Farms and other businesses can benefit by using independent contractors to fill labor needs while not having the same financial and legal responsibilities the business has for its employees. But state and federal laws allow those advantages only if the worker is truly an independent contractor. When a worker classified as “independent contractor” functions as an employee in the eyes of the law, a business can be liable for failing to meet its employer obligations for the worker. That’s exactly what happened in a recent case before the Ohio Supreme Court.
The company. The case involved Ugicom (the company), paid by Time Warner Cable under a subcontract to provide workers to install underground cable. Workers used the company’s website to select and document installation jobs and the company paid the workers at rates it determined. The installers were required to wear badges and vests identifying the company and to pass drug tests and background checks, all coordinated by Time Warner. The company required installers to sign a one-year independent contractor agreement containing a “non-compete clause” that prohibited them from providing installation services for competitors. The contract also required installers to respond to service requests within two hours. Installers had to provide their own hand tools, transportation, cell phones, and laptops, but used cable obtained from Time Warner. They could work any day or time consented to by customers. The company paid the installers by the job and did not withhold taxes or provide any benefits.
The Bureau of Workers Compensation (BWC) audit. The BWC audited the company to decide whether it had paid the correct amount of workers’ compensation premiums for all of its employees. The BWC examined the company’s treatment of workers it had hired to install cable as independent contractors. Concluding that the company exercised “too much control” over the installers, the BWC determined that the installers were actually employees for workers’ compensation purposes and the company owed $346,817 in unpaid premiums for the employees. The company unsuccessfully appealed the decision to the agency and the Tenth District Court of Appeals and the case ended up before the Ohio Supreme Court.
The Ohio Supreme Court review. For purposes of the workers’ compensation program, Ohio law provides that the controlling determination in whether a worker is an independent contractor or an employee is “who had the right to control the manner or means of doing the work.” There is not a bright-line test for making such a determination, however. Instead, the Ohio Supreme Court explained, the BWC must consider a set of factors related to who controls the manner or means of the work. Those factors include:
- Whether the work is part of the regular business of the employer
- Whether the workers are engaged in an independent business
- The method of payment
- The length of employment
- Agreements or contracts in place
- Whether the parties believed they were creating an employment relationship
- Who provides tools for the job
- The skill required for the job
- The details and quality of the work
The Ohio Supreme Court’s role was to determine whether the BWC relied upon “some evidence” when reviewing each of the factors to reach its conclusion that the company controlled the manner or means of the installers’ work. The Court concluded that most, although not all, of the BWC’s conclusions were supported by at least some evidence and upheld the BWC’s decision. The factors and evidence that received the most attention from the Court included:
- Independence from the company. The installers’ public image when working identified them as being with the company; they all wore the same badges and vests, and some had signs on their vehicles with the company’s name.
- Method of payment. The company controlled the rate of payment, which was nonnegotiable and did not include a bid process as is typical for independent contractors. The “take-it-or-leave-it” approach indicated control over the installers.
- Length of employment. The installers had an ongoing relationship with the company and did not advertise their services to the community at large.
- Agreements and contracts. The company’s non-compete clause restricted the installers’ freedom to work and indicated a measure of control over the workers.
- Skill requirements. The BWC concluded that the minimal skill required to install the cable was not high or unique, and the company offered no facts to show that the installers required specialized skills.
Disagreement on the court. Two of the Supreme Court Justices, Kennedy and DeWine, dissented from the majority opinion. Their primary point of disagreement was that there was no evidence supporting the BWC decision. The evidence instead suggested that the company controlled only how the installers were paid, and the installers controlled the manner and means of doing their work. The dissent criticized the BWC for jumping to a quick conclusion that the company’s true motives were “to evade the obligations associated with having employees.”
What does this mean for farm employers? Farms often rely on independent contractors for seasonal and intermittent help with work like baling hay, running equipment, and doing books. Are these workers true independent contractors or are they employees? That is a fact dependent question, but we can imagine many scenarios where the farm has a majority of the control over the mode and manner of such work. Farms are subject to Ohio’s workers’ compensation law, so a farm could be audited by the BWC just as the company in this case was and could see similar results for misclassifying employees as independent contractors.
Implications for all businesses. The case carries several implications that raise needs for businesses that use independent contractors:
- Recognize that state and federal tests can differ. Many are familiar with the IRS test for independent contractors but note that the Ohio Supreme Court applied its unique Ohio test for determining independent contractors in regard to BWC premiums. State and federal laws differ. It’s important to apply the appropriate test for the situation.
- Review the manner and means factors for each independent contractor. For each worker claimed as an independent contractor, review the nine factors listed above to ensure that the business isn’t exerting the most control over the manner and means of the work. Where possible, adjust practices that give the business unnecessary control over how and when the work is performed. Consider these:
- Use employees to do the regular work of the business and independent contractors for high-skill or unique tasks.
