Gail S. Perry and Colin A. Mues

  

  

  

  

Now that fall harvest is in full swing, this seems like a good time to look at how various areas of the law apply to the prototypical farmhand.  This article will discuss: 1) the general tests to determine whether a farmhand is exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act; 2) when owners or operators of an agricultural operation need to obtain workers' compensation insurance for farmhands under the Nebraska Workers' Compensation Act; and 3) when employers can be held liable for the negligent acts of their farmhand employees.  It should be noted that each of the three areas of law discussed in this article applies differently based on the specific farming operation and the actual duties of the employee.  So it is important not to simply rely on the following analysis, but instead consult counsel about your specific farming operation to avoid any possible pitfalls.

 

Farmhand Exemption under the Fair Labor Standards Act

 

Section 213(a)(6) of the Fair Labor Standards Act ("FLSA") lists the tests that are applied to determine whether an employee engaged in agriculture is exempt under the FLSA.  If an employee is exempt, then his employer does not have to comply with the FLSA's minimum wage or overtime regulations.  Generally, these exemptions are based on the specific duties of each individual employee.  Five possible exemptions apply to the duties of a typical farmhand: 

 

1. A farmhand will be exempt if his employer did not, during any calendar quarter during the preceding calendar year, use more than 500 "man-days" of agricultural labor. 

2. If the farmhand is the parent, spouse, child, or other member of his employer's immediate family. 

3. If such employee (i) is employed as a hand harvest laborer and is paid on a piece rate basis in an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the region of employment, (ii) commutes daily from his permanent residence to the farm on which he is so employed, and (iii) has been employed in agriculture less than 13 weeks during the preceding calendar year. 

4. If such employee (i) is 16 years of age or younger, (ii) is employed on the same farm as his parent or person standing in the place of his parent, and (iii) is paid at the same piece rate as employees over age 16 are paid on the same farm.

5. If such employee is principally engaged in the range production of livestock.

 

Each farmhand exemption will be discussed in turn below. 

 

Small Farm Employee

To fulfill the small farm employee exemption, the following conditions must be met:

 

1.  The employee must be "employed in agriculture";

2.  By an "employer";

3.  Who did not use more than 500 "man-days" of agriculture labor;

4.  During any calendar quarter of the preceding calendar year.

 

Regarding the first condition, the FLSA defines "agriculture" as "farming in all its branches and among other things includes the cultivation and tillage of the soil, dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities, the raising of livestock . . . poultry and any practices performed by a farmer or on a farm as an incident to or in conjunction with such farming operations."  For the second condition, the FLSA states that an "employer" may be an individual, partnership, or a corporation.  Further, an employer does not have to be a "farmer" as that term is defined by the Act.

 

As mentioned above, the third and fourth conditions are that the employer must not use more than 500 "man-days" of agriculture labor during any calendar quarter of the preceding calendar year.  The regulations define a "man-day" as "any day during which an employee performs any agriculture labor for not less than 1 hour."  500 man-days is approximately the equivalent of seven employees employed full-time in a calendar quarter.   It is important to note that the man-days of all agricultural workers of an employer, whether the employer is the owner of a single farm or several farms, are to be counted for purposes of this section.  Further, the geographic location of the different farms or employees makes no difference.  For example, if an employer owns and operates two farms, one in Nebraska and one in Iowa, it is the total number of man-days used on both farms that determines whether the employer meets the 500 man-days test.  Also, employees must be counted even if they are exempt under another section of the FLSA.  For example, a general manager of the farm may be an exempt executive employee under the FLSA, but the general manager's man-days would be included in the overall man-days count for the employer.  However, the man-days of employees who are immediate family members of the employer are not counted towards the employer's total man-days under this condition. 

 

Regarding the fourth, and final, condition under this exemption, it is necessary to consider each of the four calendar quarters (January 1-March 31; April 1-June 30; July 1-September 30; October 1-December 31) in the preceding calendar year.  If in any calendar quarter of the preceding calendar year the employer used more than 500 man-days of agriculture labor, then the employer's farmhand employee is not exempt under this section of the FLSA.  Accordingly, an employer must look to the preceding calendar year, not the current calendar year, to determine whether this condition is fulfilled.  If in the preceding calendar year the number of man-days did not exceed 500 in any calendar quarter, then this condition is met regardless of how many man-days are used in any calendar quarter of the current calendar year.  If the above four conditions are fulfilled, then the farmhand will be exempt from the minimum wage and overtime provisions of the FLSA. 

