Business and Financial
By Robert Moore, Research Specialist and Attorney, Agricultural & Resource Law Program
Prior to LLCs becoming available for common use, Limited Partnerships (LP) were used extensively to hold farmland. LPs provide liability protection for the limited partners and usually allow the land to be distributed out to the partners without tax liability. Additionally, the land in the LP can receive a stepped-up tax basis upon the death of a partner. LPs were a good choice to hold farmland.
The primary disadvantage of an LP is the liability exposure of the general partner. Because the general partner is tasked with management responsibilities for the LP, they receive no liability protection. Therefore, any liability created by the activities of the LP will transfer to the general partner and put all of the general partner’s assets at risk.
LLCs were developed in the 1990’s and started to become popular in the early 2000’s. LLCs can be taxed as partnerships and thus provide all the tax benefits of an LP. Also, LLCs provide liability protection for all owners regardless of their management roles. Therefore, LLCs provide all the benefits of an LP plus provide liability protection for the manager. Due to the superior lability protection of LLCs, LPs have been made obsolete in Ohio.
If you have an LP, you should consider converting it to an LLC. The conversion will extend liability protection to all the owners while maintaining the partnership taxation structure. Converting from an LP to an LLC is relatively easy.
The conversion is performed by completing Form 700 provided by the Ohio Secretary of State. The form can be filed through the mail or by submitting online. A $99 fee is required to be paid when the conversion is submitted. The form asks for the identification and structure of the current entity and the name and structure of the future, converted entity.
Any asset held by the LP is automatically owned by the LLC after conversion. For real estate, an affidavit is recorded with the county recorder stating the LP has been converted to an LLC. Because both the LP and LLC will have a partnership taxation structure, the same tax identification number can be used after the conversion. An operating agreement should be drafted for the new, converted LLC as the old LP agreement will no longer be in effect.
Consider the following example. XYZ Farms Ltd. is an LP and holds farmland. The owners of the LP wish to convert to an LLC to provide liability protection for the manager partner. Form 700 is filed with the Ohio Secretary of State along with the $99 fee. The conversion form states that XYZ Farms Ltd. is converting to an LLC and will have the new name of XYZ Farms LLC[1]. After the conversion, the LLC files an affidavit with the county recorder stating that XYZ Farms was converted from an LP to an LLC and the farmland is now owned by the LLC. The owners of XYZ Farms LLC draft a new operating agreement with terms and provisions applicable to an LLC.
LLCs have replaced LPs as the entity of choice to hold farmland. LPs that were established prior to the availability of LLCs can be converted to LLCs relatively easily. Owners of an LP should consider converting to an LLC to provide liability protection for the managing partner.
[1] Form 590, “Consent for Use of Similar Name”, and Form 610, “Articles of Organization”, must also be filed with the conversion form.
Tags: limited partnership, LLC, Limited Liability Company, business entities
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By Robert Moore, Research Specialist, OSU Agricultural & Resource Law Program
A common business strategy for farming operations is to place their machinery in a separate, stand-alone LLC. The idea behind this strategy is that by putting the high-liability machinery in its own LLC the other farm assets are protected. Unfortunately, the liability protection of a machinery LLC is sometimes overstated and may not provide as much protection as intended.
The compromised liability protection of a machinery LLC is not due to a defect in LLCs, but rather it is a result of who is operating the machinery. Typically, the persons operating the machinery are the owners or employees of the farming operation. Many liability incidents involving farm machinery are the result of operator error which pulls the liability back to the farming operation.
Consider the following example. XYZ Farms is a grain operation. To mitigate the liability of having large machinery traveling on roadways, XYZ Farms establishes Machinery LLC and transfers all machinery to the LLC. An employee of XYZ Farms causes an accident while driving machinery on a roadway. Because employers are liable for the actions of employees, XYZ Farms is liable for the accident even though the machinery was held in Machinery LLC.
A machinery LLC does provide some liability protection. If the liability incident is caused solely by an issue with the machine and not the operator, the LLC may prevent liability from transferring to other assets. Again, most accidents are caused by operator error so relying on this liability protection is planning against the odds.
As seen in the example, machinery LLCs do not completely insulate owners and other assets from liability. In fact, no entity used in a farming operation is guaranteed to prevent liability exposure for the owner. Therefore, liability insurance should always be the primary liability management plan for farm operations. Business entities should be used as the backup plan if liability insurance fails to cover liability exposure.
Machinery LLCs do have other beneficial uses. One of the more common uses is to consolidate various machinery ownership among family members. Having one entity own, buy, and sell all machinery is often a simpler plan than multi-ownership. For example:
Mom and Dad, Son, and Daughter each own some machinery. Each time they need to buy a new piece of equipment, it is a challenge to determine how the trade-in is handled and who should be the new owner. Instead, they establish a machinery LLC and put all their machinery in the LLC. They each receive ownership in the LLC in proportion to the ownership in the machinery. For all future purchases, the LLC provides the trade-in and buys the new machine.
The liability protection provided by machinery LLCs may not be as thorough as sometimes expected but they can still be a valuable component of a business structure plan. They do provide some liability protection and are useful in other ways such as consolidating ownership. Before establishing a machinery LLC, be sure to have a thorough discussion with legal counsel to fully understand it’s benefits and limitations.
It’s time to round up a sampling of legal questions we’ve received the past month or so. The questions effectively illustrate the breadth of “agricultural law,” and we’re happy to help Ohioans understand its many parts. Here’s a look at the inquiries that have come our way,
I’m considering a carbon credit agreement. What should I look for? Several types of carbon credit agreements are now available to Ohio farmers, and they differ from one another so it’s good to review them closely and with the assistance of an attorney and an agronomist. For starters, take time to understand the terminology, make sure you can meet the initial eligibility criteria, review payment and penalty terms, know what types of practices are acceptable, determine “additionality” requirements for creating completing new carbon reductions, know the required length of participation and how long the carbon reductions must remain in place, understand how carbon reductions will be verified and certified, be aware of data ownership rights, and review legal remedy provisions. That’s a lot! Read more about each of these recommendations in our blog post on “Considering Carbon Farming?”
I want to replace an old line fence. Can I remove trees along the fence when I build the new fence? No, unless they are completely on your side of the boundary line. Both you and your neighbor co-own the boundary trees, so you’ll need the neighbor’s permission to remove them. You could be liable to the neighbor for the value of the trees if you remove them without the neighbor’s approval, and Ohio law allows triple that value if you remove them against the neighbor’s wishes or recklessly harm the trees in the process of building the fence. You can, however, trim back the neighbor’s tree branches to the property line as long as you don’t harm the tree. Also, Ohio’s line fence law in ORC 971.08 allows you to access up to 10 feet of the neighbor’s property to build the fence, although you can be liable if you damage the property in doing so.
I want to sell grow annuals and sell the cut flowers. Do I need a nursery license? No. Ohio’s nursery dealer license requirement applies to those who sell or distribute “nursery stock,” which the law defines as any “hardy” tree, shrub, plant, bulb, cutting, graft, or bud, excluding turf grass. A “hardy” plant is one that is capable of surviving winter temperatures. Note that the definition of nursery stock also includes some non-hardy plants sold out of the state. Because annual flowers and cuttings from those flowers don’t fall into the definition of “nursery stock,” a seller need not obtain the nursery dealer license.
Must I collect sales tax on cut flowers that I sell? Yes. In agriculture, we’re accustomed to many items being exempt from Ohio’s sales tax. That’s not the case when selling flowers and plants directly to customers, which is a retail sale that is subject to the sales tax. The seller must obtain a vendor’s license from the Ohio Department of Taxation, then collect and submit the taxes regularly. Read more about vendor’s licenses and sales taxes in our law bulletin at this link.
I’m an absentee landowner who rents my farmland to a tenant operator. Should I have liability insurance on the land? Yes. A general liability policy with a farm insurer should be affordable and worth the liability risk reduction. But a few other steps can further minimize risk. Require your tenant operator to have liability insurance that adequately covers the tenant’s operations, and include indemnification provisions in your farm lease that shift liability to the tenant during the lease period. Also consider requiring your tenant or hiring someone to do routine property inspections, monitor trespass issues, and ensure that the property is in a safe condition.