- Ensure that the business isn’t controlling the public image of the workers. The workers should not be branded or identifiable with the business through clothing, name badges, hats, vehicles, etc.
- Require independent contractors to submit bids or proposals on the amount and method of payment for their work.
- Avoid using the same independent contractor for an extended period of time and ensure that the worker’s services are available to other businesses.
- Don’t restrict the worker’s freedom to work for others, especially via a contract or agreement.
- Maintain records and evidence of the work situation. The BWC need only have “some evidence” that the nine factors indicate a high level of control over the mode or manner of work, but the business may offer facts and evidence to the contrary. Good recordkeeping is imperative. A business that can’t provide stronger facts and evidence in favor of the business, like the company in this case, might be at risk of an employee classification by the BWC.
While there are benefits of using independent contractors to meet labor needs, farms must recognize the associated risk of misclassification. For workers' compensation purposes, farms can avoid those risks by ensuring that it is the independent contractor, not the farm, who controls the "manner or means" of doing the work. Read the Ohio Supreme Court’s opinion in State ex rel. Ugicom Enterprises v. Morrison here.
Did you know that the loudest land animal is the howler monkey? The howler monkey can produce sounds that reach 140 decibels. For reference, that is about as loud as a jet engine at take-off, which can rupture your eardrums.
Like the howler monkey, we are here to make some noise about recent agricultural and resource law updates from across the country. This edition of the Ag Law Harvest brings you court cases dealing with zoning ordinances, food labeling issues, and even the criminal prosecution of a dairy farm. We then look at a couple states proposing, or disposing, of legislation related to agriculture.
A zoning ordinance has Michigan landowners hogtied. The Michigan Supreme Court recently ruled that Michigan’s 6-year statute of limitations does not prevent a township from suing a landowner for alleged ongoing zoning violations, even if the start of landowner’s alleged wrongdoing occurred outside the statute of limitations period.
Harvey and Ruth Ann Haney (“Defendants”) own property in a Michigan township that is zoned for commercial use. Defendants began raising hogs on their property in 2006. Defendants started with one hog and allegedly grew their herd to about 20 hogs in 2016. In 2016, Fraser Township (“Plaintiff”) filed suit against Defendants seeking a permanent injunction to enforce its zoning ordinance and to prevent Defendants from raising hogs and other animals that would violate the zoning ordinance on their commercially zoned property. Defendants filed a motion to dismiss and argued that Plaintiff’s claims were barred because of Michigan’s 6-year statute of limitations. A statute of limitations is a law that prevents certain lawsuits from being filed against individuals after a certain amount of time has passed. In Ohio, for example, if someone were to be injured in a car accident, they would only have 2 years to bring a personal injury claim against the person who caused the accident. That’s because Ohio has passed a law that mandates most personal injury claims to be brought within 2 years of the date of injury.
In the Michigan case, Defendants argued that because their first alleged wrongdoing occurred in 2006, Plaintiff could not file their lawsuit against the Defendants in 2016. A trial court disagreed with Defendants and denied their motion to dismiss. Defendants took the motion up to the Michigan Court of Appeals, and the Court of Appeals found that Plaintiff’s claim was barred because of the 6-year statute of limitations. Plaintiff appealed to the Michigan Supreme Court, which overturned the Court of Appeals’ decision and held that Plaintiff’s claim was not barred. The Michigan Supreme Court reasoned that the presence of the hogs constitutes the alleged unlawful conduct of the Defendants, and that unlawful conduct occurred in 2006 and has occurred almost every day thereafter. The court concluded that because Defendants unlawful conduct was ongoing after 2006, Plaintiff’s claims were not barred by the statute of limitations. The case now goes back to the trial court to be tried on the merits of Plaintiff’s claims against Defendants.
Where there’s smoke, there’s fire. Family Dollar Stores, Inc. (“Family Dollar”) has found itself in a bit of nutty situation. Plaintiff, Heather Rudy, has filed a class action lawsuit against Family Dollar, alleging that Family Dollar has misled her and other consumers by marketing its Eatz brand Smoked Almonds as “smoked.” Plaintiff asserts that Family Dollar is being deceptive because its Smoked Almonds are not smoked over an open fire, but instead flavored with a natural smoke flavoring. Plaintiff’s claims against Family Dollar include violating the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”); breaches of express warranty and implied warranty of merchantability; violation of the Magnuson-Moss Warranty Act; negligent misrepresentation; fraud; and unjust enrichment.
