a payroll system and you can, too. Before hiring your first employee you should talk to a payroll expert about the critical steps to be taken for your situation, specifically as the IRS and state departments of revenue have very strict guidelines for payroll. Once a payroll expert helps you get set up correctly, you can choose to process your own payroll. If the process goes beyond your comfort level, you can hire a professional to do your farm’s payroll.

Setting Up Your Payroll System
The first decision you need to make is whether you want to tackle the bookkeeping task on your own or outsource it to an accounting group. There are advantages and disadvantages to both.

If you choose to hire a business to do payroll for you, be sure to do some research and ask others for feedback to ensure the firm can meet your payroll needs in a timely manner. There are some specific employment rules that only apply to farms; you want to make sure you hire a firm that specializes in farm accounting. Because farming is your business and accounting is theirs, they will be current on all tax laws, paperwork needs and important deadlines.

If you have not had employees in the past, you need to apply for a mandatory Employer Identification Number (EIN). It is possible, depending on your entity type, that you might already have an EIN. If not, an EIN can be applied for online, free of charge through the Internal Revenue Service website, and obtained rather easily.

Each employee on your payroll must have specific forms completed and filed. By working with experienced staff on payroll, they will be able to provide you with any necessary paperwork up front. To get an idea of required items visit the website and also search your state’s department of revenue and workforce development sites regarding “New Hire Reporting.”

Document your employee compensation terms. This helps ensure you and your employee(s) are
in agreement on things such as payment, established pay periods, paid time off or overtime (if offered), tracking employee hours and any additional benefits available to them.

Make sure that you are in compliance with the employer requirements under the Patient Protection and Affordable Care Act and posting the required labor law posters.

Set up a filing system and invest in a simple copy machine. Good record keeping and organization are keys in making the payroll process run smoothly. Federal and some state laws require employers keep certain records for specific periods of time. For example, W-4 forms must be kept on file for all active employees and for three years after an employee is terminated. Other forms, such as W-2s, tax forms and deposits should also be kept in a safe location.

By keeping a few key considerations in mind and deciding how you’d like to proceed with your payroll, you’ll be on your way to employing others in no time. You’ll feel better knowing that you are paying your workers a fair wage for their labor. And, you’ll sleep better knowing that you’ve protected your farm from the potential risks inherent with farm volunteers or interns.

Paul Dietmann is the Emerging Markets Specialist at Badgerland Financial, a member-owned Farm Credit System institution in southern Wisconsin.

From the March | April 2015 Issue

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