Keith D. Kightlinger
Who Is an Employee?
Employer Responsibilities
Payroll Tax Deposit Rules
Unemployment Taxes
Using Migrant and/or Seasonal Labor
When Using a Farm Labor Contractor . . .
This section contains information useful to farmers, agricultural employees and individuals and businesses offering labor and payroll services to agricultural employers. First, the differences between employees and independent contractors are explored, and suggestions are offered to farmers and workers on how to determine whether an individual is an employee or an independent contractor. Second, some of the general responsibilities of farm employers are covered, including documentation of workers and farm labor payroll taxes. Finally, important information on the Migrant and Seasonal Worker Protection Act is provided, and farm operators are informed of their rights, responsibilities and liabilities as employers of migrant or seasonal labor, whether on a direct basis or through the services of a farm labor contractor.
Before a business operator can know his or her responsibilities or how to treat payments made for services received, the relationship between the business and the provider of services must be determined. In agricultural production businesses, providers of services generally fall into two categories: Independent Contractors; or Common-law Employees.
Independent Contractors: People who follow an independent trade, business or profession in which they offer their services to the general public are usually not considered to be employees. The general rule is that an individual is an independent contractor if you, the employer, have the right to control or direct only the result of the work, and not the means and methods of accomplishing the result. Since independent contractors are not employees, you do not have to withhold or pay taxes on payments made to an independent contractor. If you pay an independent contractor $600 or more during the calendar year in the course of your trade or business, you must file Form 1099 MISC (Miscellaneous Income), providing a copy of the form to both the independent contractor and the Internal Revenue Service.
Common-law Employees: Under common-law rules, every individual who performs services subject to the will and control of an employer, as to both what must be done and how it must be done, is an employee. It does not matter that the employer allows the employee discretion and freedom of action, so long as the employer has the legal right to control both the method and the result of the services.
If an employer-employee relationship exists, it makes no difference how it is described by the parties. It does not matter how the payments are measured, how they are made, or what they are called. Nor does it matter whether the individual is employed full time or part time. You may have to withhold and pay taxes on wages you pay to common-law employees.
Making the Determination: An employer is generally responsible for withholding and paying income, social security and Medicare taxes, and in some cases, for paying unemployment taxes on wages paid to an employee. An employer does not generally have to withhold or pay any taxes on payments made to independent contractors.
If uncertainty exists, the Internal Revenue Service has identified 20 factors indicating whether an individual is an employee or an independent contractor. Form SS-8, Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding, can be completed by either an employer or worker and submitted to the IRS District Director for a determination. The 20 factors listed on Form SS-8 follow.
| Instructions: | Employees must comply with instructions about when, where and how to work. Even if none are given, control exists if the employer has the right to instruct. |
| Training: | An employee is trained to perform services in a particular way. Independent contractors use their own methods and receive no training from users of their services. |
| Integration: | An employee's services are integrated into the business operations because the services are important to the success or continuation of the business. |
| Services rendered personally: | An employee renders services personally. This shows that the employer is interested in the methods as well as the results. |
| Hiring assistants: | An employee works for an employer who hires, supervises and pays assistants. An independent contractor hires, supervises and pays assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result. |
| Continuing relationship: | An employee has a continuing relationship with an employer. This relationship may exist where work is performed at frequently recurring although irregular intervals. |
| Set hours of work: | An employee's hours or work are set by an employer. An independent contractor is the master of his or her own time. |
| Full-time work: | An employee normally works full time for an employer. An independent contractor when and for whom he or she pleases. |
| Work done on premises: | An employee works on the premises of the employer, or works on a route or at a location designated by the employer. |
| Order or sequence set: | An employee must perform services in the manner set by an employer. This shows that the employee is subject to direction and control. |
| Reports: | An employee submits reports to an employer. This shows that an employee must account for his or her actions. |
| Payments: | An employee is paid by the hour, week or month (or other specific unit). An independent contractor is paid by the job or on a straight commission. |
| Expenses: | An employee's business and travel expenses are paid by an employer. This shows that the employee is subject to regulation and control. |
| Tools and materials: | An employee is furnished significant tools, materials and other equipment by an employer. |
| Investment: | An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else |
| Profit or loss: | An independent contractor can make a profit or loss. |
| Works for more than one person or firm: | An independent contractor gives his or her services to two or more unrelated persons or firms at the same time. |
| Offers services to general public: | Independent contractors offer their services to the general public. |
| Right to fire: | An employee can be fired. An independent contractor cannot be fired so long as he or she produces a result that meets the specifications of the contract. |
| Right to quit: | An employee can quit his or her job at any time without liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good for failure to complete. |
Fair Labor Practices Act of 1938: It is important for agricultural employers to understand the term "man day" as defined in the Fair Labor Practices Act of 1938, as the man days of labor used in a farm business determine whether the farm employer is subject to several labor laws.
