Does he really work for you?
Farmers who hire workers are well-advised to take time to understand the applicable state and federal labor laws in order to protect their operations from fines, penalties or lawsuits.
Independent contractor or employee? The classification of farm laborers as either independent contractors or employees can have a substantial impact on your farming operation.
Here are ways to differentiate if a worker is an independent contractor or employee.
• Internal Revenue Service. The IRS looks at three aspects of the worker/employer relationship that are key to determining a worker’s status. First, IRS looks at the behavioral aspects of the relationship. These aspects include the employer’s control of the worker and work performed, and the worker’s right and/or obligation to employ and supervise assistants. If an employer controls and supervises the worker, they are most likely an employee.
The IRS next looks at financial aspects of the relationship, including how a worker is paid and how often, if the worker’s expenses are reimbursed, or if the employer is responsible for furnishing tools and supplies the worker will need to complete the job. For example, if a worker is paid by the hour and the employer reimburses the worker for out-of-pocket expenses and furnishes tools and supplies, the worker is most likely an employee.
Finally, the IRS looks at the type of relationship formed, type of work to be completed, and how long the worker is on the job. Thus, if a contract between worker/employer specifies the work to be completed at a fixed time and price, the worker is probably an independent contractor. Sometimes, the worker will have a separate business outside of the work being performed, which could lead IRS to deem the worker an independent contractor.
The line between independent contractor and employee can get fuzzy if an employer doesn’t carefully weigh the above factors when bringing a worker into the farming operation.
• Considerations for employees. If the worker is deemed an employee, an employer must pay federal and state income tax withholding, Social Security, Medicare and unemployment taxes, as well as worker’s compensation insurance (in most cases). None of these are required for independent contractors.
• Salary vs. hourly pay. For 2012, the hourly minimum wage for most Iowa employees is $7.25. Supervisory or administrative employees that are paid a salary are not covered by the law. Employers that gross at least $300,000 in sales or business per year must comply. Additionally, employers in Iowa may pay an “initial employment wage” of $6.35 for the first 90 calendar days of employment. However, some types of employers are not required to comply with the Iowa Minimum Wage Law, including certain agricultural employers like small farms that used less than 500 “man days” of farm labor in any calendar quarter of the preceding calendar year (same exception applies for overtime).
• Workers’ compensation. Iowa’s workers’ compensation law requires most Iowa employers to provide benefits to eligible employees who have injuries arising out of and in the course of their employment. However, ag employees whose employer has a cash payroll of less than $2,500 in the calendar year preceding an injury, independent contractors, and the officers of family farm corporations, their spouses, parents, siblings, kids, stepkids and their spouses are not considered employees, but can elect to buy workers’ compensation insurance. Farmers should consult their insurance professional.
• Employee-at-will. Iowa is an “employment-at-will” state. This means an employer or employee can terminate their relationship at any time for any reason. However, employees in Iowa may have grounds to pursue legal action against their former employer if they are fired on the basis of sex, race, color, national origin, religion, age, pregnancy, or physical or mental disability. The ex-employee may also have grounds for a lawsuit if he or she were fired for certain “whistle-blowing” actions, the employment contract states otherwise, or they are fired for attempting to comply with government regulations.
Deductions from pay. Taxes, garnishments and pre-authorized deductions may be deducted from pay. However, lost or stolen property, or cash shortages in the common money till cannot.
Above all, if you employ seasonal or year-round help, you need to familiarize yourself with farm labor laws and contact an attorney who is knowledgeable in labor and employment practices to advise you before problems arise.
Herbold-Swalwell is an attorney with Beving, Swanson and Forrest in Des Moines. Reach her at [email protected].
This article published in the April, 2012 edition of WALLACES FARMER.