Beginners’ Guide to Agribusiness and Agricultural Payroll

Many think farm payroll is only related to the planting of row crops and the produce that ends up on the dinner table. However, there is a lot more to agribusiness and the accounting that goes with it. That’s why it makes much more sense to refer to this specialty as agricultural payroll, as it covers all the facets, from what gets planted in the soil to how it is processed after a harvest.  

But what are some types of businesses that fall into this category, and what should bookkeepers and accountants know when working with agricultural employers? To learn more, we spoke with Charla Farris, an agricultural payroll specialist with A Cut Above Business Solutions, who has over ten years of experience assisting farm and ranch businesses. In this beginner’s guide, we’ll take a bird's-eye view of agriculture-related payroll and things to keep in mind.

Understanding what agricultural payroll is  

First, agricultural bookkeeping and farm payroll refer to the accounting practices and financial record-keeping that are specifically related to farming operations and agribusinesses. “Typically, this includes tracking income and expenses related to crops, livestock, equipment, or other agricultural-specific assets,” says Farris.   

Now that we better understand what agricultural payroll is, let’s find out some of the different businesses that make up this niche. 

More than just farms: The surprising range of agribusinesses

Many of us are so accustomed to thinking about agribusiness solely as farm-based businesses that it can be easy for other aspects of this industry to get lost in the shuffle. In fact, quite a few companies in the business of agriculture, or “ag” for short, that are not farms have bookkeeping needs.  

“While agricultural payroll does include crops that begin their journey in the soil, it also includes all aspects of food production, including the processing and distribution of farm-based products,” says Farris. “Ranches, wineries, orchards, nurseries, and greenhouses are also considered to be part of agribusiness.” Dairies, poultry farms, and fur-bearing animals commonly fall into this category too. 

Agribusiness accounting overview

Like other industries, “agriculture businesses must produce W-2s for employees, file federal payroll tax returns, and make any required tax deposits,” says Farris. Most traditional or non-agricultural businesses must file a 941 form quarterly, while some smaller businesses must file a 944 form annually. Agriculture businesses may need to file their own unique form - Form 943, or the "Employer’s Annual Federal Tax Return for Agricultural Employees,” but not always. That said, Farris says that filing Form 943 is an important “to-do” when agricultural workers meet either of the following two tests:  

• The employee is paid $150 or more cash wages during the year for farm work  
• The total wages paid to all agricultural employees is more than $2,500.    

In some cases, there are exceptions to this rule, which can be found in IRS Publication 51.   

Hiring H-2A help

Aside from potentially filling out a different form, another difference to note is that hiring nonpermanent H2-A workers, also known as migrant workers, is much more common in the agricultural industry. An H-2A worker is a temporary, nonimmigrant worker who completes agricultural services on a seasonal, temporary basis, such as planting, cultivating, or harvesting crops. To bring on these types of workers when domestic help is hard to find, farmers apply through the H-2A Visa program.  

Even though H-2A agricultural workers are hired temporarily, they still need a Social Security number to report their wages, which are subject to federal income tax.   

Moving on, let’s take a look at a common question people have about how agricultural workers are classified and a short example. 

Is everyone working on a farm considered an agricultural employee?

Once more, we asked Farris to share her insights in order to better understand who is and is not an agricultural employee. “When it comes to who is classified as an employee on a farm, only those who are engaged in the production of agricultural products are considered ag employees,” she says. In other words, these are workers who perform tasks such as maintaining crops and tending livestock. 

Let’s consider an example of a peach orchard and two different roles that are common to this type of business. Fred is responsible for irrigating and harvesting the crops (in this case, peaches) and rarely has a reason to assist customers. Because Fred’s work is limited to the duties he performs related to the crops, he is considered an agricultural employee. On the flip side, Terry runs the farm stand, interacts with customers, and sells the peaches. Terry does not work in the field or nurture the actual product and would not be considered an agricultural employee.  

This example is related to some of the more common errors that get made in an agribusiness where employers have workers performing different tasks. These are:  

• Not properly classifying employees and filing the wrong form.   
• Not understanding withholding requirements and over/underpaying taxes.  

Sometimes, an agricultural business may need to file both Form 943 and 941. Using the example above, “since the orchard employs both agricultural and nonagricultural employees, they would be required to file both forms," explains Farris.   

Because it can be common to misclassify an employee in the world of agribusiness, “ag employers especially need to take extra precautions to keep accurate records of the jobs performed and what each employee does,” says Farris, “This goes a long way in determining which form(s) they are required to file.” Without accurate details, not only can this result in taxes being underpaid or overpaid, but there are also some tax benefits that can be missed if they are not classified properly. It’s important to ensure a client's payroll provider can track this and handle all forms that are needed.  

Navigating minimum wages and overtime in agricultural businesses

Agricultural businesses pay “either the federal minimum wage or the state minimum wage where they are located — whichever is higher,” explains Farris. “This rule applies even if the employee is being paid a “piece rate’.” If you are new to this term, piece rate refers to a payment method in which workers get paid a fixed sum for each unit they produce or action they perform instead of being paid an hourly wage or salary. Farris also notes that some states have changed agriculture overtime rules in recent years.  

For example, in 2021, Colorado passed the Agricultural Workers’ Rights Bill, which includes overtime pay for agricultural employees working over 60 hours or more per week (though other employees are generally paid overtime after 40 hours during a workweek). Separately, New York passed legislation in 2019 to extend overtime wages to agricultural workers if their working hours are 60 hours per week or more (or if they work on what’s considered a day off).  

The takeaway is that it's a good idea to stay informed about regulatory updates and consider working with a payroll company that can help sort through the nuances.   

Agribusiness is more than farming

There’s a lot to consider when thinking about agribusiness and the bookkeeping that comes with it. From proper worker classification and keeping tabs on Forms 941 and 943 to understanding how minimum wage and overtime work. That’s why it can be worth taking a closer look at agricultural payroll software to keep everything organized and your clients both happy and compliant.