A "Man Day" is defined for agriculture in the Act as "...any day during which an employee performs agricultural labor for not less than one (1) hour." Agricultural labor performed by the employer or any member of his or her immediate family (spouse, parent, child, stepchild or sibling) is not counted as man days, regardless of the form of business organization (sole proprietorship, partnership or corporation) in "family" farms. Generally, a farm employer will fall under the 500 man day per calendar quarter limit if there are five or fewer employees.
Example: Farmer Smith has five full-time hired employees who work at least one hour per day six days per week. He also currently has four seasonal employees who worked at least one hour per day six days a week for five weeks. Farmer Smith's man hours of labor for the calendar quarter are:
Full time (5 workers x 6 days per week x 13 weeks) = 390 man days
Seasonal (4 workers x 6 days per week x 5 weeks) = 120 man days
Farmer Smith has 510 man days of labor during the calendar quarter. He will be subject to the agricultural provisions of the Fair Labor Practices Act next year. He is not subject to the Act this year unless he had more than 500 man days of labor in any calendar quarter of the previous year.
Minimum Wage: Agricultural employers who did not use more than 500 man days of labor during any calendar quarter of the immediate prior year are exempt from minimum wage law during the current year.
Exempt Wages: Wages paid to farm workers are generally subject to Social Security and Medicare taxes. Since January 1, 1990 subject agricultural wages have also been subject to federal income tax withholding. A few situations exist in which agricultural wages are exempt from Social Security and Medicare taxes, and therefore also exempt from federal income tax withholding.
Initial Paperwork: Employers are required to have on file for each employee Form W-4 (Employee's Withholding Allowance Certificate) and Form I-9 (Employment Eligibility Verification). To be able to deposit and report employment taxes withheld and paid, the employer must also have a Federal Employer's Identification Number (FEIN). If you do not have a FEIN, you should immediately contact the Internal Revenue Service at 1-800-829-3676, and request Form SS-4 (Application for Employer Identification Number). You will be unable to make employment tax deposits or file employment tax related reports without a FEIN.
Form W-4 is used by the employee to report the number of withholding allowances he or she is entitled to, based on marital status, number of dependents, other income, and amount of excess itemized deductions. The employer must have a Form W-4 from each employee to withhold the correct amount of federal income tax from the employee's wages. It is the employer's duty to supply Form W-4, and the employee's duty to truthfully complete the form and return it to the employer. If an employee fails to return Form W-4, the employer is required to withhold federal income tax from the employee's wages as if he or she is single, claiming no withholding allowances. This causes the maximum permissible amount of income tax to be withheld, as determined by consulting the proper table in Circular E (Employer's Tax Guide). Form W-4 and Circular E can be ordered from the I.R.S. by calling 1-800-829-3676.
Form I-9 is an Immigration and Naturalization Service form, required to document that a worker is lawfully eligible for employment in the United States. The employer is required to have all new employees complete Form I-9 within three business days of hiring. The employer is required to have a completed Form I-9 on file for all employees hired after November 6, 1986 who were employed on or after June 1, 1987. Employers are required to keep an employee's Form I-9 on file for a minimum of three years, even if the employee has left. If an employee works more than three years, Form I-9 must be kept in the employer's file until one year after the person leaves your employment. Copies of Form I-9 and instructions for completing it can be obtained by calling I.N.S. at 1-800-755-0777.