My neighbor and I both own up to the shoreline on either side of a small lake--do I have the right to use the whole lake? It depends on where the property lines lay and whether the lake is connected to other waters. If the lake is completely surrounded by private property and not connected to other “navigable” waters, such as a stream that feeds into it, the lake is most likely a private water body. Both of you could limit access to your side of the property line as it runs through the lake. You also have the legal right to make a “reasonable use” of the water in the lake from your land, referred to as “riparian rights.” You could withdraw it to water your livestock, for example; but you cannot “unreasonably” interfere with your neighbor’s right to reasonably use the water. The law changes if the lake is part of a “navigable” waterway. It is then a “water of the state” that is subject to the public right of navigation. Others could float on and otherwise navigate the water, and you could navigate over to your neighbor’s side. Public users would not have the riparian rights that would allow them to withdraw and use the water, however, and would be trespassing if they go onto the private land along the shore.
If I start an agritourism activity on my farm, will I lose my CAUV status? No, not if your activities fit within the legal definition of “agritourism.” Ohio law states in ORC 5713.30(A)(5) that “agritourism” activities do not disqualify a parcel from Ohio’s Current Agricultural Use Valuation (CAUV) program. “Agritourism,” according to the definition in ORC 901.80, is any agriculturally related educational, entertainment, historical, cultural, or recreational activity on a “farm” that allows or invites members of the general public to observe, participate in, or enjoy that activity. The definition of a “farm” is the same as the CAUV eligibility—a parcel devoted to commercial agricultural production that is either 10 acres or more or, if under 10 acres, grosses $2500 annually from agricultural production. This means that land that is enrolled in the CAUV program qualifies as a “farm” and can add agritourism activities without becoming ineligible for CAUV.
Send your questions to aglaw@osu.edu and we’ll do our best to provide an answer. Also be sure to check out our law bulletins and the Ag Law Library on https://farmoffice.osu.edu, which explain many of Ohio’s vast assortment of agricultural laws.
Tags: carbon agreements, line fence law, trees, cut flowers, sales tax, Insurance, riparian rights, water rights, agritourism, cauv
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Did you know that ants are the only creatures besides humans that will farm other creatures? It’s true. Just like we raise cows, sheep, pigs, and chickens in order to obtain a food source, ants will do the same with other insects. This is particularly true with aphids. Ants will protect aphids from natural predators and shelter them during heavy rain showers in order to gain a constant supply of honeydew.
Like an ant, we have done some heavy lifting to bring you the latest agricultural and resource law updates. We start with some federal cases that deal with the definition of navigable waters under the Clean Water Act, mislabeling honey products, and indigenous hunting rights. We then finish with some state law developments from across the country that include Georgia’s right to farm law and California’s Proposition 12.
Supreme Court to review navigable waters definition under the Clean Water Act. The Supreme Court announced that it would hear the case of an Idaho couple who have been battling the federal government over plans to build their home. Chantell and Mike Sackett (“Plaintiffs”) began construction on their new home near Priest Lake, Idaho but were halted by the Environmental Protection Agency (“EPA”). The EPA issued an administrative compliance order alleging that Plaintiffs’ construction violates the Clean Water Act. The EPA claims that the lot, on which the Plaintiffs are constructing their new home, contains wetlands that qualify as federally regulated “navigable waters.” Plaintiffs are asking the Court to revisit its 2006 opinion in Rapanos v. United States and help clarify how to determine when a wetland should be classified as “navigable waters.” In Rapanos, the Court found that the Clean Water Act regulates only certain wetlands, those that are determined to be “navigable waters.” However, two different tests were laid out in the Court’s opinions. The Court issued a plurality opinion which stated that the government can only regulate wetlands that have a continuous surface water connection to other regulated waters. A concurring opinion, authored by Justice Kennedy, put forth a more relaxed test that allows for regulation of wetlands that bear a “significant nexus” with traditional navigable waters. Justice Kennedy’s test did not take into consideration whether there was any surface water connection between the wetland and the traditional navigable waters. In the lower appellate court, the Ninth Circuit Court of Appeals used Justice Kennedy’s “significant nexus” test to uphold the EPA’s authority to halt Plaintiffs’ construction. Now, Plaintiffs hope the Supreme Court will adopt a clear rule that brings “fairness, consistency, and a respect for private property rights to the Clean Water Act’s administration.”
SueBee sued for “bee”ing deceptive. Sioux Honey Association Cooperative (“Defendant”) finds itself in a sticky situation after Jason Scholder (“Plaintiff”) brought a class action lawsuit against the honey maker for violating New York’s consumer protection laws by misrepresenting the company’s honey products marketed under the SueBee brand. Plaintiff claims that the words “Pure” or “100% Pure” on the Defendant’s honey products are misleading and deceptive because the honey contains glyphosate. Defendant filed a motion to dismiss the class action lawsuit and a federal district court in New York granted Defendant’s motion in part and denied it in part. Defendant asked the court to find that its labels could not be misleading as a matter of law because any trace amounts of glyphosate in the honey is a result of the natural behavior of bees interacting with agriculture and not a result of Defendant’s production process. However, the court declined to dismiss Plaintiff’s mislabeling claims. The court concluded that a reasonable consumer might not actually understand that the terms “Pure” or “100% Pure” means that trace amounts of glyphosate could end up in honey from the bees’ foraging process. The court also declined the Defendant’s request to dismiss Plaintiff’s unjust enrichment claim because of the alleged misrepresentations of the honey. However, the court did dismiss Plaintiff’s breach of express warranty claim and request for injunctive relief. The court dismissed Plaintiff’s breach of express warranty claim because Plaintiff failed to notify Defendant of its alleged breach of warranty, as required by New York law. Plaintiff’s request for injunctive relief was also dismissed because the court could not find any imminent threat of continued injury to Plaintiff since he has now learned that the honey contains trace amounts of glyphosate. The court ordered the parties to proceed with discovery on Plaintiff’s remaining claims, keeping the case abuzz.
Indigenous Hunting Rights. Recently, two members of the Northwestern Band of the Shoshone Nation (“Northwestern Band”) were cited for hunting on Idaho lands without tags issued by the state. The Northwestern Band filed suit against the state of Idaho declaring that its members possessed hunting rights pursuant to the Fort Bridger Treaty of 1868 (the “1868 Treaty”). The 1868 Treaty provided that the Shoshone Nation agreed to permanently settle on either Fort Hall Reservation, located in Southeastern Idaho, or Wind River Reservation, located in Western Wyoming. By agreeing to settle on one of the two reservations, the Shoshone Nation was granted hunting rights on unoccupied lands of the United states. However, the Northwestern Band ended up settling in Northern Utah and not on one of the two named reservations. After considering the 1868 Treaty, the Federal District Court of Idaho dismissed Northwestern Band’s lawsuit. The court held that the hunting rights contained in the 1868 Treaty were tied to the promise to live on one of the reservations, and that a tribe cannot receive those hunting rights without living on one of the appropriate reservations. Thus, the court found that because the Northwestern Band settled in Northern Utah and not on one of the reservations, the hunting rights of the 1868 Treaty did not extend to the Northwestern Band of the Shoshone Nation.
Tensions rise over Georgia’s Freedom to Farm Act. A few days ago, Georgia lawmakers introduced legislation that seeks to further protect Georgia farmers from nusiance lawsuits. House Bill 1150 (“HB 1150”) proposes to change current Georgia law to protect farmers and other agricultural operations from being sued for emitting smells, noises, and other activities that may be found offensive by neighboring landowners. Georgia’s current law, which became effective in 1980, does provide some protection for Georgia farmers, but only from neighboring landowners that have moved near the farm or agricultural operation after the current law went into effect. All neighboring landowners that lived near the farming operation prior to the current law going into effect have retained their right to sue. HB 1150, on the other hand, will prevent these nuisance lawsuits by all neighboring landowners, as long as the farm or agricultural operation have been operating for a year or more. Passing a right to farm law has proven to be difficult in Georgia. In 2020, House Bill 545, also known as the “Right to Farm bill” failed to pass before the final day of the 2019-2020 legislative session. Private landowners, farmers, and their supporters, are divided on the issue and seek to protect their respective property rights. It doesn't look like HB 1150 will have the easiest of times in the Georgia legislature.
