I think that every farm operation should have an employment contract with each of their farm employees, including all family members employed in the farm operation. As part of this document, there should be an exhibit that outlines the total compensation package to each employee. Most farm operations offer much more than a wage such as housing, medical insurance and medical expense reimbursements, meals, and other non-taxable fringe benefits.
This is especially true with family members and sometimes the family members are not aware of the actual pre-tax value of the compensation provided to them. Some may look at their paycheck and think they can do much better working off the farm, however, when the total compensation package is presented, in most cases, it is usually better than what they can do off the farm.
For example, let’s assume a son works for his dad on the farm and receives a $2,000 per month salary. In addition, the farm provides the following (with monthly values):
1. Housing - $1,500
2. Utilities - $300
3. Food - $600
4. Medical Insurance - $900
5. Medical Reimbursement - $500
6. Farm Truck - $500
The total monthly value of these items is $4,300. On a pre-tax basis, assuming a combined 30% federal, state and payroll tax rate, results in an annual pre-tax value of $73,715. This, plus the annual salary of $24,000, results in total compensation of about $97,715.
As you can see, this farm worker would need to make close to $100,000 off the farm to be equal to what they are making on the farm. It is important to let your employees (including family members) know what their true compensation package is each year.