Family Dollar filed an early motion to dismiss, arguing that Plaintiff has not stated a claim for which relief can be granted. A federal district court in Illinois dismissed some of Plaintiff’s claims but ruled that some claims against Family Dollar should be allowed to continue. Plaintiff’s claims for breaches of warranty, violation of the Magnuson-Moss Warranty Act, negligent misrepresentation, and fraud were all dismissed by the court. The court did decide that Plaintiff’s claims under ICFA unjust enrichment should stay. The court reasoned that Plaintiff’s interpretation that Family Dollar’s almonds would be smoked over an open fire are not unreasonable. Moreover, the court recognized that nothing on the front label of Family Dollar’s Smoked Almonds would suggest, to consumers, that the term “smoked” refers to a flavoring rather than the process by which the almonds are produced. The court even pointed out that competitors’ products contain the word “flavored” on the front of similar “smoked” products. Therefore, the court concluded that Plaintiff’s interpretation of Family Dollar’s Smoked Almonds was not irrational and her claims for violating the ICFA should continue into the discovery phase of litigation, and possibly to trial.
Undercover investigation leads to criminal prosecution of Pennsylvania dairy farm. A Pennsylvania Court of Appeals (“Court of Appeals”) recently decided on Animal Outlook’s (“AO”) appeal from a Pennsylvania trial court’s order dismissing AO’s petition to review the decision of the Franklin County District Attorney’s Office (“DA”) to not prosecute a Pennsylvania dairy farm (the “Dairy Farm”) for animal cruelty and neglect. An undercover agent for AO held employment at the Dairy Farm and captured video of the condition and treatment of animals on the farm, which AO claims constitutes criminal activity under Pennsylvania’s animal cruelty laws.
AO compiled a report containing evidence and expert reports documenting the Dairy Farm’s alleged animal cruelty and neglect. AO submitted its report to the Pennsylvania State Police (“PSP”) in 2019. The PSP conducted its own investigation which lasted for over a year, and in March 2020, issued a press release indicating that the DA would not prosecute the Dairy Farm.
In response, AO drafted private criminal complaints against the Dairy Farm and submitted those to the local Magisterial District Judge. The local Magisterial Judge disapproved all of AO’s complaints and concluded that the complaints “lacked merit.” AO then filed a petition in a Pennsylvania trial court to review the Magisterial Judge’s decision. The trial court dismissed AO’s petition and concluded that the DA correctly determined “that there was not enough evidence, based upon the law, to initiate prosecution against any of the Defendants alleged in the private criminal complaints.” AO appealed the trial court’s decision to the Court of Appeals which ended up reversing the trial court’s decision.
The Court of Appeals concluded that the trial court failed to view the presented evidence through a lens that is favorable to moving forward with prosecution and the trial court failed to consider all reasonable inferences that could be made on the evidence. The Court of Appeals observed that the trial court made credibility determinations of the evidence by favoring the evidence gathered by PSP over the evidence presented by AO. The Court of Appeals noted that a trial court’s duty is to determine “whether there was evidence proffered to satisfy each element of an offense, not to make credibility determinations and conduct fact-finding.” Additionally, the Court of Appeals found that the trial court did not do a complete review of all the evidence and favored the evidenced obtained by PSP over the evidence presented by AO. The Court of Appeals determined that had the trial court reviewed all the evidence, it would have found that AO provided sufficient evidence to establish prima facie cases of neglect and animal cruelty, which would have provided the legal basis for the DA’s office to prosecute the claims.
Lastly, the DA argued that no legal basis for prosecution exists because the Dairy Farm is protected by the normal agricultural operations exemption to Pennsylvania’s animal cruelty laws. However, the Court of Appeals found that the conduct of the Dairy Farm, as alleged, would fall outside the normal agricultural operations exemption because AO’s report demonstrates that the Dairy Farm’s practices were not the dairy industry norm.
Ultimately the Court of Appeals found that AO’s private criminal complaints did have merit and that the DA had enough evidence and a legal basis to prosecute AO's claims. The Court of Appeals remanded the trial court’s decision and ordered that the DA to go ahead and prosecute the Dairy Farm on its alleged animal cruelty violations.
Wyoming fails to pass legislation limiting what can be considered agricultural land. The Wyoming House of Representatives struck down a recent piece of legislation looking to increase the threshold requirement to allow landowners the ability to classify their land as agricultural, have their land appraised at an agricultural value, and receive the lower tax rate for agricultural land. Current Wyoming law classifies land as agricultural if: (1) the land is currently being used for an agricultural purpose; (2) the land is not part of a patted subdivision; and (3) the owner of the land derived annual gross revenue of $500 or more from the marketing of agricultural products, or if the land is leased, the lessee derived annual gross revenues of $1,000 or more from the marketing of agricultural products.
Wyoming House Bill 23 sought to increase the threshold amount of gross revenues derived from the marketing of agricultural products to $5,000 for all producers. The Wyoming Farm Bureau Federation and Wyoming Stock Growers associations supported the bill. Proponents of the bill argued that the intent of agricultural land appraisals is to support commercial agriculture, not wealthy landowners taking advantage of Wyoming’s tax laws. Opponents of the bill argued that House Bill 23 hurt small agricultural landowners and that the benefits of the bill did not outweigh the harms. House Bill 23 died with a vote of 34-25, failing to reach the 2/3 approval for bills to advance.
