Farmers need skilled employees to run complex machinery, and the time spent training new workers can be costly.
As well, employees are being enticed with job opportunities that promise better compensation and benefit packages, which makes it harder to retain them at competitive rates.
Compensation is often a key factor in retaining employees, and it is critical that farms develop compensation strategies that are beneficial to both employee and the farm.
Appropriately structuring the compensation arrangement between the farm and its employees could provide tax savings to the farm and increased compensation to employees.
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Employees incur many costs that employers can provide as a benefit with tax savings for both the employee and the farm.
For the employee, these benefits can be both taxable or non-taxable, depending on the benefit.
Employers can provide their em-ployees with non-taxable benefits that the farm can still use as deductions. Such benefits include supplementary employment benefit plans, moving allowances, reimbursement of moving expenses, contributions to a private health service plan, paying for language courses, social events, meal allowances and special clothing required for the job.
These benefits can be significant to the employee.
For example, assume an employee is buying $1,000 worth of private health insurance and has a tax rate of 25 percent. He would have to earn $1,333 to be able to pay for the health premiums and the taxes owing on the earned income.
Alternatively, the payment is made with pre-tax dollars if the farm provides a health insurance plan and pays for the plan. The farm pays $1,000 and the employee receives the same benefit. The employee saves $333 and the farm receives another expense that can be deducted to offset future income.
There are also opportunities to provide non-cash gifts and awards to employees as non-taxable benefits.
Up to $500 of a non-cash gift can be made to employees each year and would be non-taxable to the employee but deductible to the farm.
The gifts cannot be cash or a cash-equivalent, which rules out gift cards. However, buying the latest iPad or video game system would qualify as long as the $500 limit is not exceeded.
There are also opportunities to offer an additional non-cash gift of up to $500 for performance related reasons such as service awards.
These gift policies do not apply to non-arm’s length employees such as spouses or children, so care should be taken when dealing with these circumstances.
Taxable benefits, on the other hand, are benefits offered to employees that are taxable in the hands of the employee and deductible by the farm.
It is important to understand which benefits are being offered to employees to make sure they are being reported correctly to the government.
Examples of such benefits could include free or low rent housing, personal use of the employer’s automobiles or cellphones, and interest free or low interest loans to employees.
Effectively including both taxable and non-taxable benefits into a compensation package could be the difference between losing or retaining employees.
Consider speaking with employees about their interests and the options that are available to help create a plan that is the best for both parties.
As well, consider contacting a professional to ensure the plan is appropriate and that all options have been considered.