Confining California's Proposition 12. Meat processors and businesses that sell whole pork meat in California (collectively the “Petitioners”) have delayed the enforcement of California’s Proposition 12 (“Prop 12”), for now. Prop 12 is California’s animal confinement law that has sent shockwaves across the nation as it pertains to raising and selling pork, eggs, and veal. Last week, the Superior Court for Sacramento County granted Petitioners’ writ of mandate to delay the enforcement of Prop 12 on sales of whole pork meat. Petitioners argue that Prop 12 cannot be enforced until California has implemented its final regulations on Prop 12. To date, California has yet to implement those final regulations. California, on the other hand, suggests that final regulations are not a precondition to enforcement of Prop 12 and the civil and criminal penalties that can be brought against any farmer or business that violates Prop 12. The court disagreed. The court found that the language of Prop 12, as voted on by California residents, explicitly states that California voters wanted regulations in place before the square-footage requirements of Prop 12 took effect. Therefore, the court granted Petitioners’ writ of mandate to prevent the enforcement of Prop 12 until final regulations have been implemented. The court’s writ will remain in effect until 180 days after final regulations go into effect. This will allow producers and businesses to prepare themselves to comply with the final regulations. Opponents of Prop 12 believe this is another reason why the Supreme Court of the United States should review California’s Proposition 12 for its constitutionality.
Tags: Clean Water Act, Navigable Waters, Wetlands, Food Labeling, Hunting Rights, Property, Property Rights, nuisance, right to farm, animal welfare, California Proposition 12
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Did you know there is a bird with talons larger than grizzly bear claws? The Harpy Eagle’s back talons can reach lengths of 5 inches, which is larger than a grizzly bear’s claws which reach lengths of around 4 inches. Thankfully, the Harpy Eagle is not usually found in the United States, they are traditionally found in the rainforests of Central and South America.
The variety and extent of the animal kingdom can be a good analogy when we talk about the scope and variability of agricultural and resource law. “Ag law” isn’t in and of itself a core area of law, at least not an area of law taught in most law schools across the country. Those core areas of law are traditionally contracts, constitutional, tort, property, and a few others. But ag law includes most, if not all, of the core legal subjects. This includes property law, tax law, tort law, international law, intellectual property law, environmental law, contracts, business, labor and employment, and others. This week’s edition of the Ag Law Harvest shows you how diverse ag law really is. We review some legislation moving in parts of the country that deal with tax law, property law, and administrative law. We also review Federal regulations and court cases that address food law, trademark law, and antitrust law.
Florida introduces legislation to protect farmers’ preferential tax benefits amid agritourism boom. Florida’s legislature is hard at work to ensure the success of Florida’s agriculture and agritourism industries. Recently, Florida’s legislature introduced Senate Bill 1186 and House Bill 717. The purpose of both bills is to promote Florida’s agritourism industry and protect farmers when it comes to land classification, taxation, and regulation. Both pieces of legislation look to:
- Eliminate duplicate regulatory authority over agritourism by preventing local government from enacting regulations that prohibit, restrict, or otherwise limit an agritourism activity from taking place on land classified as agricultural land.
- Prevent land from being classified “non-agricultural” simply because an agritourism activity takes places on the land, so long as the agritourism activity is taking place on a bona fide farm.
- Implement a hybrid property taxation scheme which allows the buildings and other structures used for agritourism activities to be assessed at just value and added to the agriculturally assessed value of the land.
Both bills are currently making their way through their respective chamber’s committees and should be voted on soon.
Michigan looking to pass legislation to reduce fines for family farmers that do not report accidental workplace deaths to the state. The Michigan Senate recently passed a substitute for House Bill 4031, which is focused on reducing the fine incurred by family farms for not reporting the death of a family member within eight hours. Under current Michigan law, a family farm must report any fatality to the Michigan Occupational Safety and Health Administration within eight hours or face a fine of at least $5,000, which is exactly what happened to the Eisenmann family in 2019. The Eisenmann family ran a family farm and was fined $12,000 after Keith Eisenmann fell to his death while repairing a barn roof. The bill seeks to reduce the fine for families that are grieving the unexpected loss of a loved one. Although a family farm will still be required to report the accidental work-related death of a loved one within eight hours, if a family fails to do so, the substitute bill drastically reduces the penalty. The original bill passed Michigan’s House of Representatives late last year, but the substitute bill passed by the Michigan Senate clarifies the definition of family farm. The substitute bill now goes back to the House of Representatives for approval.
Bioengineered food standard now in effect. January 1st marked the first day of compliance for the Bioengineered Food Disclosure Standard (the “Standard”). The Standard requires food manufacturers, importers, and certain retailers to disclose to consumers that foods are or may be bioengineered. The Standard defines bioengineered foods as “those that contain detectable genetic material that has been modified through certain lab techniques and cannot be created through conventional breeding or found in nature.” The Agricultural Marketing Service has created a list of bioengineered foods to identify the crops or foods that are available in a bioengineered form. For more information on the Bioengineered Food Disclosure Statement visit https://www.ams.usda.gov/rules-regulations/be.
A bite into the cheesier side of trademark law. Last month, a federal court in Virginia decided on a dispute between European and American cheesemakers. The dispute arose over whether the term “Gruyere” should only be used to identify cheeses produced in the Gruyère region of France and Switzerland or whether the term can be used generically to describe a type of cheese, regardless of where the cheese is produced. The Plaintiffs, two European business groups, filed an application with the United States Patent Trademark Office (“USPTO”) to register “Gruyere” as a certification mark under 15 U.S.C. § 1127 which would only allow cheesemakers to use the term “Gruyere” if the cheese came from the Gruyère region. The U.S. Dairy Export Council and others (“Defendants”) filed an opposition to Plaintiffs’ application with the Trademark Trials and Appeals Board (“TTAB”). The TTAB found the term “Gruyere” to be generic term used to describe a type of cheese, not a cheese’s origin. Plaintiffs’ then filed suit in a federal court in Virginia. The federal court held that the “Gruyere” term had become a generic term to describe a type of cheese and failed to find the term worthy of trademark protection. The court reasoned that although the term “Gruyere” may have once been understood to indicate where a cheese came from, over time “Gruyere” became a generic term to describe a type of cheese. The court noted the term “Gruyere” has become generic overtime because: (1) U.S. regulations allow the use of the term “Gruyere” regardless of where the cheese is produced, (2) there is widespread sale and import of Gruyere cheese that is produced outside the Gruyère region, and (3) “Gruyere” is commonly used in dictionaries, media communications, and cheese industry events to describe a type of cheese without regards to where the cheese is produced. Plaintiffs have since appealed to the Fourth Circuit Court of Appeals, which means we still have a gooey situation on our hands.
USDA and Department of Justice announce commitment to protect farmers against unfair anticompetitive practices. The U.S. Department of Agriculture (“USDA”) and the U.S. Department of Justice (“DOJ”) each announced their shared commitment to enforcing federal competition laws that are aimed at protecting farmers, ranchers, and other agricultural producers from unfair, anticompetitive practices. In continuing their commitment to enforcing such laws, the agencies released a statement of principles and commitments which include:
- Farmers, ranchers, and other producers and growers deserve the benefits of free and fair competition. The DOJ and USDA are therefore prioritizing matters impacting competition in agriculture.
- The agencies will develop an accessible, confidential process for agricultural producers to submit complaints about potential violations of the antitrust laws and the Packers and Stockyards Act.
