September 5, 2017 at 3:32 p.m.
GLENCOE, Minn. - According to University of Minnesota Extension Educator, Rob Holcomb, EA, labor management is a crucial component of a farm manager's risk management strategy.
Holcomb talked about this during his presentation, "Tax and Legal Issues Relating to Labor Management in Minnesota," at a U of M Extension-sponsored employee management meeting on June 7 in Glencoe, Minn. He wasted no time as he jumped into the topic.
"When you decide to become an employer ... first you've got to get your employer ID number, your EIN," Holcomb said.
This is done through filling out an online form available at the IRS Web site, www.irs.gov. It can be done yourself or with help from your tax practitioner or accountant, Holcomb said. A Minnesota business registration should also be completed to be totally in compliance. This form is available at https://www.mndor.state.mn.us/tp/webreg/58FSz2gu/#1.
Designating between an employee and an independent contractor has been a hot topic with the IRS recently.
"This is an audit issue for Internal Revenue right now," Holcomb said. "They've been doing spot auditing on this for the last two years, and it's something I think you ought to look into on your operation and make sure you're in compliance."
The issue lies in that, from a tax standpoint, it is to a farmer's advantage to treat someone as an independent contractor and give them a 1099 rather than treat them as an employee and give them a W-2 and have to withhold FICA and Medicare tax, Holcomb said. Behavior control, financial control and relationship of the parties are factors used to determine whether an individual is an employee or a contractor. If instruction and training are provided, the individual is typically considered an employee, Holcomb said. The same holds true if the employer provides all the tools and equipment required to do a job and reimburses expenses. If an individual provides services to an open market and gets paid once at the end of a job rather than on a regular basis, they would more likely be considered a contractor. Also, if the job is part of an individual's regular business activities and if there is an oral or written agreement, this leans more towards a contractor. Provided benefits generally indicate an employee.
"If you've got someone coming in and working under your instruction and using your tools, you're going to have a really hard time convincing them (IRS) that they are a general contractor," Holcomb said.
Holcomb sees this the most when farmers employ people during harvest to haul grain from fields using the farmers' trucks.
"Folks, that person is an employee working under the farmer's guidance and using the farmer's equipment. If it gets looked at, it's going to get overturned," he said.
Every new employee must complete and sign Form I-9.
"What an I-9 is for, is for you to determine whether or not an employee is eligible to work in the United States," Holcomb said.
Employers legally have three days from the onset of work to complete the form.
"I'm going to tell you right now, do it on Day one. Don't mess around trying to do this thing on Day three ... because what will happen is they may work for two days, decide it isn't really for them and take off, and then you've got to issue a W-2 and you don't have an I-9," he said.
Employers should retain a copy of an employee's I-9 in their permanent files.
"This is something I would probably hang onto forever and ever, Amen," Holcomb said.
The link for Form I-9 is www.uscis.gov/files/form/i-9.pdf. A step-by-step guide for completing Form I-9 can be found at http://utsa.edu/hr/docs/I-9-Help.pdf. The U.S. Citizenship and Immigration Services also has a Web site providing helpful hints for examining Form I-9 documentation. This Web site can be found by doing a Google search for "Form I-9 Examining Documents."
A second form to be completed on Day one of employment is Form W-4.
"The purpose of the W-4 is to communicate from the employee to the employer how much federal income tax to withhold from the paycheck," Holcomb said. "... This is one thing they (IRS) will ask for, like the I-9, so you should have it on hand."
There is both a Federal and State W-4. The Web link for the 2012 Federal Form W-4 is www.irs.gov/pub/irs-pdf/fw4.pdf. For the Minnesota W-4, go to http://taxes.state.mn.us/Forms_and_Instructions/w-4mn.pdf. Like the I-9, these forms should be kept in a permanent file.
Regarding federal and state income tax, Holcomb stressed that is it the employee's call whether or not there is any income tax withheld from their paycheck, not the employer's.
A guide for agriculture employers, called Publication 51, is available in a downloadable format at www.irs.gov/pub/irs-pdf/p51.pdf. This publication will help manually calculate federal withholding based on certain criteria. Minnesota State tax withholding tables are available at the Minnesota Form W-4 site.
When it comes to hiring employees, federal anti-discrimination laws must be followed. With this, certain questions must be avoided during the hiring process.
"There are certain things that you just simply cannot discriminate against," Holcomb said. "... You've got to follow these provisions during the hiring process and even after they are hired."
When a new employee is hired, the employer must fill out a New Hire Report, available at www.mn-newhire.com, preferably within 20 days of employment onset.
"The purpose of this is simply to give the state a database to contribute to the federal government so that they can chase down deadbeat dads," Holcomb said.
Not a requirement but a good practice is to check a new hire's Social Security Number to make sure it is valid. This can be done via internet, at www.socialsecurity.gov/employer/ssnv.htm, or by sending or faxing the information to your local Social Security office.
Holcomb touched on several other topics during his presentation, including minimum wage, overtime, work breaks, child labor, workers compensation and other Social Security and tax issues. For a detailed guide to these issues, check out Introduction to Employment Taxes and Employer Issues and Responsibilities Guide available at http://www.uimn.org/uimn/images/employment_tax.pdf.
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