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A farm labor contractor vs employee: What farmers need to know

WorkHorse Hub February 14, 2019

Your farm is growing, and it’s time to hire more help. The big question is, should it be a farm labor contractor or an employee? First, it’s important to understand the difference.


A farm labor contractor is similar to any other independent contractor. You pay them to complete a job, however how they complete the job, and their hours are dictated by the contractor.


A farm employee has hours and duties set by the farm. They often have supervision by the farmer, and must adhere to the schedule the farmer selects. Employees will be using your equipment to complete the job, whereas a contractor brings in their own equipment.


The contractor rules

Given those definitions of a farm labor contractor and an employee, let’s look at an example. Let’s say that a soybean farmer needs to harvest 1,200 acres of soybeans. They decide to hire Smith’s Custom Harvest Company.


John Smith brings in his two combines, trucks, and drivers. John Smith calls the soybean farmer and tells him the date he will be arriving to begin harvesting soybeans. The farmer does not get a choice of dates or times.


Once the soybeans are harvested, the farmer pays John Smith the agreed upon amount. That is a farm labor contractor.


What if John Smith needed an extra truck driver, and the farmer decided to hire someone to help with the harvest. The person is driving the farmer’s truck, and the hours are dictated by the farmer. That person is an employee because they are operating farm equipment and are under the direction and supervision of the farmer.


Farm labor contractors often have several clients, can turn down work, and are paying the expenses. In our example that is the fuel and maintenance for the harvest equipment, and the initial purchase of the equipment.


Employee vs contractor: Pros and cons

There are benefits and drawbacks to both options. A farm labor contractor operates independently, comes in and does a specific job, and requires very little from you. This frees up your time to focus on other responsibilities.


The drawback of a farm labor contractor is that you have very little control. Let’s go back to our example of the soybean harvest.


Perhaps John Smith calls the farmer and says that he will be there in two days. However, the farmer feels that his soybeans really could use an extra week to mature. Often, the farmer does not have as many options on the dates because the farm labor contractor has other clients as well.


With an employee, the farmer does have control over what the worker is doing, and when the work is completed. The farmer can directly supervise the employee and change methods that are being used on the farm.


Equipment used by an employee belongs to the farm, and is the responsibility of the farmer. If something breaks, the farmer is the person who will pay for repairs. An often cited drawback of employees is the cost and paperwork. Read on for more details.

Payment and benefits

Farm labor contractors simplify the paperwork involved, and in general have fewer overhead expenses for the farm. Equipment is maintained by the contractor, and benefits such as retirement plans, unemployment taxes, and health insurance fees are not required.


If a farm does not classify personnel correctly, perhaps paying someone as a farm labor contractor instead of an employee, they can face large fines from the government (either Canada or the U.S). It’s important to classify personnel correctly.


The U.S. vs. Canada

Location of your farm, whether in the United States or Canada, makes a difference in labor laws with contractors and employees. The basic premises are the same in both countries.


In the United States, all that is required for a farm labor contractor is that they receive a 1099 at the end of the year stating the amount they were paid by the farm. The farm saves money on social security and Medicaid taxes versus when they pay an employee.


In Canada, you may also hear a farm labor contractor referred to as someone who is contracted for service. Employees have more protections in regards to health and safety under the Canada Labour Code. Similar protections are in place for employees in the United States.


In their workboots

Let’s take a minute and look at this from the perspective of the farm labor contractor or employee. They have bills to pay, just like the rest of us, families to feed, dreams, and goals. Many farm workers have a love of the land and choose agricultural careers over other jobs.


Employees have a lot of choices about where to work, and need incentives to remain in agriculture. Other industries offer higher wages, and more competitive benefits. However, there are choices we can make as employers to keep the best employees in agriculture.


It can be easier to get and retain an employee if you are willing to compensate them year round. Farmers can be far more creative than other employers because of our two busy seasons where longer hours are put in.


One option is to prorate compensation and pay the same amount year round. Then let the employee take extra time off in the winter. It’s a win-win situation for you and the employee.


Are you worried they won’t come back after taking time off in the winter? If pay is prorated then the employee already earned it. You can also delay the payout of an annual bonus until the summer so you keep them coming back.


Summary

Agriculture is growing and changing. One thing remains the same, the need for farm workers. It’s important to carefully consider whether you need employees, or if a farm labor contractor is the right fit for your farm.


Following the rules for farm labor contractors versus employees is vital, and can save you money in fines paid later for incorrectly classified personnel. A short term assignment where the parameters are dictated by the person doing the job is perfect for a farm labor contractor.


There are benefits to hiring and keeping farm employees. Over the long haul, it’s cheaper to maintain a good employee on payroll, rather than finding, hiring, and training numerous short-term employees or farm labor contractors.


Whatever choice you make for your farm, there are many resources available to help you. At WorkHorseHub we understand how difficult finding labor can be. That’s why we created our portal to help connect farmers and agricultural workers.

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