- Increased cooperation between the agencies to enforce the laws that protect agricultural producers and to identify areas where Congress can help modernize rules and regulations.
As we have seen over the past few months, the federal government is keen on preventing the consolidation of the agricultural industry in order promote fair and equal competition. The announced commitments and principles demonstrate the government’s continued dedication to cracking down on unfair practices.
Tags: agritourism, Workplace Safety, Bioengineered Foods, Food Labeling, Antitrust, Trademark law
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As promised, here is the next and final installment of “An Agricultural Employer’s 2021 Tax Obligations: A Series” discussing an agricultural employer’s requirements and obligations under Ohio law. This installment of the series provides an overview of Ohio employment taxes and additional employer obligations for Ohio’s agricultural employers. This series covers an employer’s Ohio tax obligations and requirements that arise simply because a business has employees. This series does not cover the business income or personal income tax reporting obligations of agricultural employers.
We first discuss Ohio’s income and school district taxes and then we focus on Ohio’s unemployment insurance tax and Ohio’s workers’ compensation requirement for all employers. The information contained within this series is not meant to be legal and/or tax advice, it is for educational purposes only. Agricultural employers should seek out the counsel and guidance of an attorney or other tax professional to help ensure compliance with Ohio tax law.
Ohio Employer Withholding Tax.
Ohio Employer Withholding Tax. Generally, employers are required to withhold Ohio income tax and school district tax from employees’ wages. However, under Ohio law, Agricultural employers are not required to withhold Ohio taxes from wages paid to employees, so long as the employees fall under the definition of agricultural labor in 26 U.S.C. § 3121(g). “Agricultural labor” includes all services performed:
- on a farm, in the employ of any person, in connection with the cultivating, raising, and/or harvesting of any agricultural or horticultural commodity; or
- in the employ of the owner or other operator of a farm, in connection with the operation, management, conservation, or maintenance of such farm and its tools and equipment.
Can Ohio’s Agricultural Employers Agree to Willingly Withhold Ohio’s Taxes? In short, the answer is yes. An agricultural employee must still pay Ohio income tax and their local school district tax on all income earned throughout the year. If an employee does not have their Ohio taxes withheld from their pay, they may be required to make quarterly estimated tax payments to the state. Because of this, an employee may request their employer to withhold their Ohio taxes from each paycheck. An agricultural employer is under no obligation to withhold Ohio taxes, but some do.
Ohio Withholding Exemption Certificate. It is important that each employer, even an agricultural employer, have its employees complete an Employee’s Withholding Exemption Certificate (Ohio IT 4). For agricultural employers that are not going to withhold Ohio’s taxes, it must have each employee check the box next to “I am exempt from Ohio withholding under R.C. 5747.06(A)(1) through (6)” under Section III of Form IT 4. If no Ohio IT 4 is completed, then an employer must withhold the Ohio’s taxes from an employee’s wages.
Ohio requires an employer to keep Ohio IT 4 in its records for at least four years and must make it available to the Ohio Department of Taxation upon request.
Registering as an Ohio Withholding Agent. Employers that are required (or choose) to withhold Ohio’s taxes from employees’ wages must register with the Ohio Department of Taxation. This can be done one of three ways.
- By internet. Registration can be completed online through the Ohio Business Gateway.
- By phone. Call 1-888-405-4089, listen for the message, and then press 2 to connect with an agent.
- By mail or fax. Complete Application for Registration as an Ohio Withholding Agent (Ohio IT 1) and mail it to the address provided on the form or fax it to the Ohio Department of Taxation at (614) 387-2165.
How Much Ohio Income Tax Should an Employer Withhold? To determine how much Ohio income tax to withhold, visit the Ohio Department of Taxation’s Employer Withholding Tables website.
How Much School District Tax Should an Employer Withhold? School districts impose a tax using one of two methods: traditional or earned income. School district tax rates and a district’s method of taxation can be found on the Ohio Department of Taxation’s "Employer Withholding: Table of Contents" website.
For traditional tax base school districts, an employer must use the same wage base and number of exemptions they use when calculating the employee’s Ohio income tax rate. For earned income tax base school districts, an employer must withhold at a flat rate equal to the school district’s tax rate with no reduction or adjustment for personal exemptions.
An employee’s school district is determined by the address of the employee’s residence. School districts and the corresponding four-digit codes can be found at https://www.tax.ohio.gov/finder or by contacting the applicable county auditor.
Electronic Filing Requirement. Employers are required to file and pay Ohio income and school district withholding taxes electronically. The easiest way to do this is through the Ohio Business Gateway.
Filing Frequency and Payment of Ohio’s Employer Withholding Tax. An employer’s filing frequency is determined by the combined amount of Ohio and school district income taxes that were withheld or required to be withheld during the look-back period. Ohio’s look-back period is the 12-month period ending June 30th of the preceding calendar year. An employer’s filing frequency is re-evaluated every year.
Ohio’s Income Tax Filing Frequency:
Quarterly. Ohio employers that withheld $2,000 or less in Ohio taxes will be required to file and pay taxes every calendar quarter. Ohio’s form IT 501 and payment are due by the last day of the month following each calendar quarter.
Monthly. Ohio employers that withheld more than $2,000 but less than $84,000 in Ohio taxes will be required to file and pay taxes every month. Form IT 501 and payment are due within 15 days after the end of each month.
Partial-weekly. Ohio employers that withheld $84,000 or more in Ohio taxes are required to make payment of withheld taxes within three banking days from the end of each “partial-weekly period.” There is no form that is required to be filed each time tax payments are filed. There are two “partial-weekly periods” in which an employer can be categorized. An employer’s partial weekly period depends on the day it issues payroll.
Partial-weekly Period 1: An employer is in period 1 if it issues payroll on Saturday, Sunday, Monday, or Tuesday.
Partial-weekly Period 2: An employer is in period 2 if it issues payroll on Wednesday, Thursday, or Friday.
Remember, payment is due within three banking days from the end of each period. So, if an employer issues payroll on Wednesday, it must submit payment of Ohio taxes within three banking days starting on Friday.
School District Tax Filing Frequency. School district tax filing frequency is the same as an employer’s Ohio income tax filing frequency except for employers that qualify as partial-weekly filers. Partial-weekly employers are required to file school district tax on a monthly basis. Every time an employer files and remits the school district tax they must complete “Payment of School District Income Tax Withheld” (Ohio SD 101), which can be found on the Ohio Business Gateway.
Quarterly and Annual Forms. An employer’s filing obligations do not end by filing the above forms each time it remits payment of Ohio’s taxes. The following are additional forms that must be completed by an employer either on a quarterly or yearly basis. Not every form listed below needs to be completed by every employer. Certain forms correspond with an employer’s filing frequency classification. These forms can be found on the Ohio Business Gateway.
Quarterly/Monthly Filers. Employers that qualify to file and pay Ohio income taxe on a quarterly or monthly basis must file an “Annual Reconciliation of Income Tax Withheld” (Ohio IT 941). Ohio IT 941 is typically due no later than January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022). The total tax withheld on Ohio IT 941 must equal the amount reported on Ohio IT 3 (discussed below).
Partial-weekly Filers. Employers that must pay Ohio taxes on a partial-weekly basis must file a “Quarterly Reconciliation of Income Tax Withheld” (Ohio IT 942) by the last day of each month following a calendar quarter for the 1st, 2nd, and 3rd Quarters. A different Ohio IT 942 form titled “4th Quarter/Annual Reconciliation of Income Tax Withheld” is to be filed by partial-weekly employers by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022). Partial-weekly employers do not submit Ohio IT 941.
“Transmittal of W-2 and 1099-R Statements” (Ohio IT 3). All employers must submit Ohio IT 3, which can be done electronically on the Ohio Business Gateway. Ohio IT 3 requires an employer to report and upload employee W-2s/1099-Rs. The amount of Ohio taxes withheld and paid by an employer must match the information contained within the W-2s and 1099-Rs. Ohio IT 3 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).
