Employee v. Independent Contractor: When is an Ag Employer Responsible?

By:Jeffrey K. Lewis, Esq., Program Coordinator, OSU Income Tax Schools & ANR Extension Friday, August 13th, 2021
Group of agricultural workers standing in front of a grain cart.

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: 

  1. The degree of control that an employer can exert over the worker and the work being performed.  
  2. Whether the work being performed is an integral part of the employer’s business
  3. The permanency of the relationship 
  4. The amount of the worker’s investment in facilities and equipment.  
  5. The worker’s opportunities for profit and loss.  
  6. 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.  

  1. 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. 
  2. 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. 
  3. 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: 

  1. Whether the worker is engaged in a distinct occupation or business; 
  2. Whether the worker or the employer supplies the place and tools to complete the work; 
  3. Whether the work is done by a specialist requiring a particular skill; 
  4. How the worker is paid; 
  5. The length of time a worker is employed; 
  6. Whether the work performed is part of the regular business of the employer; 
  7. Whether the employer controls the details and quality of the work to be performed; and 
  8. 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: 

U.S. Department of Labor Wage and Hour Division, Fact Sheet 13: Employment Relationship Under the Fair Labor Standards Act (FLSA)

U.S. Department of Labor Wage and Hour Division, Fair Labor Standards Act Advisor: Independent Contractors

U.S. Department of Labor Wage and Hour Division, Misclassification of Employees as Independent Contractors

U.S. Internal Revenue Service, Understanding Employee vs. Contractor Designation

Ohio Administrative Code § 4141-3-05, Definition of Employment