Oregon introduces legislation relating to overtime for agricultural workers. Oregon House Bill 4002 proposes to require agricultural employers to pay all agricultural employees an overtime wage for time worked over 40-hours in a workweek. House Bill 4002 does propose a gradual phase-in of the overtime pay requirements for agricultural employees. For the years 2023 and 2024, agricultural employees would be entitled to overtime pay for any time worked over 55 hours in a workweek. For 2025 and 2026, the overtime pay requirement kicks in after 48 hours. Then in 2027, and beyond, agricultural employers would be required to pay an overtime pay rate to employees that work more than 40 hours in a workweek.
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
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
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.
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;
- 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
Over the past few months, we have all heard about the labor shortage affecting American employers in various industries all over the country. Now is as difficult a time as ever to find employees. As an agricultural employer, it may be easy to relax some of your established policies and procedures when going through the employee recruitment process, especially while navigating the labor shortage. But, as an employer, you are obligated to comply with state and federal law regardless of the labor climate. Below we review a few important concepts to help refresh employers of their obligations under Ohio and federal law when they engage in the recruitment process.
Walking the fine line of job descriptions. One of the first thing an employer should do when beginning the recruitment process is to define the job qualifications in order to identify the minimum qualifications an employer is willing to accept in a new employee. However, some care should be taken in this step. If an employer has unrealistic expectations, it may make it difficult to fill the position. Then, out of frustration or urgency, an employer will fill the position with someone that does not meet the stated minimum qualifications. This creates a problem if an employer ends up hiring an employee that does not meet the minimum qualifications after previously rejecting other applicants with similar qualifications. Those rejected applicants may have a lawsuit for employment discrimination. On the other hand, if an employer’s written expectations are too low, an employer may have a difficult time defending its decision to reject an individual who met the stated minimum qualifications while the employer searched for someone who met what the employer was really looking for. An employer needs to be consistent and stick to its stated qualifications when making employment decisions or risk opening itself up to employment discrimination lawsuits.
Defining the essential functions of the job is essential. Creating a comprehensive and detailed job description and a list of job qualifications helps employers narrow its applicant pool and provides a basis to make certain employment decisions. It also helps employers define the essential functions of a job which helps employers stay compliant with Ohio and federal employment laws. For example, The American with Disabilities Act (“ADA”) makes it clear that an employer does not need to employ someone who cannot perform the essential functions of the job. This does not mean that every function performed by an employee is “essential.” The Equal Employment Opportunity Commission (“EEOC”) makes it clear that marginal functions of the job are not “essential.” Some of the factors that help determine what functions are essential include:
- The employer’s judgment as to which functions are essential;
- Written job descriptions prepared before advertising or interviewing applicants;
- The amount of time spent on the job performing the function; and
- The consequences of not requiring the employee to perform the function.
Job Applications. Most employers understand it is unlawful to discriminate against employees or potential employees based on race, religion, sex, national origin, age, or disability. On job applications, however, employers need to be careful when asking what may seem like innocent questions that relate to things like age, religion, national origin, marital status, children, criminal history, U.S. citizenship, medical history, or disability. Asking these types of questions may lead to a finding that an employer engaged in a discriminatory practice. For example, it is permissible to ask if an applicant is legally permitted to work in the United States; it is impermissible to ask where someone was born. It is permissible to ask if someone is able to perform the essential functions of the job; it is impermissible to ask if someone has any health issues that would prevent them from doing the job. These are just a couple examples of the types of questions an employer is allowed to ask on an application. Employers should consult with an attorney to make sure that all questions on an application are compliant with state and federal standards.
Pre-employment drug and alcohol testing. There are no laws that prohibit employers from testing its employees for drugs and alcohol. However, there are laws that regulate the timing of such tests. To help employers, the ADA separates testing into two categories, “pre-offer” testing and “post-offer” testing. In the pre-offer stage, an employer may test a potential employee for any illegal drug use but cannot test for alcohol. Illegal drug use is not protected under the law. However, employers need to be careful from automatically disregarding all employees that test positive for controlled substances. A person with chronic back pain may have a perfectly legal reason for having certain substances in their system, especially if they are under a strict pain management program. Once an employer learns of an employee’s legal justifications for certain controlled substances, an employer cannot use the information as basis to refuse employment, terminate, or discipline an employee. In the post-offer stage, employers are allowed to test for alcohol. Testing for alcohol is considered a medical examination, and employers are only allowed to subject their employees to medical examinations once an offer of an employment has been given. Regardless of which type of testing an employer seeks to use, employers must be consistent in the way they implement such testing. Testing must be done in a non-discriminatory manner, meaning an employer must make all employees take the same test or forgo any testing at all.