“Annual Reconciliation of School District Income Tax Withheld” (Ohio SD 141). Employers must also submit Ohio SD 141, which can be done electronically on the Ohio Business Gateway. Ohio SD 141 compares the amount of school district tax withheld and paid by an employer and the information contained within the W-2s and 1099-Rs uploaded when an employer files Ohio IT 3 (see above). The amount of school district tax withheld and paid should match the information contained within the W-2s and 1099-Rs submitted by an employer. Ohio SD 141 is usually due by January 31 of the following year (the 2021 tax year deadline has been extended to March 2, 2022).
Ohio Unemployment Insurance Tax.
When are Agricultural Employers required to pay Ohio’s Unemployment Insurance? Agricultural employers must pay the Ohio Unemployment insurance tax if it:
- Paid cash wages of $20,000 or more in a calendar to agricultural employees in the current calendar year or the preceding calendar year; or
- Had at least 10 agricultural employees for some portion of a day in 20 different weeks in the current year or the preceding year
Other Ways Employers can Become Liable for Ohio’s Unemployment Insurance Tax. An employer can also be required to pay the Ohio Unemployment Insurance tax if it:
- Is subject to the Federal Unemployment Tax Act (“FUTA”) in either the current calendar year or preceding calendar year.
- Acquires a business that was subject to Ohio’s unemployment insurance tax.
- Elects to cover its employees voluntarily.
Employer Must Report Its Own Liability. Employers are required to report liability by filing “Report to Determine Liability” (JFS 20100) to the Ohio Department of Job and Family Services (the “ODJFS”), which can be done online at https://thesource.jfs.ohio.gov. The ODJFS will determine an employer’s liability based on the information provided in JFS 20100. If an employer is deemed to be liable for Ohio Unemployment Insurance, the ODJFS will issue a 10-digit employer account number.
Employer Reporting. Liable employers are required to file quarterly reports to the ODJFS. Agricultural employers that must pay into the Ohio unemployment insurance fund must file the “Employer’s Wage Detail Report” and the “Quarterly Summary Report.” Employers who had no workers or paid no wages during a quarter are still required to file the above-mentioned reports. Employers with fewer than 200 employees should file their quarterly reports by using the Ohio Business Gateway or ODJFS’s “The SOURCE Online” The reports must be filed no later than the last day of the month following the end of a calendar quarter.
Employer Contributions. Like FUTA, only the employer is responsible for Ohio’s unemployment insurance tax. Payments made into the Unemployment Insurance Trust Fund are called “contributions.” Contribution rates are determined by an employer’s “experience rating” which is a measure of how much an employer has paid in unemployment taxes and has been charged in benefits. For more information about contribution rates, visit https://jfs.ohio.gov/ouio/uctax/rates.stm.
Contributions are due no later than the last day of the month following the end of a calendar quarter. To determine how much tax is due each quarter, an employer multiplies its unemployment tax rate by the amount of taxable wages paid during the quarter. Contributions must be made each quarter until the “taxable wage base” for each employee has been met. The taxable wage base for 2022 is $9,000. This means that an employer is only required to pay its unemployment insurance tax rate on the first $9,000 dollars earned by each employee. If an employer is unable to make a contribution, the unpaid balance will bear an annual interest rate of 14%, compounded monthly.
Ohio Workers’ Compensation
While not technically a “tax,” every employer in the state of Ohio, with one or more employees, must have workers’ compensation coverage. This includes agricultural employers. There are, however, certain businesses that do not have to carry workers compensation coverage. These businesses include:
- Sole proprietors with no employees
- Partnerships with no employees
- Family farm corporations with no employees
- Limited liability company acting as a sole proprietorship with no employees
- Limited liability company acting as a partnership with no employees
As you can see, the common attribute shared by the exempt businesses listed above is the fact that those businesses have no employees. What this means is that if anyone, other than an owner, is performing services for a business and being paid for those services, then the business is required to carry workers’ compensation coverage. So, for example, if a couple owns and operates a small family farm corporation and only the couple performs the work on the farm, then workers’ compensation coverage is not required.
Elective Workers’ Compensation Coverage. For those employers that are not required to carry workers’ compensation coverage, they may still elect to do so. Oftentimes, businesses elect to carry workers’ compensation insurance to prevent the devastating side effects of a serious injury sustained by an owner. Using the example of the family farm corporation from above, if the couple decides not to carry workers’ compensation coverage and one of them is injured while farming, their health insurance company may deny their claim because the injury was work-related. Generally, on-the-job injuries must be covered through workers’ compensation, not an individual’s health insurance. So, the couple could begin to amass a large sum in medical bills due to the lack of insurance coverage, possibly bankrupting the farm corporation.
Applying for Workers’ Compensation Coverage. Employers required to carry workers’ compensation coverage must apply for coverage by submitting the “Application for Coverage (U-3)” to Ohio’s Bureau of Workers’ Compensation (“BWC”) which can be found at https://www.bwc.ohio.gov/employercoverage. Employers electing to obtain coverage can apply by submitting the “Application for or Request to Cancel Elective Coverage (U-3S)” which can be found by visiting https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/employer-forms/application-for-request-cancel-elective-coverage.
Workers’ Compensation Premiums. The BWC calculates an employer’s premium based on several factors, including total payroll, type of work performed by employees, and an employer’s workplace injury record.
Premium Payments. Installment payments of an employer’s premium is based upon a schedule chosen by the employer. The BWC will send an invoice to each employer for premium/installment payments. Payments can be made through an e-account on the Ohio Bureau of Workers’ Compensation website.
Alternative Premium Rate Plans. It's no secret that workers' compensation insurance can be a costly expense for an employer. However, the BWC does have alternative premium rate plans for employers looking to reduce the cost of workers' compensation insurance. These alternative rate plans allow employers that operate similar businesses to join together to potentially achieve a lower premium rate than they could obtain as individual employers. For more information on alternative premium rate plans visit https://www.bwc.ohio.gov/downloads/blankpdf/altrate.pdf.
Conclusion. This series was split into two posts because of the massive amount of information presented. However, the broad overview of this series was very surface level. There are many exemptions, exceptions, alternate requirements, or additional requirements based on an employer’s unique circumstances that we did not cover for the sake of brevity. That is why is it important to speak with an attorney or other tax professional so that they can help you navigate federal and state tax laws to make sure you are fulfilling your obligations as an employer and to address any questions or concerns that you may have.
References and Resources:
Ohio Administrative Code Chapter 4123, Bureau of Workers’ Compensation, https://codes.ohio.gov/ohio-administrative-code/4123
Ohio Bureau of Workers’ Compensation, BWC Basics for Employers, https://www.bwc.ohio.gov/downloads/blankpdf/BWCBASICS.pdf
Ohio Bureau of Workers’ Compensation, Workers’ Compensation Overview, https://info.bwc.ohio.gov/wps/portal/gov/bwc/for-employers/workers-compensation-overview
Ohio Department of Job and Family Services, Employer’s Guide to Ohio Unemployment Insurance,http://www.odjfs.state.oh.us/forms/num/JFS08201/pdf/
Ohio Department of Job and Family Services, Unemployment Insurance: Employer Resource Hub, https://unemploymenthelp.ohio.gov/employer/
Ohio Department of Job and Family Services, UI Tax for New Employers, https://jfs.ohio.gov/ouio/uctax/UITaxForNewEmployers.stm
Ohio Department of Taxation, 2022 Ohio Employer and School District Withholding Tax Filing Guidelines,https://tax.ohio.gov/static/employer_withholding/2021%20filing%20guidelines%20updates_rev%2012-22-21.pdf
Ohio Department of Taxation, Estimated Payments, https://tax.ohio.gov/wps/portal/gov/tax/individual/resources/estimated-payments
Ohio Revised Code Chapter 4141, Unemployment Compensation, https://codes.ohio.gov/ohio-revised-code/chapter-4141
Ohio Revised Code Chapter 4123, Workers’ Compensation, https://codes.ohio.gov/ohio-revised-code/chapter-4123
Ohio Revised Code Chapter 5747, Income Tax, https://codes.ohio.gov/ohio-revised-code/chapter-5747
Ohio Revised Code Chapter 5748, School District Income Tax, https://codes.ohio.gov/ohio-revised-code/chapter-5748
Tags: Ohio Employment Taxes, Labor and Employment, taxes, Ohio Workers' Compensation, Ohio Unemployment Insurance, Agricultural Labor
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As we settle into 2022 and regroup after a busy holiday season, one of things an agricultural employer should be thinking about is taxes, more specifically, have they met their obligations when it comes to federal and state employment taxes. In this two-part series, we discuss the federal and state taxes that an employer is required to withhold from employees’ wages and the tax obligations that an agricultural employer is solely responsible for. This series covers the taxes and obligations an employer has because of the wages paid to employees. This series does not cover the business income or personal income tax reporting obligations of agricultural employers.
