It’s crucial for businesses to keep up with payroll taxes and regulations to avoid hefty fines and penalties, and to make sure you are taking advantage of every credit you are eligible for. However, payroll laws are complicated and ever-changing. There are differences between agricultural and traditional payroll laws, as well as differences between federal and state payroll laws. Then add the changes resulting from COVID-19 and the CARES Act, which have only heightened the process’s complexity. Do you feel you’re keeping up with the changes? Or better yet — is your current payroll processor? Let’s go through some of the payroll specifics.
CARES Act tax credits
One phrase heard frequently these days is the “new normal.” The new normal in payroll law came with many changes. There are new tax credits for paid sick leave and paid family leave, as well as an employee retention credit. There are refundable and nonrefundable portions to each credit. Certain healthcare costs can be included in calculating these credits, and certain taxes do not have to be paid on sick or family leave. If that wasn’t enough, did you know that you might be eligible to defer payment on a part of your employment taxes until 2022?
Paycheck Protection Program loans
By now you’ve probably applied for, and maybe even received, a Paycheck Protection Program (PPP) loan. This is a loan from the Small Business Administration (SBA) to help keep employees working during COVID-19; if the money is spent correctly, the loan will be forgiven.
There are many pieces involved with spending and reporting the money in the correct way to ensure that the loan will be forgiven. This is especially true with agricultural payroll, as the SBA typically does not work with farms and therefore may require additional documentation. Also, don’t forget about the income tax impacts of the forgiven PPP loan when you file your tax return for 2020.
Despite COVID-19 being at the top of everyone’s mind, there are many other payroll nuances to be aware of as well.
Minimum wage & overtime
One of the most difficult areas to keep up with is minimum wage. Federal minimum wage is $7.25/hour, but some Northeast states have minimum wage rates as high as $12.75/hour. Minimum wage can differ depending on industry, location, age of the worker and more. Additionally, it changes every year, and on different dates during the year, so it’s important to make sure that employees are being paid correctly. Some states are even starting to require overtime pay for agricultural employees, so employers need to be sure they’re calculating hours and paying time-and-a-half correctly.
The most common filing mistake
Agricultural employers file their payroll taxes different from traditional employers. Traditional employers must file four Form 941s throughout the year, whereas agricultural employers only have to file one Form 943. If your current payroll processor doesn’t know the difference, you might be paying for them to file four forms per year when you could only be paying for one! This is the most common mistake we find some traditional payroll processors make when completing agricultural payroll.
To make matters more complicated, if you have a farm and a farm store, you’re considered both types of employers and more attention needs to be placed on compliance reporting. If employees work on both the farm and in the store, that requires further attention to detail to separate hours worked between ag labor and non-ag labor. This can get complex, so it’s critical that your payroll processor understands these laws inside and out.
Paid Family Leave and Disability Insurance
A new area for employers to navigate is Paid Family Leave and Disability insurance. Five Northeast states require employers to have some sort of Paid Family Leave and Disability coverage, and each state has its own unique set of regulations. These laws are different from the paid sick/family leave required by the CARES Act.
A few states are also requiring sexual harassment trainings for all employees. Employers must provide this training to its employees before various deadlines over the next year.
Do your employees receive benefits?
As it becomes increasingly difficult to find quality farm help, more agricultural employers have started offering benefits to employees such as health insurance, retirement plans, meals, mileage reimbursement and more. Certain benefits are taken before taxes, while others are taken after taxes. Some benefits are only subject to state taxes, while others are subject to federal laws that fund Social Security, Medicare or unemployment benefits — so there’s a lot to consider!
Moreover, making sure benefits are being taxed correctly and accurately reported to employees at year-end could almost be a full time job. It’s important to work with a payroll processor that knows how to tax and report all employee benefits correctly to prevent headaches and fines at year-end.
With all of these laws, changes and requirements to be aware of, it’s crucial that whoever processes your payroll can support you and your business to ensure it remains compliant and takes advantage of every tax credit. That’s why Farm Credit East and our team of payroll specialists spend so much time researching agricultural payroll law. We know the laws inside and out and can help you and your business not only comply with the changes but implement them effectively for you and your business. Learn more about our payroll services or give us a call today.