Who works on your Farm?

April 1, 2013

As I visit many equine operations, I find that there is often confusion regarding how workers are classified. For generations, agriculture operations have been somewhat lightly scrutinized by the IRS, and to use a popular game board metaphor, have often been given the “get out of jail free” card. However, this line of thinking is changing. With the federal government looking for streams of revenue, the IRS has been directed to closely analyze business models in search of these streams, especially in the area of employment classification. In the last 14 months rules and guidelines have changed for the equine operator. In 2012, there were two court cases where farm workers sued for damages and received a favorable judgment against the farm and its owners for injuries the workers sustained while on the job. Most recently, I referenced a court case where the worker was awarded $274,000 for damages. This case has brought to light to the IRS that, from a labor standpoint, equine operations are potentially easy targets from which to pull additional government revenue.

This brings the question. Who is working on my farm? Are they an employee or are they an independent contractor? How are they paid? Do I pay cash? Do I provide benefits? Do I have adequate insurance in case of an accident? Here is how the IRS defines your work force, referred to as the IRS 20 factor test.

Although there are actually 20 factors used to evaluate the validity of independent contractor classification, these a few that have a major impact on the determination of classification:
Level of instruction: If the farm directs when, where and how work is done. This indicates an employee-employer relationship.
Flexibility of schedule: Workers whose hours or days of work are dictated by a farm or farm management are apt to be considered employees.
Method of payment: Hourly, weekly, or monthly pay schedules are characteristic of an employee-employer relationship, unless the payments are simply a convenient way of distributing a lump-sum fee outlined in a written contract between the parties. Payment on commission or project completion is more characteristic of independent contractor relationships.

Provision of tools and materials: Workers who perform most of their work using farm-provided equipment, tools, and materials are more likely to be considered Employees.
Farms uncertain about how to classify a worker can request an IRS determination by completing Form SS-8 ,“Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Withholding.” However, some tax specialists caution that the IRS usually classifies workers as employees whenever their status is not clear-cut.

The descriptions listed above are but a few key IRS factors, and they represent the most scrutinized test for the IRS. Remember, if a business operation is found in violation the fines are large, liens can be filed, and confiscation of assets is a real threat. Many operations have ignored the signs and have been on the losing end of the equation. All of this liability and headache can be resolved with the right human resource partner such as Crown Equine Services working on your behalf.
In the next article I will discuss four additional factors and how the Affordable Health Care Act affects your farm operation.

Ben Donaldson
Vice President
Crown Equine Services

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