The first part of this series focuses on federal taxes and an employer’s obligations when it comes to social security, Medicare, federal income, and federal unemployment taxes. We also discuss when to pay the taxes and how to pay them. The information contained within this series is not meant to be legal and/or tax advice. Agricultural employers should seek out the counsel and guidance of an attorney or other tax professional to help them ensure they are compliant with their obligations under federal tax law.
Social Security and Medicare Taxes. Generally speaking, an employer must withhold social security and Medicare taxes from the wages it pays its employees. However, there are special rules for agricultural employers. The $150 Test or the $2,500 Test will help determine if an agricultural employees’ wages are subject to social security and Medicare taxes along with federal income tax withholding requirements.
All cash wages that an employer pays to an employee during the year for farmwork is subject to social security, Medicare, and federal income tax withholding requirements if either of the following tests are met:
- The $150 Test. An employer pays cash wages to an employee of $150 or more in a year for farmwork.
- This includes all cash wages paid on a time, piecework, or other basis.
- The $2,500 Test. The total that an employer paid for farmwork (cash and non-cash wages) to all employees is $2,500 or more during the year.
Annual cash wages of less than $150 paid to a seasonal farmworker are not subject to social security and Medicare taxes, or federal income tax withholding, even if an employer pays all farmworkers $2,500 or more. However, these wages do count towards the $2,500 Test to determine whether other farmworkers’ wages are subject to social security and Medicare taxes.
Social Security Tax Rate. The social security tax is 6.2% for both the employee and the employer on the first $142,800 paid to each employee in 2021. This means that an employer must withhold 6.2% of the employee’s wages for social security and the employer must match the 6.2%.
Medicare Tax Rate. The Medicare tax rate is 1.45% for each employee, on all wages earned. An employer must withhold Medicare taxes from an employee’s wages and pay a matching amount.
Federal Income Tax Withholding. An agricultural employer must withhold federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes (i.e. is the $150 Test or $2,500 Test met?). The amount of federal income tax withheld is determined by the gross wages paid to an employee (before any taxes are taken out).
To know how much federal income tax to withhold from an employee’s wages, an employer should have a Form W-4 (“W-4) on file for each employee. The Internal Revenue Service (“IRS”) redesigned Form W-4 for 2020 and beyond. The new W-4 no longer asks employees to report the number of withholding allowances they are claiming. The IRS encourages employees to file an updated W-4, but it is not a requirement to help determine the employee’s federal income tax withholding.
How much does an employer withhold for federal income tax? The best answer a lawyer can give to this question is, it depends. Luckily, the IRS has provided a tool to help employers determine the amount of federal income tax to withhold from an employee’s wages. The Income Tax Withholding Assistant for Employers allows employers to enter an employee’s W-4 information to calculate the amount of federal income tax to withhold. Note: The Income Tax Withholding Assistant will not be available after 2022. The IRS suggests using the Income Tax Withholding Assistant to become familiar with how to use the worksheets and tables in Publication 15-T to be able to calculate the amount of federal income tax to withhold after 2022.
What if my employee claims he or she is exempt from federal income tax withholding? An employee may claim an exemption from federal income tax withholding because they had no federal income tax liability last year and they expect to have no income tax liability this year. However, the employee’s wages are still subject to social security and Medicare taxes.
To claim the exemption, an employee must indicate the exemption on their W-4. The exemption is not permanent and is only for that year. To continue to be exempt, an employee must provide their employer a new W-4 by February 15. If an employee does not provide a new W-4 by February 15, the employer is required to start withholding federal income tax as if the employee had checked the Single or Married filing separate box on their W-4. If an employee provides a new W-4 after the February 15 deadline, an employer may apply the exemption to future wages but should not refund any taxes withheld while the exempt status was not in place.
Notice to Employees About Earned Income Credit (“EIC”). An employer must notify employees who have had no federal income tax withheld that they may be eligible for a tax refund because of the EIC. One easy way an employer can meet this requirement is by having the EIC notice on the back of the Form W-2 issued to all employees.
Depositing Social Security, Medicare, and Federal Income Taxes. Employment taxes must be deposited by electronic fund transfer (“EFT”). Normally, an EFT is made to the federal government using the Electronic Federal Tax Payment System (“EFTPS”). EFTPS is a free service provided by the Department of Treasury. For more information on EFTPS visit EFTPS.gov or call 800-555-4477. If an employer does not want to use EFTPS, it can arrange for its tax professional, financial institution, payroll service, or other trusted third party to make electronic payments on its behalf.
When to Deposit Social Security, Medicare, and Federal Income Taxes. An agricultural employer’s deposit schedule is determined from the total tax liability reported on Form 943, line 13, for the lookback period. The lookback period is the second calendar year preceding the current calendar year. Since we are in 2022, the lookback period will be 2020. This means that an employer’s status as either a “monthly schedule depositor” or “semiweekly schedule depositor” will be determined by the amount on Form 943, line 13 from 2020.
The terms “monthly schedule depositor” or “semiweekly schedule depositor” are not based on how often an employer pays its employees or how often it will be required to make tax deposits. The terms simply identify which set of rules an employer must follow. As discussed above the deposit schedule an employer must follow is determined by the total tax liability reported on Form 943, line 13. For 2022, an employer is a:
- Monthly schedule depositor if it reported $50,000 or less in 2020.
- Semiweekly schedule depositor if it reported more than $50,000 in 2020.
Monthly Deposit Schedule. If an employer is a monthly schedule depositor, it must deposit employment taxes on wages paid during a calendar month by the 15th day of the following month. If an employer does not pay any wages in a calendar month, it has no deposit requirement for the following month.
Semiweekly Deposit Schedule. If payday falls on a Wednesday, Thursday, or Friday, then an employer must deposit taxes by the following Wednesday. If payday falls on a Saturday, Sunday, Monday, or Tuesday, then an employer must deposit taxes by the following Friday. This is a very simplified explanation and assumes an employer has one payday for all employees. If an employer has multiple paydays for different employees, it should speak with an attorney or other tax professional to help determine when taxes should be deposited.
Federal Unemployment Tax Act (“FUTA”). FUTA, in conjunction with state unemployment systems, provides unemployment compensation to workers who have lost their jobs. Most employers pay both federal and state unemployment taxes. Additionally, only the employer is responsible for the FUTA tax, nothing is withheld from an employee’s wages for FUTA.
Agricultural Employers and FUTA. An agricultural employer is required to file Form 940 and pay FUTA tax if it:
- Paid cash wages of $20,000 or more to farmworkers in any calendar quarter in 2021 or 2022, or
- Employed 10 or more farmworkers during at least some part of the day (whether or not at the same time) during any 20 or more different weeks in 2021 or 20 or more different weeks in 2022.
When determining whether an employer meets either test above, employers must count the wages paid to H-2A workers, even though the wages paid to H-2A workers are not subject to FUTA.
Form 940 Due Date. Form 940 is due by January 31. If an employer made deposits on time and in full, they may file Form 940 by February 10.