Employers are not required to withhold Georgia income tax from farm worker wages. However, employees may request that this tax be withheld and deposited for them also. To deposit withheld Georgia income taxes, you must register with the state. You may request the "Taxpayer Registration Handbook" by calling the Georgia Department of Revenue Registration Section at (404) 651-8651. The handbook contains the State Tax Application Common Information Form, which must be completed to be issued a State Taxpayer Identifier (identification number). You should also request the Georgia "Employer's Tax Guide" and copies of Form G-4, "Employee's Withholding Allowance Certificate." This is the state's version of Form W-4. Employees wishing to have both state and federal income taxes withheld should complete both forms, since withholding allowances may differ between state and federal.
Under the 1993 rules, most farm employers are classified as either monthly or semi-weekly depositors. Classification is determined by "looking back" at the employer's payroll tax liability for the second calendar year preceding the current calendar year. For example, if your employment taxes (FICA, Medicare and Federal Income taxes withheld) totaled $50,000 or less for 1996, you are a monthly depositor for 1998. If the total taxes for 1996 exceeded $50,000, you are a semi-weekly depositor for 1998. The only exceptions to the new classification rules are for employers who accrue less than $500 in taxes for an entire year, and for employers who accrue $100,000 or more in payroll taxes during a single day.
Monthly Depositors: Employers having less than $50,000 total payroll tax liability for the "lookback year" are required to deposit by the 15th day of the following month FICA and Medicare taxes withheld and/or accrued, and Federal Income tax withheld from employees' wages during each calendar month. If the 15th of any month falls on a Saturday, Sunday, or any other day that is not a banking day, the taxes will be considered to be deposited in timely fashion if they are deposited on the next banking day after the 15th.
$500 Exception: If a farm employer accumulates less than $500 in payroll taxes during the entire year, no deposits are required, and the employer may pay the entire amount due with Form 943, in January of the following year. If the employer is uncertain whether payroll taxes will be less than $500 for the year, it is best to follow the monthly deposit rules, to avoid penalties for failure to make deposits in a timely manner.
Semi-Weekly Depositors: If your total Federal payroll taxes for the "lookback year" were more than $50,000, you are classified as a semi-weekly deposited for the current year. Under these rules, taxes accumulated on payments made on Wednesday, Thursday and/or Friday must be deposited by the next Wednesday. Taxes accumulated on payments made on Saturday, Sunday, Monday and/or Tuesday must be deposited by the following Friday.
$100,000 One-Day Deposit Rule: If $100,000 or more in Federal payroll taxes is accumulated on any day during the year, you are required to deposit these taxes the next banking day. The employer then becomes a Semi-Weekly depositor for the remainder of the current calendar year, and for the next year, as well.
Agricultural employers are subject to Federal and State Unemployment Tax liability if they meet either of the two following conditions in either of the two years preceding the current year: 1) Payment of cash wages of $20,000 or more to farmworkers in any calendar quarter; or 2) employment of 10 or more farmworkers during any part of a day for at least one day during any 20 different weeks. Subject employers must file reports with the proper State and Federal agencies, and make timely payments of unemployment taxes. Employers are subject to both State and Federal Unemployment Tax liability, but a credit applies against Federal Unemployment Tax Act (FUTA) liabilities for State Unemployment Tax Act (SUTA) liabilities paid.
FUTA is a 6.2% tax on the first $7,000 of wages paid to each employee. Employers paying SUTA are given a 5.4% credit against their FUTA liability, resulting in a 0.8 effective FUTA tax rate. FUTA is computed on wages paid from the beginning of the year, even if FUTA liability is triggered later in the year. FUTA is reported annually on Form 940 (Federal Unemployment Tax Return). The employer is required to calculate FUTA liability quarterly, and to deposit the accrued tax whenever the liability exceeds $100 at the end of any calendar quarter. Deposits must be made by the end of the first month after the end of the quarter in which the accrued liability exceeds $100. Deposits are made at authorized financial institutions by submitting Form 8109 with the payment. FUTA deposits must be made with separate payment and Form 8109 from FICA/Medicare/Federal Income Tax deposits. If the accrued FUTA liability exceeds $100 at the end of the calendar year, the tax must be deposited in full with Form 8109 by January 31. If the end of the year liability is less than $100, the undeposited tax may be submitted with Form 940.
SUTA in Georgia is computed on the first $8,500 of wages paid to each employee of a subject employer. SUTA must be computed on employee wages from the beginning of the year, even if SUTA liability is not triggered until later in the year. Employers newly subject to SUTA are assessed at a rate of 2.70%. This rate consists of two components; 2.64% unemployment tax, and 0.06% administrative assessment. The rate of tax paid by an employer is subject to change, based on the employer's ratio of contributions paid in to benefits paid out, and the statewide ratio of Georgia's trust funds to Georgia's covered wages. Employers newly liable for SUTA should contact their nearest Department of Labor office, or write to: Georgia Department of Labor, Adjudication Section, Room 727, 148 International Boulevard NE, Atlanta, Georgia 30303-1751. Request Form DOL-1A (Employer Status Report), to apply for a SUTA identification number and Publication DOL-224 (Unemployment Insurance: The Employer's Handbook). Georgia employers subject to SUTA must file Form DOL-4 quarterly to report their SUTA-taxable wages paid to each employee, and to make payment of tax. SUTA payments are submitted directly to the Department of Labor with Form DOL-4. Form DOL-4 is sent to registered employers quarterly and must be completed and returned with payment by the end of the month following the last month of a calendar quarter. Failure to receive Form DOL-4 does not relieve the employer of his or her timely filing and payment requirements.
Producers of labor intensive crops are often utilize seasonal or migrant labor in their businesses. While some farmers successfully recruit their own seasonal labor forces, many rely on Farm Labor Contractors to recruit, transport, house and handle payment of migrant and seasonal workers.
Legislation: Producers using migrant and seasonal workers need to be aware of laws relating to the payment, transporting and housing of these workers. Producers must also be aware of regulations governing the licensing and actions of Farm Labor Contractors, and of their own responsibilities and liabilities when using migrant and seasonal workers, whether their services have been obtained directly by the producer, or through a Farm Labor Contractor. The Fair Labor Practices Act of 1938 and the Migrant and Seasonal Worker Protection Act of 1983 are the principal pieces of Federal legislation governing the payment and treatment of agricultural workers.
Migrant and Seasonal Worker Protection Act: Under the Migrant and Seasonal Worker Protection Act (MSPA), the farmer is considered to be a joint employer of migrant and seasonal workers brought to his farm by a Farm Labor Contractor. The farmer shares responsibility for payment of workers, even when payments are made in a lump-sum to the contractor.
If the farmer has input in the housing and/or transportation of workers, the farmer has responsibility for those items under MSPA. Even in cases where the Farm Labor Contractor is providing housing, the grower shares liability. All housing used by migrant and seasonal workers must be inspected by one of three agencies: U.S. Department of Labor; Georgia Department of Labor; or U.S. Occupational Safety and Health Administration (OSHA).