Background Checks. Ohio does not prohibit the use of background or credit checks on potential employees. There are, however, several regulations that relate to employers that use background or credit checks. First, background and credit checks are subject to the federal Fair Credit Reporting Act (“FCRA”) which requires employers to obtain written consent from the applicant, give the applicant notice of the employer’s intention to reject their application based on the results of the background check, and notify the applicant of any final decision to reject the applicant because of the background check. Additionally, employers need to be careful about how they handle prior arrests and convictions. If an employer does decide to reject an application based on any prior arrests or convictions, the employer needs to consider the nature of the job, the nature and severity of the offense, and how much time has passed since the offense. For example, if a farmer is looking to hire a general farm laborer, a conviction for driving under the influence from 10 years ago may not be sufficient grounds to reject an application. Unless the position requires the applicant to drive on a consistent basis, the offense may not really be related to the nature of the job. Furthermore, enough time may have passed that would make it discriminatory to reject an application for this type of offense.
Interviewing. Interviews are ripe for potential discrimination claims because they are less structured than applications and insert the “human element.” When conducting an interview, employers should stick to a script. A script will help an employer avoid potential discrimination lawsuits and gives the employer the ability to carefully select its interview questions. When asking questions, an employer is not liable for any information that an applicant willingly provides. For example, if the questions is “tell me about yourself” and an applicant provides information about a medical condition or their family, an employer cannot be found liable for any discriminatory practices. An employer cannot, however, use the information to make any employment decisions. If an applicant is providing too much information, it is best for the employer to quickly move on to the next subject to avoid eliciting any other information that could be used against an employer in a discrimination lawsuit.
Hiring. When deciding to choose one applicant over another, employers need to have a fair and equal system in place. Employers need to be able to point to a specific procedure that demonstrates an employer’s nondiscriminatory reason for choosing on applicant over another. For example, if one applicant is more qualified than another for a job, it is easy to prove a nondiscriminatory purpose for hiring the more qualified candidate. If there are two equally qualified candidates, it is even more important to have a nondiscriminatory procedure in place when deciding between the two applicants. For example, an employer could have a policy in place that states if two equally qualified candidates apply for the same position, the candidate that applies first shall be given the job offer.
New hire reporting. All employers are required by the U.S. Customs and Immigration Services to verify the identity and employment eligibility of all employees by filing out Form I-9. Ohio employers are also required by the Ohio Department of Family and Job Services (“ODFJS”) to report the hiring, rehiring, and return to work of paid employees. The new hire report must be completed within 20 days after the employee is hired or returned to work.
Conclusion. In these trying and difficult times, compliance with state and federal regulations may be the last thing on an employer’s mind. However, these laws are always in effect, regardless of circumstance. Complying with state and federal laws will only help employers defend any employment decisions and to avoid potential employment discrimination lawsuits.
References and Resources
Did you know that the Nile Crocodile has the strongest bite of any animal in the world? The deadly jaws can apply 5,000 pounds of pressure per square inch, which is about 10 times more powerful than the crunch of the Great White Shark. Humans? Well, they can apply about 100 pounds of pressure per square inch.
This edition of the Ag Law Harvest takes a bite out of some federal lawsuits, Department of Labor developments, and USDA announcements affecting agriculture and the environment.