FUTA Tax Rate. The FUTA tax rate is 6% for 2021. The tax applies to the first $7,000 an employer pays to each employee. There is a tax credit that may be applied against the FUTA tax rate for any amounts paid into state unemployment funds. The maximum credit is 5.4%. An employer is entitled to the maximum credit if it paid state unemployment taxes in full, on time, and on all the same wages that are subject to FUTA. Visit the instructions for filing Form 940 for further FUTA tax credit guidance.
Depositing FUTA Tax. FUTA taxes are deposited by EFT and are generally deposited on a quarterly basis. To calculate an employer’s FUTA tax, it should multiple the amount of wages paid to employees by .6% during the quarter. This percentage may have to be adjusted depending on an employer’s entitlement to the FUTA tax credit for state unemployment contributions. When an employee’s wages reach $7,000 for the calendar year, an employer does not have to figure any additional FUTA tax for that employee.
Conclusion. The above information is a very general overview of an employer’s tax obligations when it comes to its employees. As you can see, federal tax law can be daunting. We barely scratched the surface when it comes to specific exemptions or additional obligations for an agricultural employer. For example, agricultural employers may not always employ farmworkers or employees “engaged in agriculture.” The requirements and obligations of an employer that employs both farmworkers and non-farmworkers be may different than what is discussed above. Therefore, we cannot stress enough, the importance of speaking with an attorney or other tax professional so they can help you navigate federal tax law and your obligations as an employer.
Look out for our next and final installment of “An Agricultural Employer’s 2021 Tax Obligations: A Series” where we will be discussing an agricultural employer’s requirements and obligations under Ohio tax law.
References and Resources:
Internal Revenue Service, Publication 15 - (Circular E), Employer's Tax Guide, https://www.irs.gov/pub/irs-pdf/p15.pdf
Internal Revenue Service, Publication 15-A - Employer's Supplemental Tax Guide, https://www.irs.gov/pub/irs-pdf/p15a.pdf
Internal Revenue Service, Draft Publication 51- (Circular A), Agricultural Employer's Tax Guide, https://www.irs.gov/pub/irs-dft/p51--dft.pdf
Internal Revenue Service, Publication 225 - Farmer's Tax Guide, https://www.irs.gov/pub/irs-pdf/p225.pdf
Tags: Employment Taxes, Agricultural Labor, Labor and Employment, IRS, Medicare, Social Security, Unemployment Tax, Income Tax Withholding
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The Ohio Farm Custom Rates Survey data collection has launched once again. The online survey for 2022 is available at: https://go.osu.edu/ohiofarmcustomratesurvey2022
A large number of Ohio farmers hire machinery operations and other farm related work to be completed by others. This is often due to lack of proper equipment, lack of time or lack of expertise for a particular operation. Many farm business owners do not own equipment for every possible job that they may encounter in the course of operating a farm and may, instead of purchasing the equipment needed, seek out someone with the proper tools necessary to complete the job. This farm work completed by others is often referred to as “custom farm work” or more simply “custom work”. A “custom rate” is the amount agreed upon by both parties to be paid by the custom work customer to the custom work provider.
Custom farming providers and customers often negotiate an agreeable custom farming machinery rate by utilizing Extension surveys results as a starting point. Ohio State University Extension collects surveys and publishes survey results from the Ohio Farm Custom Survey every other year. This year we are updating our published custom farm rates for Ohio.
We kindly request your assistance in securing up-to-date information about farm custom work rates, machinery and building rental rates and hired labor costs in Ohio.
This year we have an online survey set up that anyone can access. We would ask that you respond even if you know only a few rates. We want information on actual rates, either what you paid to hire custom work or what you charged if you perform custom work. Custom Rates should include all ownership costs of implement & tractor (if needed), operator labor, fuel and lube. If fuel is not included in your custom rate charge there is a place on the survey to indicate this.
You may access the survey at: https://go.osu.edu/ohiofarmcustomratesurvey2022
If you prefer a document that you can print out and fill out by hand to return, email Barry Ward at ward.8@osu.edu
The deadline to complete the survey is March 31, 2022.
Did you know that a male moose loses its antlers every year? Moose usually lose their antlers every winter and grow new ones in the spring. Additionally, because of the lack of antlers during the winter months, a moose’s first line of defense is its sharp hooves, which can mortally wound a wolf or bear. This edition of the Ag Law Harvest kicks around a few USDA announcements and FDA rule proposals and sheds some light on overtime compensation for California’s agricultural workers.
USDA announces new micro-farm insurance policy. The U.S. Department of Agriculture’s (“USDA”) Risk Management Agency (“RMA”) announced that the USDA has developed a new micro farm insurance policy for agricultural producers with small-scale farms who sell locally. The new insurance policy seeks to simplify recordkeeping and introduces insurance coverage for post-production costs and value-added products. Farm operations that earn an average allowable revenue of $100,000 or less, or for carryover insureds, that earn an average allowable revenue of $125,000 or less are eligible for the policy. The new insurance policy will be available for the 2022 crop year. Crop insurance is sold and delivered sole through private crop insurance agents, a list of which can be found at the RMA Agent Locator.
USDA accepting applications to help rural communities get access to internet. The USDA announced that it has begun accepting applications for up to $1.15 billion in loans and grants to help rural communities gain access to high-speed internet. The announcement follows the recently enacted infrastructure bill, which provides another $2 billion in additional funding for USDA’s ReConnect Program. According to the USDA, the funding will be available for projects that serve rural areas where at least 90% of the households lack broadband service at speeds of 100 megabits per second (Mbps) (download) and 20 Mbps (upload). The USDA will give funding priority to projects that will serve people in low-density rural areas and areas lacking internet service speeds of at least 25 Mbps (download) and 3 Mbps (upload). In making the funding decisions, the USDA will consider the economic needs of the community to be served and the extent to which a provider will offer affordable service options to the community.
FDA proposing changes to testing requirements of pre-harvest agricultural water. The Food and Drug Administration (“FDA”) published a proposed rule that would change some provisions of the FDA’s Produce Safety Rule. The proposed rule seeks to replace the microbial criteria and testing requirements for pre-harvest agricultural water for covered produce other than sprouts. Some of the proposed changes include:
- Replacing the microbial quality criteria and testing requirements with new provisions for conducting pre-harvest agricultural water assessments for hazard identification and risk management purposes;
- A new testing option for certain covered farms that elect to test their pre-harvest agricultural water for generic Escherichia coli (“E. coli”);
- Providing additional flexibility in responding to findings from pre-harvest agricultural water assessments;
- Expedited implementation of mitigation measures for known or reasonably foreseeable hazards related to certain adjacent and nearby land uses; and
- Required management review of pre-harvest agricultural water assessments.
The FDA is accepting comments on the proposed rule until April 5, 2022.
California’s overtime compensation for agricultural workers. In 2016, California passed Assembly Bill No. 1066 that slowly implemented overtime wages for California’s agricultural workers. Beginning in 2022, agricultural employees are entitled to one-half times their regular rate of pay for all hours worked over eight hours in any workday or over 40 hours in any workweek. However, the law only affects agricultural employers with 26 or more employees. Agricultural employers with 25 or fewer employees will be required to follow the same overtime compensation structure beginning in 2025. California will also begin to require that any work performed by an agricultural employee in excess of 12 hours in any workday be paid twice their regular rate of pay. Again, this provision only effects agricultural employers with 26 or more employees but will go into effect for all agricultural employers in 2025.
Tags: ag law harvest, small farms, Insurance, USDA, FDA, overtime, Rural Broadband
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As 2021 winds down, it is always good to plan for the new year. Part of that planning includes making sure, as an employer, you are compliant with any updates to current law as we turn the calendars to 2022. One law that is changing next year, is Ohio’s minimum wage law. Beginning January 1, 2022, the Ohio minimum wage will rise to $9.30, up from the current $8.80, for non-tipped employees. However, as an agricultural employer, the law provides some exemptions to paying federal or state minimum wage. In this post, we review minimum wage requirements, agricultural exemptions to minimum wage, and who qualifies for the agricultural exemptions.