Regulations: The following regulations contained in the Migrant and Seasonal Worker Protection Act apply both to Farm Labor Contractors and to growers functioning as their own contractors. The only regulation without dual application is the requirement for registration. Farmers recruiting, paying, housing, and/or transporting migrant and seasonal workers for their own business are not required to register with the Department of Labor and certified as Farm Labor Contractors, but they are subject to all other regulations affecting registered contractors.
| Registration: | Farm Labor Contractors are required to register annually with the U.S. Department of Labor to receive a Farm Labor Contractor Certificate. |
| Transportation: | Farm Labor Contractors transporting workers are required to register the vehicles used with the Department of Labor, and to have an annual safety inspection of each vehicle. The VIN, make and description of each vehicle certified for worker transport will be printed on the contractor's Certificate. Parties transporting workers are required to carry a minimum of $1.5 million insurance or participate in Workers Compensation. Vehicles designed to carry more than 15 passengers require a minimum of $5 million in insurance, and any operator of such a vehicle must have a Commercial Driver's License. |
| Housing: | Farm Labor Contractors providing housing for workers must be "Housing Authorized" on their Certificate, have the facilities used inspected and approved, and listed by address on their Certificate. |
| Compensation: | Farm Labor Contractors and farmers employing migrant and/or seasonal workers directly are usually required to pay migrant and seasonal workers at rates at least equal to minimum wage. Paying workers on a piece-rate basis is acceptable, as long as the pay rate is at least equal to the current minimum wage on an hourly basis. The current Federal Minimum Wage is $5.15 per hour. |
| DO: | Be sure the contractor has a current Farm Labor Contractor Certificate in his own name. |
| DO: | Ask if the contractor will be transporting workers. If so, check that the vehicles to be used by the contractor are listed on the Certificate, and that the contractor is properly insured. If possible prior to the arrival of workers, inspect the vehicles being used. If you have concerns that the vehicles do not currently meet safety standards, ask for a new inspection, even if it means paying for it your self. Remember, you share the liability. If the contractor is not transporting workers, ask how the workers will arrive at your business, and how they are to be transported while on the job. If you will be involved in transporting workers, be sure your own vehicles are inspected and maintained in safe condition, and that you have sufficient insurance and properly licensed drivers. |
| DO: | Ask how workers are to be housed. If the contractor is providing housing, be sure the sites are listed on the contractor's Certificate. Again, if possible, inspect housing, and ask for a re-inspection if you have concerns. If you are providing housing, be sure that housing units are inspected and approved prior to the arrival of workers. |
| DO: | Be sure workers are being paid at least minimum wage, and that all applicable employment taxes are being withheld, accrued and deposited. Be ready to step in to handle payroll obligations in the event the Farm Labor Contractor does not properly discharge the duty. |
| DON'T: | Deal with an individual without a current valid Farm Labor Contractor Certificate. Deal directly with the certified contractor, not with a "representative." Only the certified contractor has the legal authority to enter into an agreement with a grower. |
| DON'T: | Use vehicles (either your own or a contractor's) to transport workers that are not inspected and certified for that use. Do not let improperly licensed drivers operate such vehicles. Do not let vehicles be used without proper insurance. |
| DON'T: | Use uncertified housing for workers, or permit a contractor to bring in workers without specifying the housing to be used and providing proof of certification. |
| DON'T: | Forget your joint responsibility when using the services of a Farm Labor Contractor. Don't be afraid to "check up" on the contractor while his workers are on your farm. |
Producers may contact either the Georgia Department of Labor or the U.S. Department of Labor for more information on and assistance in properly employing migrant and seasonal workers, either directly or through the services of a Farm Labor Contractor.
The U.S. Department of Labor can answer questions relating to the employment of such workers, housing and transporting workers, and the certification of contractors. For information from the U.S. Department of Labor, growers may call (912) 652-4221 in Savannah.
The Georgia Department of Labor can also provide assistance with these questions, and in addition, provides assistance to growers in contacting certified Farm Labor Contractors, or in contacting workers if the grower chooses to function as his own contractor. For information or assistance from the Georgia Department of Labor, growers should contact their closest Georgia Department of Labor Employment Services office.
An Equal Opportunity Employer/Affirmative Action Organization Committed to a Diverse Work Force
Issued in furtherance of Cooperative Extension work, Acts of May 18 and June 30, 1914, The University of Georgia College of Agricultural and Environmental Sciences and the U.S. Department of Agriculture cooperating.
Gale A. Buchanan, Dean and Director