Animal advocates lack standing to sue poultry producer. In 2020, animal advocacy groups In Defense of Animals (“IDA”) and Friends of the Earth (“FoE”) (collectively the “Plaintiffs”) filed a lawsuit against Sanderson Farms (“Sanderson”), a Mississippi poultry producer, alleging that Sanderson engaged in false advertising as it relates to its chicken products. According to Plaintiffs, Sanderson advertises that its chickens are “100% natural” with no “hidden ingredients.” However, Plaintiffs allege that Sanderson has been misleading the public after many of Sanderson’s products tested positive for antibiotics and other unnatural substances. This however is not the first court battle between FoE and Sanderson. In 2017, FoE sued Sanderson for the same false advertising. However, the 2017 case was dismissed because the court held that FoE did not have standing to bring the lawsuit. The 2017 case was appealed to the Ninth Circuit Court of Appeals where the decision to dismiss the lawsuit was upheld. Fast forward to 2020, FoE joined forces with a new plaintiff, IDA, hoping to file a lawsuit that would finally stick. Recently however, a federal district court in California dismissed the most recent lawsuit because FoE was precluded, or prohibited, from suing Sanderson again on the same claims and because IDA lacked the standing to bring the lawsuit. The California district court found that FoE could not bring its claims against Sanderson because those same claims were litigated in the 2017 lawsuit. This legal theory, known as issue preclusion, prevents the same plaintiff from a previous lawsuit from bringing the same claims against the same defendant in a new lawsuit, when those claims were resolved or disposed of in a prior lawsuit. Issue preclusion did not affect IDA, however, because it was a new plaintiff. But the California district court still found that IDA lacked standing to bring this lawsuit against Sanderson. IDA argued that because it expended resources to launch a campaign against Sanderson to combat the allegedly false advertising, it had organizational standing to bring the lawsuit. Standing requires a plaintiff to show they suffered an “injury-in-fact” before they can maintain a lawsuit. Organizational standing is the theory that allows an organization like IDA to establish an “injury-in-fact” if it can demonstrate that: (1) defendant frustrated its organizational mission; and (2) it diverted resources to combat the defendant’s conduct. IDA argued that because it diverted resources including writing letters to Sanderson and the Federal Trade Commission, filing a complaint with the Better Business Bureau, publishing articles and social media posts, and diverting staff time from other campaigns to focus on countering Sanderson’s advertising, it had the organizational standing to bring the lawsuit. The Court disagreed. The Court reasoned that the diverting of resources by IDA was totally voluntary and not a result of Sanderson’s advertising. The Court determined that in order to obtain organizational standing, IDA must have been forced to take the actions it did as a result of Sanderson’s advertising, the diverting of resources cannot be self-inflicted. The Court held that Sanderson’s advertising did not ultimately frustrate IDA’s organizational mission and that any diverting of resources to counter Sanderson’s advertising was the normal course of action taken by a group like IDA.
Joshua trees, a threatened species? WildEarth Guardians (“Plaintiff”), a conservation organization, brought suit against the U.S. Secretary of the Interior and the U.S. Fish and Wildlife Service (“Defendants”) for failing to list the Joshua tree as a threatened species under the Endangered Species Act (“ESA”). Plaintiff argued that the Defendants’ decision not to list the Joshua tree as threatened was arbitrary, capricious, contrary to the best scientific and commercial data available, and otherwise not in line with the standards set forth by the ESA. In 2015 Plaintiff filed a petition to have the Joshua tree listed as a threatened species after Plaintiff provided scientific studies showing that climate change posed a serious threat to the continued existence of the Joshua tree. The U.S. Fish and Wildlife Service (“FWS”) issued a 90-day finding that Plaintiff’s petition presented credible information indicating that listing the Joshua tree as threatened may be warranted. However, the FWS’s 12-month finding determined that listing the Joshua tree as threatened or endangered under the ESA was not necessary due to the Joshua tree’s long lifespan, wide range, and ability to occupy multiple various ecological settings. That’s when Plaintiff decided to bring this lawsuit asking the federal district court in California to set aside the 12-month finding and order the Defendants to prepare a new finding, and the Court agreed. The Court held that Defendants’ decision was arbitrary, capricious, and contrary to the ESA and ordered the Defendants to reconsider Plaintiff’s petition. The Court reasoned that the FWS’s climate change conclusions were arbitrary and capricious because it failed to consider Plaintiff’s scientific data and failed to explain why in its 12-month finding. Further, the Court noted that the FWS’s findings regarding threats to the Joshua tree posed by climate change and wildfire were unsupported, speculative, or irrational. And finally, the Court determined that the FWS’s conclusion that Joshua trees are not threatened in a significant portion of their range was arbitrary and capricious. The FWS must now prepare a new finding that addresses all the above deficiencies.
Department of Labor announces expanded measures to protect workers from extreme heat. The U.S. Department of Labor (“DOL”) announced that the Occupational Safety and Health Administration (“OSHA”) is working on ways to protect workers in hot environments and reduce the dangers associated with exposure to high heat. According to the DOL, OSHA will be implementing an enforcement initiative on heat-related hazards, developing a National Emphasis Program on heat inspections, and launching a rulemaking process to develop a workplace heat standard. Current and future extreme heat initiatives and rules apply to indoor and outdoor worksites in general industry, construction, agriculture and maritime where potential heat-related hazards exist.
Deadline to apply for pandemic assistance to livestock producers extended. The USDA announced that it is providing additional time for livestock and poultry producers to apply for the Pandemic Livestock Indemnity Program (“PLIP”). Producers who suffered losses during the Covid-19 pandemic due to insufficient access to processing may now apply for relief for those losses through October 12, 2021. Payments are based on 80% of the fair market value of the livestock and poultry and for the cost of depopulation and disposal of the animals. Eligible livestock include swine, chickens, and turkeys. For more information on PLIP, and how to apply, visit farmers.gov/plip.
As it often goes with farming, the weather interfered a bit with Farm Science Review this year. We missed seeing farmers and students from across the state gather for the show on Wednesday. But even wind and rain didn’t stop our Farm Office team, above, from presenting Farm Office Live from the Review on Thursday. I gave an update on Ohio legislation, as Ohio’s legislature is back from its summer break. Here’s a summary of the legislation I discussed at our Farm Science Review program.
