Farm Payroll Practices

Thursday, March 21, 2024

'Do Your Best & Hire the Rest.'

By Richard Kamchen

How farm workers get compensated has become more formalized and organized, and both employees and employers are seeing the benefits.

Levi Derksen, senior manager with Saskatoon-based accounting firm Buckberger Baerg & Partners, says that payrolls have become more common as farm sizes have increased – as has their need for full-time workers.

"The trend started as farms grew, with more work being done by non-family members," he says.

Kathy Neufeld, management and advisory services coordinator with Stark & Marsh in Swift Current, says farming has changed significantly over the past generation, and so has farm owners' progress with financial reporting.

"Producers are aware of compliance with Canada Revenue Agency (CRA), so accountability has become more significant," she says. "We see more organized payroll practices and engaging professionals to assist and/or process from beginning to end."

Employer benefits

The appeal for interested producers are the numerous benefits that payrolls can offer.

"Having employees on payroll can formalize an employment relationship, leading to better employee retention," says Derksen.

He also explains that arm's length wages are allowable expenses for AgriStability, increasing the likelihood of an AgriStability claim in a poor farming year.

Farm Management Canada executive director Heather Watson points to additional benefits like predictable expenses for budgeting and cash flow management.

Neufeld further explains that accurate and up-to-date payroll processing gives farm operators a better understanding of their weekly, monthly, and annual payroll expenses and how many employees their farm can afford. Entry-level personnel or a manager can take some responsibilities off owners and let them be more productive elsewhere.

As well, there's the plus of automated payments.

"I would argue that the more employees, the greater the chance automated payroll would be beneficial to the farm operation," says Watson.

Not only is this a timesaver, but there's a green aspect of not using paper for cheques or paystubs – the latter which can be sent in PDF form via email, says Neufeld.

Employee benefits

The advantages of payrolls also extend to employees.

"The main benefit is Canada Pension Plan (CPP) contributions matched by the employers, and Employment Insurance (EI) contributions, which allows employees to potentially collect EI in the future," says Derksen.

Employees may also access additional benefits like Registered Retirement Savings Plan (RRSP) contributions, says Watson.

"The benefits of payroll for employees are an increased sense of security and stability in their employment, and timely and often automated pay through direct deposit," she says. "This may help in attracting and retaining employees."

That's especially important during a time of farm labour scarcity. Says Neufeld: "Experienced employees are a great benefit to producers, as is their knowledge base of your operation, which in turn can lead to less cost."

Legal obligations

Payrolls can also ensure compliance with labour and tax laws.

"Keeping current with payroll also meets government reporting requirements, which equates to less money spent on unnecessary filing penalties, interest, and PIER reports," says Neufeld.

A PIER report is a pensionable and insurable earnings review.

Neufeld points out penalties and interest are high and can accumulate quickly.

Derksen notes that the CRA has detailed rules as to whether a worker is an employee or self-employed contractor. A number of tests and factors come into play and can be found at: www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4110/employee-self-employed.html.

Farmers can also find out their legal obligations and answers to other labour-related questions by consulting with a lawyer with employment law experience, Derksen says.

Your accountant can also get you pointed in the right direction, says Neufeld. She explains that provincial governments have different labour standards, and their websites can offer compliance information.

"The standards are different for agriculture than they are for different industries and businesses, so it is an advantage to identify the differences as you engage in hiring practices and compensation," Neufeld adds.

Who takes on payroll tasks

If you're wondering if you should take on the work yourself or send it out to professionals, the answer depends on your operation – including its size, complexity, and labour requirements, says Derksen.

Neufeld recommends operators first ask themselves what they know about payroll practices.

"The owner/shareholder will be held personally responsible for the correct reporting of payroll and remitting on time to CRA.

"They should also determine how much time they can devote to learning more before committing themselves to shouldering the payroll load," she says.

"Could my time be better spent working on my business and hiring the professionals to process payroll?"

Watson says that, like any farm decision, it depends on the skills and capacity of the operator to implement and manage such a change. "This is where your accountant and other business advisors can come in to help you decide," she says.

Hiring an individual or firm to manage your payrolls could well be a good fit for the typically busy farmer.

"We have a saying in farm management – do your best, and hire the rest," Watson says.

She explains that many farmers feel the pressure of having to be the Jack or Jill of all trades. But that stress can be alleviated by outsourcing to professionals, which frees up their time to focus more on other areas of the farm that need their attention.

"We tend to perform our best when we're focusing on the things we love to do. That doesn't mean we can ignore the other stuff that needs to get done, but find others who are passionate and experts in those things to leverage your collective strengths." BF