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Minimum Wage & Employment Taxes
March, 2001 
D.
L. Uchtmann
What responsibilities do farmers have to pay minimum wage, overtime, and various
employment taxes? This article provides general answers to the following questions:
1) What is the current federal minimum wage; is a farmer-employer
required to pay minimum wage to agricultural workers; and does the Illinois minimum
wage law add any additional requirements?
(2) Is a farmer-employer required by federal or Illinois law to pay overtime wages
to agricultural employees?
(3) When are farmer-employers generally required to pay the employer's tax for
unemployment compensation?
(4) When are farmer-employers required to pay social security taxes on employee
wages and what procedures must be followed?
The discussion is intended to provide general answers for educational purposes.
For more comprehensive information, visit the actual statutes and regulations
(links to unofficial versions of relevant statutes and regulations are provided).
You may find it helpful to discuss your special circumstances with your legal
counselor.
What is the current federal minimum wage; is a farmer-employer required
to pay minimum wage to agricultural workers; and does the Illinois minimum wage
law add any additional requirements?
The current minimum wage is $5.15 per hour. However, under the Federal Fair
Labor Standards Act, certain agricultural employers are generally exempt from
any requirement to pay the minimum wage. As a practical matter, Illinois farmers
employing less than about five employees in any given calendar quarter and those
that employ hand harvest laborers for less than thirteen weeks during a year are
usually exempt from the requirement to pay federal minimum wage.
Specifically, 29
U.S.C. ' 213(a)(6) [United States
Code, Title 29, Section 213(a)(b)] provides that the minimum wage provisions of
the Act shall not apply with respect to any employee employed in agriculture if
any of the following provisions apply:
- such employee is employed by an employer who did not, during any calendar
quarter during the preceding calendar year, use more than five hundred man-days
of agricultural labor;
- such employee is the parent, spouse, child or other member of his employers
immediate family;
- such employee (i) is employed as a hand harvest laborer and is paid on a piece
rate basis in an operation which has been, and is customarily and generally recognized
as having been, paid on a piece rate basis in the region of employment, (ii) commutes
daily from his permanent residence to the farm on which he is so employed, and
(iii) has been employed in agriculture less than thirteen weeks during the preceding
calendar year;
- such employee (other than an employee described in the preceding clause) (i)
is sixteen years of age or under and is employed as a hand harvest laborer, is
paid on a piece rate basis in an operation which has been, and is customarily
and generally recognized as having been, paid on a piece rate basis in the region
of employment, (ii) is employed on the same farm as his parent or person standing
in the place of his parent...and (iii) is paid at the same piece rate as employees
over age sixteen are paid on the same farm; or
- such employee is principally engaged in the range production of livestock.
As used above, "man-day" means any day during which an employee performs
any agricultural labor for not less than one hour.
Some additional detail regarding the man-day
exemption follows:
- All the employers agricultural workers must be counted for purposes of the
exemption. For example, if an employer owns and operates two farms, it is the
total number of man-days used on both farms and not on each individual farm that
determines whether he meets the 500 man-day test. Likewise an independent contractor
who harvests crops on different farms during the harvesting season must total
all the man-days of agricultural labor used on all such farms except those specifically
excluded. 29
C.F.R.' 780.304(b)
[Code of Federal Regulations, Title 29, Section 780.304(b)].
- Where there is an exchange of labor between the farmers, whether it be the
actual farmers labor that is exchanged or employees of the farmer whose labor
is exchanged, special rules apply for counting man-days. See
29 C.F.R. '
780.332.
- Where a farmer hires an independent contractor to harvest crops but reserves
the power to direct, control, or supervise the work of the harvest hands, the
farmer must include the contractors employees in determining whether the man-day
count is met. 29
C.F.R. '
780.305(c).
Regarding the exemption for members of the employers immediate family, the
statute exempts Aparent, spouse, or child.@ The regulations provide further exemptions
for a stepchild, stepparent, and foster parent. 29
C.F.R. ' 780.308. Other relatives,
even when living permanently in the same household as the employer, are generally
not considered to be part of the >immediate
family.=
Illinois also has its own minimum wage law. However, the agricultural exemption
under the Illinois Act is virtually identical to the exemption under the federal
Act noted above, except that the Illinois Act does not exempt employees principally
engaged in the range production of livestock. 820
Ill. Comp. Stat. 105/3(d)(2) [Illinois Compiled Statutes, Chapter 820,
Act 105, Section 39d)(2)].
Is a farmer-employer required by federal law or Illinois law to pay overtime
wages to agricultural employees?
Under the federal Fair Labor Standards Act, non-agricultural workers are generally
required to receive a minimum of one and one-half times the minimum hourly wage
for each hour of work in excess of 40 hours a week. All agricultural workers are
exempt from this provision under federal (29 U.S.C. '
213(b)(12))
and Illinois (820
Ill. Comp. Stat. 105/4a(2)C) laws. The overtime exemption for agricultural
workers is a blanket exemption which is much broader than the exemption for minimum
wages discussed above. For a more detailed description of the exemption, please
consult an attorney.
When are farmer-employers generally required to pay the employers tax for
unemployment compensation?
Under 26
U.S.C. ' 3306(a)(2),
agricultural employment is subject to the Unemployment Compensation Act if the
farm employer pays cash wages of $20,000 or more to employees during any calendar
quarter of the current or preceding calendar year; or the farmer employs ten or
more individual employees on at least one day during each of 20 different calendar
weeks. However, the farmers spouse and children under 21 are not considered in
determining whether the $20,000 cash wages or ten-employees test is met. Farm
employers who meet either of the above tests are required to pay a tax based upon
the amount of cash wages paid. 26
U.S.C. '
3301.
Historically, agricultural labor had been exempt from state and federal laws
establishing the unemployment insurance system, a system financed through an employer
tax based upon the amount of wages paid. In 1976 Congress amended the Unemployment
Compensation Act to bring the aforementioned agricultural employment within the
permanent coverage of the Act.
In 1977 Illinois amended its unemployment insurance law to include agricultural
labor if the farm met provisions nearly identical to the federal statute stated
above. This provision is found in 820
Ill. Comp. Stat. 405/211.4. It should be noted that the definition
of agricultural labor as defined in 820
Ill. Comp. Stat. 405/214 is very precise and it fails to mention
retail sales activities of an employee such as one who might be employed where
the farmer is involved in direct marketing activities.
If a farmer is subject to the Illinois Act (820
Ill. Comp. Stat. 405/211.4), the farmer must notify the Illinois
Department of Labor within a specified time after operations begin. A quarterly
return and tax payment (called "contributions") must be filed.
When are farmer-employers required to pay social security taxes on employee
wages and what procedures must be followed?
The Social Security taxes are applicable to almost all farmers even if the
farmer himself is the sole employee. Like other employers, a farmer has certain
obligations to contribute to an employee's future social security benefits. Generally,
employers are required to pay FICA (Federal Insurance Contributions Act) taxes
upon the wages of an employee, other than the employer's children under the age
of 18, who has either received wages of at least $150, or is one of several farmworkers
who collectively were paid $2,500 or more during the year. In determining whether
an employer/employee relationship exists, the Internal Revenue Code (Code) states
that such a relationship will be determined by a factual examination of factors
such as the amount of control exerted by the employer (farmer) over the details
of the work performed. If the employer/employee relationship is a matter of real
or special interest to the reader, please discuss such situation further with
an attorney. Absent an employer/employee relationship, there is no duty for a
farmer to pay FICA taxes upon that person. Note that the same Code definition
of "employee" applies for both FICA contributions and income tax withholding.
Social security applications to special agricultural employment situations
include the following:
- Family Members. Code
'
3121(b)(3) awards special treatment to an employee of a sole proprietor,
who is under age 18. These family members are not classified as employees for
purposes of FICA tax applicability. Special rules may apply in some circumstances
where the employee is the parent of the sole proprietor. Note that the special
rules for family members do not apply where the employer is a corporation or partnership.
- Sharecropper Tenants. Farming under a crop sharing arrangement is considered
operating ones own business. The landowner has no social security obligations
to such a tenant.
- Crew Leaders. In some situations it may be possible for a farmer to
avoid some FICA liability by using a crew leader. Code
'
3121(o) defines "crew
leader" and provides that employees of a crew leader are not deemed
employees of the farmer. The IRS scrutinizes such arrangements, and it is advised
that one examine possible limitations before reverting too quickly to this mechanism
as a means for avoiding FICA tax.
- Migrant Workers. Code
'
3121(b)(1) provides that lawfully admitted foreign agricultural
workers are not subject to FICA provisions.
- Self-Employment. A self-employed farmer is subject to self-employment
tax.
There are considerable bookkeeping and procedural responsibilities that accompany
the employer's responsibilities. Employers must withhold the proper amount from
the employee=s paycheck (although there is a possible
exception for agricultural employees) and must pay both the employer and the employee=s
portion on a timely basis. In order to comply with all the withholding and payment
requirements, the farmer and practitioner are advised to obtain copies of the
following IRS publications:
FICA tax is made up of the "social security" tax (at 6.2%) and the
Medicare tax (at 1.45%). The "social security" component applies to
remuneration up to a limit, e.g., $80,400 in 2001. The remuneration subject to
the Medicare component has no limit. Precise wage bases should be ascertained
by consulting the current year's Circular E.
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College of Agricultural, Consumer and Environmental Sciences