Bills passed and soon effective
S.B. 52 – Solar and wind facilities. S.B. 52 passed several months ago and will be effective on October 11, 2021. The new law will allow counties to designate “restricted areas” in a county where wind and solar projects may not locate and creates a county referendum process for a public vote on restricted area designation. The law will also require developers to hold a public meeting in the county where a facility is proposed at least 90 days before applying for project approval with the Ohio Power Siting Board. After the meeting, the county commissioner may choose to prohibit or limit the proposed project. Another provision of the new law appoints 2 local officials from the proposed location to serve on the OPSB board that reviews a project. And importantly for landowners, the new law requires a developer to submit a decommissioning plan to OPSB for approval with the application and to post and regularly update a performance bond for the amount of decommissioning costs. Watch for our new law bulletins on S.B. 52, which we’ll publish soon.
Bills on the move
H.B. 30 – Slow-moving vehicles. The bill passed the House on June 23, 2021, and just received its second hearing before the Senate Transportation on September 22, 2021. It proposes revisions to marking and lighting requirements for animal-drawn vehicles to make the vehicles more visible and reduce roadway accidents.
H.B. 95 – Beginning farmers. We’ve been hoping this bill aiding beginning farmers would continue to receive attention. It would allow individuals to be certified as beginning farmers and create income tax credits for owners who sell land and agricultural assets to certified beginning farmers and for beginning farmers who attend approved financial management programs. The bill passed the House on June 28, 2021 and was referred to the Senate Ways and Means Committee on September 8, 2021.
S.B. 47 – Overtime pay. The Senate passed S.B. 47 on September 22, soon after returning from break. It would exempt an employer from paying overtime wages for certain activities, including traveling to the workplace, actions before or after beginning principal work activities, or “de minimus” acts requiring insignificant time. The bill sponsors state that it will bring necessary clarity to overtime pay in the era of more employees working unsupervised from home.
Bills newly introduced
H.B. 397 – Termination of Agricultural Lease. A bill that aims to bring certainty to farmland leases was introduced in the House on August 24, 2021 and referred to the Agriculture and Conservation Committee. The proposal states that where a farm lease agreement does not provide for a termination date or a method for giving notice of termination, a landlord who wants to terminate that agreement must do so in writing by September 1. Unless otherwise agreed in writing, the termination date would be either the date harvest or removal of the crops is complete or December 31, whichever is earlier.
H.B. 385 – Municipal waste discharges to Lake Erie western basin Municipalities would be prohibited from discharging waste from treatment plants into Lake Erie under a new bill proposed by Rep. Jon Cross (R-Kenton). The bill would require the Ohio EPA to revoke all existing NPDES permits for municipal treatment works or sewerage systems to in the western basin and prohibit any additional permits for that purpose. It would also fine municipalities up to $250,000 per day for knowingly discharging waste into Lake Erie on the first offense and $1,000 per day for subsequent offenses, or to fine $100 million if the discharge amount exceeds 100 million gallons in a 12-month period. Introduced on August 6, 2021, the bill has been referred to the House Agriculture and Conservation Committee.
Catch a replay Farm Office Live from Farm Science Review at https://farmoffice.osu.edu/farmofficelive. Register at that site to join us for the next Farm Office Live on October 13 at 7 p.m. or a repeat on October 15 at 10 a.m., whern the Farm Office team will digest the latest news and information on agricultural law and farm management issues that affect Ohio’s farm offices.
Agricultural workers are usually categorized in two ways. They are either an “employee” or an “independent contractor.” Depending on how an agricultural worker is labeled determines the duties and liabilities of the agricultural employer.
Generally speaking, if an ag employer has the right to control the work of an ag worker, then the ag worker is probably an employee. This means that the ag employer must abide by a whole host of federal and state laws that relate to labor and employment and can be found liable for any damages caused by their employees under the doctrine of vicarious liability. Vicarious liability is a legal doctrine that may hold an employer responsible for the actions of an employee -- so long as the employee was acting in the ordinary course of business. A good example of the vicarious liability doctrine in action is when a court decides to hold a farmer and/or farm business responsible for any spray drift damages resulting from an employee’s application of herbicide.
On the other hand, ag employers that use independent contractors are usually not liable for any damages that result from the actions of an independent contractor. This obviously makes the use of independent contractors very appealing but comes at a higher cost than using an employee to do the work.
Simple enough right? Be careful with employees and spray drift or use independent contractors and be worry free. Not really. Although a big concern for ag employers are the liability issues that stem from employees’ actions, having employees requires ag employers to fulfill multiple obligations under state and federal labor and employment laws, obligations that otherwise would not exist if an ag employer used an independent contractor to complete the work. Those obligations can include wages, overtime pay, hour restrictions, migrant and seasonal worker protections, tax concerns, and others. So, you see, labeling a worker as an employee or independent contractor goes far beyond just preventing a lawsuit against the ag employer.
Ag employers often think they are using independent contractors to complete work around the farm. But innocently, the ag employer may actually be using an employee to complete work around the farm and is probably violating federal and state law and exposing itself to fines and lawsuits. An ag employer must be careful when determining who is an employee and who is an independent contractor when looking for help on the farm. Below is a brief summary of Ohio and federal law that determine when an ag worker is an employee and when an ag worker is an independent contractor.
How do I determine who is an employee and who is an independent contractor?
The simple answer to that is, it depends. Different tests are used at the federal level and in Ohio. However, one thing that all these tests have in common is the ag employer’s right to control the work being done. This means that if an ag employer can direct, monitor, correct, or otherwise control how the work is being done, then the ag worker is likely an employee. Even if an ag employer never exerts or directly controls how the work is being done, courts only care that the ag employer has or had the ability to do so.
What are the tests to determine if a worker is an employee or independent contractor?
The Economic Realities Test. The Fair Labor Standards Act (“FLSA”) is the federal law that governs minimum wage, overtime pay, recordkeeping, and youth employment standards. “Employee” is defined very broadly under the FLSA and more often than not, a worker is found to be an employee rather than an independent contractor. To help determine who is an employee and who is an independent contractor, the FLSA uses an Economic Realities Test. The Economic Realities Test looks at the reality of the economic relationship between the parties and if a worker is more reliant on the employer for economic gain and security, then the worker is more likely an employee. Factors under this test include:
- The degree of control that an employer can exert over the worker and the work being performed.
- Whether the work being performed is an integral part of the employer’s business.
- The permanency of the relationship.
- The amount of the worker’s investment in facilities and equipment.
- The worker’s opportunities for profit and loss.
- The amount of initiative, judgment, foresight, and skill required for the worker’s success.
The Internal Revenue Service (“IRS”) Standard. The IRS has a separate test to help taxpayers determine whether an individual should be considered an employee or independent contractor for tax purposes. The IRS analyzes three areas – behavioral control, financial control, and the relationship of the parties.
- Behavioral Control – a worker is an employee when the business has the right to direct and control the work performed. Factors include: (a) the type of instructions given; (b) degree of instruction given; (c) evaluation of work done; and (d) training.
- Financial Control – If a business has the right to direct or control the financial and business aspects of the worker’s job, then the worker is likely in employee. A major factor is how the worker is paid. Employees are guaranteed regular pay whereas independent contractors are paid by the job.
- Relationship of parties – the IRS takes into consideration what the parties think their relationship is. The IRS will look at written contracts, whether any benefits are offered, the length and permanency of the relationship, and whether the worker is performing work that is an integral part of the business of the employer.
Ohio’s standard. Ohio uses two separate, yet very similar tests to determine employee or independent contractor status. For wage and hour purposes, Ohio uses the Economic Realities Test that is used by the FLSA.
However, for workers’ compensation, unemployment insurance, and Ohio’s vicarious liability law, Ohio uses a “right to control” test. Under Ohio’s “right to control” test courts consider the following factors:
- Whether the worker is engaged in a distinct occupation or business;
- Whether the worker or the employer supplies the place and tools to complete the work;
- Whether the work is done by a specialist requiring a particular skill;
- How the worker is paid;
- The length of time a worker is employed;
- Whether the work performed is part of the regular business of the employer;
- Whether the employer controls the details and quality of the work to be performed; and
- The terms of any agreements or contracts between the parties.
Why is determining who is an employee and independent contractor important?
First and foremost, determining who is and is not an employee defines an ag employer’s obligations under the law. If an ag employer has employees, then the ag employer must abide by federal and state wage, hour, antidiscrimination, unemployment insurance, workers compensation, and safety laws. Those same obligations do not arise when using an independent contractor.
Secondly, misclassifying a worker as an independent contractor when they are actually an employee can lead to severe legal fines and penalties. Some of the consequences for incorrectly classifying a worker could include:
- Lawsuits for unpaid wages;
- Fines for failing to comply with federal and Ohio antidiscrimination laws;
- Discrimination and wrongful termination claims;
- Lawsuits for the negligence or other civil wrongs of the worker; and
- Fines for failing to maintain Ohio Workers’ Compensation Insurance and Unemployment Insurance.
Conclusion. Determining who is and isn’t an employee defines an ag employer’s legal obligations, so it is always important to ensure that whenever someone is doing work for you, you categorize them correctly. If you have any doubts, it’s always best to air on the side of caution and treat a worker as an employee. If you should have any questions contact your attorney to help you determine what your legal obligations are as an employer, it can save you time, money, and stress.
To learn more about distinguishing between an employee and an independent contractor visit: