Farm employers generally get help from family, part-time workers, youth, and sometimes contractors; however, they’re still responsible for processing payroll and taxes like any other non-farm business. The process for doing agriculture payroll is similar to that which most employers follow, but there are some exceptions.
Depending on how much you pay in wages, who you’re paying, and how you’re paying them, you (and your employees) may be exempt from payroll taxes.
Key Takeaways:
- California, Colorado, Maryland, Minnesota, New York, Oregon, and Washington all require overtime pay for farmworkers.
- Most employers need to pay farmworkers at least the federal minimum wage of $7.25 per hour, and some states have higher minimum wages.
- Make sure you classify your agricultural workers correctly or you risk fines and penalties.
How to Do Agricultural Payroll—Steps
Here’s a quick summary of the steps you’ll need to follow to process agriculture payroll:
Initial Steps to Setting Up Farm Payroll System
- Set your business up as an employer. Apply for Federal and State Employer ID numbers, electronic tax payment accounts, and a payroll bank account.
- Establish a payroll process. Will you pay hourly, salary, or piece rate? How will you track time? Will you pay weekly, biweekly, or semimonthly? Benefits? Outsourcing vs doing payroll in-house? Paying in cash, by direct deposit, check, or non-cash commodities?
- Gather new hire paperwork. Make sure you collect all necessary payroll forms, like the I-9 Forms, W-4 Forms, and W-9 Forms (for contractors).
Steps to Run Payroll Each Pay Period
- Verify each employee’s work time or units produced. Employees should submit time sheets showing the units they produced during the pay period. They may log this on an app or online system to streamline the process.
- Calculate payroll due, including taxes. Use a timecard calculator, paycheck calculator, and/or Excel to help calculate payroll amounts.
- Withhold money for taxes and other deductions. Withhold money for federal, state, and local taxes (if applicable; there are some exceptions), in addition to any other deductions or garnishments that need to be withheld from paychecks.
- Pay benefits providers or debtors. Remit payment to all insurance providers or debtors, if needed, for any amounts deducted from payroll.
- Pay employees. Make payments to employees promptly.
- Pay taxes. Make tax payments on time. Frequency depends on how much you owe.
Periodic Steps for Payroll Tax Reporting
- File Form 943 annually. Federal Form 943 (Employer’s Federal Tax Return for Agricultural Employees) needs to be filed annually to report both the employee and employer taxes paid.
- Produce W-2 and 1099 Forms by Jan. 31 of the following year. Send Form W-2 copies to employees and 1099s to contractors in a timely manner. You’re also required to provide a copy to the IRS and keep a copy for yourself.
Pay Rate for Farmworkers
The first major consideration before paying would be the classification of your workers. Getting this wrong—even as an honest mistake—can lead to compliance issues and hefty fines.
You’ll also have to figure out the rate of pay. When it comes to paying agricultural workers, many farm employers opt to pay by the hour or units produced. Regardless of which rate you choose, farmworkers must receive at least the federal minimum wage of $7.25 per hour (or your state minimum wage, if it’s higher), unless you can get an exemption from minimum wage requirements.
Here’s an in-depth look at what to consider when running agricultural payroll:
Before you can pay your farmworkers, you need to make sure you’re classifying them correctly. While you may have seasonal farmworkers, part-time workers, and full-time workers, those are all employees. You may also partner with independent contractors. Here’s the difference:
- Employees are workers you control what work they do, when, and how.
- Independent contractors operate under their own business entity, retaining control over how their work is completed without direct supervision or oversight from you.
This distinction between these two types of workers hinges on the degree of control and independence. For farm employers, correctly classifying workers is critical to:
- Ensure legal compliance
- Manage financial obligations
- Protect workers’ rights
To ensure you’re classifying your farmworkers correctly, evaluate each working relationship carefully, considering factors like the degree of control over the work being done, the financial aspects of the worker’s job, and the permanency of the relationship.
It’s easy to confirm you’ve paid employees the minimum wage amount if you have a system for tracking their work hours (you can print your own time sheets); however, some farm employers opt not to track work time if paying a piece rate. This is a mistake.
If an employee who is paid a piece rate doesn’t produce enough to earn the minimum wage amount, you must legally pay them the difference. To avoid compliance issues, you should maintain records of all employees’ work time, regardless of what rate they’re paid.
There are instances in which you may be required to pay more than the federal or state minimum wage:
- If you agreed to pay a piece rate and the employee produced or picked enough to earn more than minimum wage
- If you agreed to pay a higher wage rate when hiring the employee
At the federal level and in most states, farm employers aren’t required to pay their employees overtime pay. In other industries, overtime pay is required—it’s an increased pay rate (time and a half) for any hours worked over 40 in a workweek.
If you’re in the following states, you’ll need to pay farm workers overtime:
- California: 1.5 times the regular rate of pay for hours worked over eight in a single workday and over 40 in a workweek.
- Colorado: 1.5 times the regular rate of pay for hours worked over 48 for highly seasonal employers, over 54 hours for non-highly seasonal employers, and 56 hours for small employers. Note that starting January 1, 2025, all agricultural employers in Colorado will need to pay overtime for all hours worked over 48 in a workweek.
- Maryland: 1.5 times the regular rate of pay for hours worked over 60 in a workweek.
- Minnesota: 1.5 times the regular rate of pay for hours worked over 48 in a workweek.
- New York: 1.5 times the regular rate of pay for hours worked over 56 in a workweek.
- Oregon: 1.5 times the regular rate of pay for hours worked over 55 in a workweek. Note that beginning January 1, 2025, agricultural employers must pay overtime for all hours worked over 48 in a workweek.
- Washington State: 1.5 times the regular rate of pay for hours worked over 40 in a workweek.
For help calculating overtime pay, use our overtime calculator.
Since minimum wage and overtime are based on hours worked, it’s essential that we define work time. Any time that the employee spends actively doing what you hired them to do (tending to animals, clearing land, etc.) should be included. In addition, you should also have the following in your employees’ work time calculation:
- Short rest breaks (10- or 15-minute duration)
- Any time the employee isn’t permitted to leave the workplace
- Travel between fields during the workday
- Time spent waiting for a field to dry
- Time waiting for a machine to be repaired
For more information on minimum wage, overtime, and work time on a state-by-state basis, click on your state on the map below: