As farmers begin to plan and prepare for next season, they may be thinking about hiring more sets of hands. However, hiring new help can be expensive. But if farmers are concerned that they may not be able to pay out of pocket for a new worker, they may want to consider non-cash remuneration, or in-kind payments. In-kind payments typically consist of a farmer providing food, housing, or transportation to an employee, and the actual cost of the expense is then deducted from the employee's paycheck and counted towards employee pay. Could it be that easy? Unfortunately no. To protect workers and worker wages there are several factors and conditions to navigate to make sure in-kind payments meet all the requirements and conditions to be considered legal.
Must meet minimum wage
The biggest thing with in-kind payment is that the in-kind payments, either on their own, or combined with monetary remuneration, must meet the Federal and state minimum wage requirements. So, in Pennsylvania that means that an employee must make at least $7.25/hr in in-kind payments or monetary remuneration, or a combination of both.
Obtain the employee’s consent
First, an employer must receive the employees consent to be paid through in-kind payments. The farmer should make sure this consent is documented through an agreement which the employee signs. This document should generally describe the types of payments that the employee is consenting to i.e. prepared meals, housing, farm produce, a company car, and any other types of likely payments. Also, this document should state that in-kind payment will be represent on pay-stubs and if the employee believes there is a discrepancy, they should inform the farmer.
Make calculations, and keep documentation
A farmer cannot profit off of in-kind payments, so the regulations around calculating these payments are relatively strict. Generally, the payments should be calculated by the actual cost incurred by the employer or by the fair market value not the retail value. The employer is obligated to “pay” with whichever is less. So if an employer’s calculations show that the actual costs he/she is incurring by housing an employee is less than rent generally is in the area, then the actual costs must be the amount deducted from the employee’s pay. Actual costs typically include utilities and a percentage of the mortgage/depreciation. More information on the rules regarding these calculations can be found: here. Furthermore, these calculations must be documented. An employer must be able to back up their values with real examples. Farmers must also keep documentation of all in-kind payments, report it on an employee’s paystub, and importantly, the calculation the farmer relied upon for determining the value of any in-kind payment must be documented in case of an audit.
Concerns with in-kind payment through housing
There are many concerns with in-kind payments made through housing. If a farmer builds or brings in temporary housing for workers, farmers must ensure that their local zoning laws allow them to have other structures on the property, and that they are allowed to have non-family members live inside these or other structures on the property.
On the state level there are even more concerns with housing. Pennsylvania requires that farmers who house seasonal and temporary workers obtain a Seasonal Farm Labor Camp (SFLC) permit at least 60 days before the occupancy begins. Federally, the Occupational Safety and Health Act and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) require additional requirements for housing. For a comparison of these requirements look to this chart. Overall, there are a lot of requirements that farmers must meet if they wish to house people at their farm.
Limitations on in-kind payments
Employer cannot make in-kind salary payments if there are no other options for employees. So, employers must provide housing at no cost to H-2A workers and to workers in who are not reasonably able to return to their residence within the same day. H2A workers are seasonal migrant workers, so they are not local to the region and have no other housing or transportation. So, you cannot pay H-2A workers for housing, and you cannot pay workers for housing if there is no housing available within a reasonable distance. Also, Employers are obligated to feed H-2A workers three meals a day, so payment cannot be made for H-2A workers for food. Lastly, transportation is not allowed to be paid to H-2A workers. More information can be found here. As shown with H2A workers, it is important to check to make sure no other rules or requirements apply to an employee’s ability to receive in-kind payments.
It is important to notes that farmers cannot make deductions for these items unless the worker actually uses or takes these items when offered. So, for example if a farmer prepares a lunch and the employee ends up preparing their own meal, the farmer cannot pay the employee through that non-accepted meal.
Additionally, a farmer should not make in-kind payments for items that are necessary for job performance or for the farmers benefit. Examples of such payments include tools and equipment used on the farm, job-training or education for this job, or uniforms or attire that can only be worn at work. Requiring the employee to “pay” for these items by having it count toward their wages essentially benefits the farmer by passing on a necessary business expense. However, these payment may be made if the employer has already met their minimum wage requirements, and the employee authorizes these payments.
In-kind wage payments can be a great option for farmers who have housing they can provide to their workers, or allow their workers to share in harvest, however, it is important that any farmer looking to use this payment model must follow the above requirements. It is also important to note these requirements are in addition to all other laws and regulations that apply to farm employees that are not address in this blog post. Farmers should also consult with their accountant regarding tax implications of any in-kind wages, including qualification for federal payroll tax exemptions for in-kind wages.
This blog is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation with an attorney and accountant.