Most farm operations require assistance, at least from time to time, to complete the chores and tasks necessarily associated with the operation of the farm. This brings up the question of how to classify your “farm hands.” State and federal law require that anyone working on your farm be classified as either a “contract laborer” or an “employee.” Though each state can specifically define each of these relationships, the following is an overview of the nature and consequences of each of these classifications.

The first classification is that of contract laborer. A contract laborer is generally defined as someone:

1. over whom there is a limited level of direction or control;
2. who supplies his/her own equipment, material, and supplies;
3. who can be discharged at any time or choose not to come to work without fear of losing employment;
4. who controls his/her own hours of employment;
5. whose employment period will be for a temporary or limited period of time; and
6. who is not an integral part of the business.

As an employer, there are several advantages to having “contract laborers” rather than employees. The most attractive advantage to an employer is that you do not have to withhold federal, state, and Social Security (FICA) taxes, or pay unemployment or workers’ compensation insurance for independent contractors. Contract laborers also do not receive benefits such as paid sick leave, vacation, health insurance, and retirement benefits. It is very important when hiring contract laborers that you are aware of the state and federal rules defining these relationships. If you classify someone as a “contract laborer” and the state and federal authorities disagree with your classification, you may be responsible for any state and federal taxes owed by that individual.

The second classification is that of employee. An employee is someone whose work is controlled by the employer and/or is an integral part of the business. Employers are required by the Internal Revenue Service to have each employee fill out a W9 form. This form is a request for taxpayer identification number and certification. This form requires each employee to certify under penalty of perjury that he has disclosed his correct social security or taxpayer identification number. As an employer, you will be responsible for withholding federal, state and Social Security (FICA) taxes, as well as responsible for carrying unemployment and workers’ compensation insurance. Full time employees whose only source of income comes from their employment with you are generally going to be classified as employees and not contract laborers. If you have any questions regarding the classification of your farm hands, you should seek the advice of a Certified Public Accountant. A wrong classification can end up costing you a lot of time and money in the long run.

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