Ohio versus federal minimum wage. As discussed above, Ohio’s minimum wage will rise to $9.30 for non-tipped employees but federal minimum wage will remain at $7.25. An agricultural employer is required to follow both state and federal laws, but when the two sets of laws differ, there may be some confusion about which one applies. Normally, federal law reigns supreme and usually preempts, or overrides, state law. But in this case, the federal law sets the floor for minimum wage. This means that employers across the country that are subject to the Fair Labor Standards Act (“FLSA”) cannot pay less than $7.25 per hour to their employees. However, if a state law requires that employers pay their employees more than the federal minimum wage, then the employer must meet the state’s minimum wage standard. Thus, Ohio employers must pay the Ohio minimum wage, unless an exemption applies.
Ohio’s “small employer” exemption. Starting in 2022, Ohio employers that grossed less than $342,000 in 2021 are not required to pay Ohio’s $9.30 minimum wage. Instead, those employers are required to pay the $7.25 federal minimum wage to their employees, unless another exemption applies.
Ohio and federal agricultural exemptions. Under both Ohio and federal law, agricultural employers are exempt from paying the federal or Ohio minimum wage to their employees if any of following apply:
- The employer did not use more than 500 man-days of agricultural labor during any calendar quarter during the preceding year.
- The employee is the parent, spouse, child, or other member of the employer’s immediate family.
- The employee:
- is employed as a hand-harvest laborer;
- is paid on a piece-rate basis;
- commutes daily from their permanent residence to the farm; and
- was employed in agriculture for less than 13 weeks during the previous calendar year.
- The employee is:
- 16 years of age or younger;
- employed as a hand-harvest laborer;
- paid on a piece-rate basis;
- employed on the same farm as their parent or legal guardian; and
- paid the same piece-rate wage as employees over the age of 16.
- The employee is engaged in range production of livestock.
500 man-days exemption. The “man-days” exemption was intended to exempt small and family-sized farms. A “man-day” is any day during which an employee performs at least one hour of agricultural labor. To calculate a “man-day”, an agricultural employer needs to keep track of the number of people who worked each day and for how long. 500 “man-days” is roughly equal to having seven employees working for at least one hour each, five days a week during a calendar quarter. It is also not just full-time employees that are counted towards the 500 “man-day” exemption, temporary and seasonal workers also count towards the “man-day” exemption.
Family member exemption. An agricultural employer is not required to pay family members the minimum wage. This family member exemption applies to employees engaged in agriculture and are either the parent, spouse, child or other member of the employer’s immediate family. However, not every blood relative is considered “other immediate family.” According to the U.S. Department of Labor, the following will be considered as part of the employer’s “other immediate family”: stepchildren, foster children, stepparents, and foster parents. Other family members, including siblings, cousins, nieces, nephews, uncles, and aunts do not count as immediate family members.
Employed in agriculture. Ohio law closely resembles, if not mirrors, FLSA requirements when it comes to agricultural exemptions to minimum wage and overtime requirements. But, to qualify for the agricultural exemptions discussed above, an employer must have employees that are employed in “agriculture.” Under the FLSA, “agriculture” has two distinct branches, primary agriculture and secondary agriculture. Employees engaged in primary agriculture are considered to be employed in agriculture for that workweek. Employees engaged in secondary agriculture are only considered to be employed in agriculture if the activities are performed by a farmer or on a farm in connection with the farming operations.
What is considered primary agriculture? Primary agriculture “includes farming in all its branches” and are those activities traditionally viewed as agricultural, including:
- Cultivating and tilling the soil;
- Dairying;
- Producing, cultivating, growing, and harvesting agricultural or horticultural commodities; and
- Raising livestock, bees, fur-bearing animals, or poultry.
Activities that qualify as primary agriculture do not necessarily have to take place on a farm. For example, someone employed in a hatchery that is located in an industrial complex is engaged in a primary agriculture activity (raising poultry) and is considered to be employed in agriculture. On the other hand, even though an activity takes place on a farm, it does not necessarily mean it is considered to be a primary agriculture activity. For example, courts have determined that employees of Dairy Farm A are not engaged in a primary agriculture activity when they process milk produced by Dairy Farm B.
What is secondary agriculture? Secondary agriculture includes all activities, including forestry or lumbering operations, that may not themselves be considered agricultural practices but are necessary to agriculture. For an activity to be considered secondary agriculture it must meet two requirements:
(1) the activity must either be performed by a farmer or on a farm; and
(2) the activity must be incidental to or in conjunction with such farming operations.
Secondary agriculture includes preparing an agricultural product for market, delivering agricultural products to storage, to market, or to carriers for transportation to market.
Any activity that is performed by a farmer’s employees, is also considered to be “performed by a farmer.” Moreover, an activity is considered “incidental to or in conjunction with” farming activities if the work being performed is:
(1) An established part of agriculture;
(2) subordinate to the farming operations of the farm; and
(3) not an independent business.
Mixing it up. After understanding what work is considered agricultural, it is important to understand the impact of an employee performing both exempt and non-exempt work. If an employee does both exempt and non-exempt work in the same week, then the employee loses their exemption status and must be paid according to federal/Ohio minimum wage and overtime requirements. However, if an employer can separate the employee’s exempt and non-exempt work into separate weeks, then the employer would only have to pay the employee federal/Ohio minimum wage and overtime for those weeks that the employee performed non-exempt work.
This especially important to agricultural employers that also engage in agritourism activities. Having a farm employee perform work related to an agritourism activity does not qualify for the agricultural exemptions under federal/Ohio law. Agricultural employers should be careful when assigning their employees tasks. Assigning tasks outside the realm of agriculture will subject the employer to the provisions of federal and state minimum wage and overtime laws.
Overtime. Agricultural employers are exempt from paying their agricultural employees an overtime wage rate. This exemption applies to all agricultural employees, not just small farm employees or immediate family members.
Conclusion. Determining whether your employees qualify for an agricultural exemption can be a complex issue, with multiple layers of analysis. It is always best to ask an attorney to help clarify whether your employees are considered to be “employed in agriculture” and thus qualify for the agricultural exemptions to minimum wage and overtime laws. Further, it is always a good idea to seek a lawyer’s counsel every so often to help make sure your operation is continuing to be compliant with labor and employment laws.
References and Resources.
29 U.S. Code Chapter 8 – Fair Labor Standards, https://www.law.cornell.edu/uscode/text/29/chapter-8
29 U.S. Code § 206 - Minimum wage, https://www.law.cornell.edu/uscode/text/29/206
29 CFR Chapter 5 – Wage and Hour Division, Department of Labor, https://www.ecfr.gov/cgi-bin/text-idx?SID=9215c26baf64464cdfbd4073e46247d3&mc=true&tpl=/ecfrbrowse/Title29/29chapterV.tpl
29 C.F.R. §§ 780 et seq. – Exemptions Applicable to Agriculture, https://www.ecfr.gov/cgi-bin/text-idx?SID=09461535e9555139c7d6471d1b26598d&mc=true&node=pt29.3.780&rgn=div5#se29.3.780_1103
Ohio Constitution, Article II, Section 34 – Minimum Wage, https://codes.ohio.gov/ohio-constitution/section-2.34a
Ohio Department of Commerce, 2022 Minimum Wage Poster, https://www.com.ohio.gov/documents/dico_2022MinimumWageposter.pdf
Ohio Revised Code Chapter 4111 – Minimum Fair Wage Standards, https://codes.ohio.gov/ohio-revised-code/chapter-4111
U.S. Department of Labor Wage and Hour Division, Field Operations Handbook Chapter 20 – Agriculture: Related and Seasonal Exemptions, https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch20.pdf
U.S. Department of Labor Wage and Hour Division, Fact Sheet #12: Agricultural Employers Under the Fair Labor Standards Act (FLSA), https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs12.pdf
Tags: Labor and Employment, Fair Labor Standards Act, Ohio Minimum Wage, minimum wage
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