             

Family Member

 

The FLSA also exempts farmhands if they are the parent, spouse, child, or other member of their employer's immediate family.  Other than a parent, spouse or child, only the following persons will be considered to qualify as part of the employer's immediate family: step-children, foster children, step-parents and foster parents.  Other relatives, even when living permanently in the same household as the employer, will not be considered to be part of the "immediate family." 

 

Hand Harvest Laborer

 

The third exemption which typically applies to farmhands is the "hand harvest laborer" exemption.  Under that exemption, a farmhand is exempt if such employee:

 

1. Is employed as a hand harvest laborer and is paid on a piece rate basis;

2. Commutes daily from his permanent residence to the farm on which he is so employed; and

3. Has been employed in agriculture less than 13 weeks during the preceding calendar year. 

 

A "hand harvest laborer" is defined by the FLSA as a farm worker engaged in harvesting by hand, or with hand tools, soil-grown crops such as cotton, tobacco, grains, fruits, and vegetables. This term would not include harvesting operations performed by electrically-powered mechanical devices.  Being paid on a piece rate basis is when an employee is compensated based on the number of times he completes a certain task.  For example, a farmhand getting paid X dollars for each row he plants or picks would be an example of piece rate basis.  The remaining conditions under this exemption are self-explanatory.  If all three conditions are fulfilled, then a farmhand will be exempt under the FLSA.

 

Exemption for Nonlocal Minor

 

The fourth option for a farmhand to be exempt under the FLSA is if such employee:

 

1. Is 16 years of age or younger;

2. Is employed on the same farm as his parent or person standing in the place of his parent; and

3. Is paid at the same piece rate as employees over age 16 are paid on the same farm. 

 

This exemption is often called the "nonlocal minor" exemption and was intended to apply only to minors 16 years of age or under who are not "local" in the sense that they are away from their permanent home when employed in agriculture.  Specifically, the exemption was meant to apply in the case of children of migrants who typically accompany their parents in harvesting and other agricultural work.  Regarding the second condition of the exemption, the words "employed on the same farm" are accorded their natural meaning with the usual caution, however, that as in the case of all other exemptions, the exemptive language is to be construed narrowly.

 

For the third and final condition, individuals who are considered as "his parent or persons standing in place of his parent" include natural parents, or any other person where the relationship between that person and a child is such that the person may be said to stand in place of a parent. For example, one who takes a child into his home and treats him as a member of his own family, educating and supporting the child as if he were his own, is generally said to stand for the child in place of a parent. 

   

Exemption for Range Production of Livestock

 

The fifth and final method in which a farmhand can be exempt under the FLSA is if the farmhand is involved in the range production of livestock.  In order to be exempt under this section, the farmhand must:

 

1. Be "engaged in agriculture";

2. Be "principally engaged";

3. On the "range"; and

4. In the "production of livestock."

 

"Engaged in agriculture" is given the same meaning as in the small farm employee exemption above.  To determine whether an employee is "principally engaged" in the range production of livestock, one must consider the nature of his duties and responsibilities. To qualify for this exemption, the primary duty and responsibility of a range employee must be to take care of the animals actively or to stand by in readiness for that purpose.  A determination of whether an employee has range production of livestock as his primary duty must be based on all the facts in a particular case. The amount of time spent in the performance of the range production duties is a useful guide in determining whether this is the primary duty of the employee. In the ordinary case it will be considered that the primary duty means the major part, or over 50 percent, of the employee's time.

 

For purposes of this exemption, "range" is defined generally as land that is not cultivated. It is land that produces native forage for animal consumption, and includes land that is revegetated naturally or artificially to provide a forage cover that is managed like range vegetation. "Forage" as used here means "browse" or herbaceous food that is available to livestock or game animals.  It need not be open.  Typically it is not only noncultivated land, but land that is not suitable for cultivation because it is rocky, thin, semi-arid, or otherwise poor. Typically, also, many acres of range land are required to graze one animal unit (five sheep or one cow) for one month.  By its nature, range production of livestock is most typically conducted over wide expanses of land, such as thousands of acres.

 

For a farmhand to be "engaged in the production of livestock," he must be actively taking care of the animals or standing by in readiness for that purpose. Thus, such activities as herding, handling, transporting, feeding, watering, caring for, branding, tagging, protecting, or otherwise assisting in the raising of livestock and in such immediately incidental duties as inspecting and repairing fences, wells, and windmills would be considered as engaged in the production of livestock.  On the other hand, such work as terracing, reseeding, haying, and constructing dams, wells, and irrigation ditches would not be considered as engaged in the production of livestock within the meaning of the exemption.  The term "livestock" includes cattle, sheep, horses, goats, and other domestic animals ordinarily raised or used on the farm.  Turkeys or domesticated fowl are considered poultry and not livestock within the meaning of this exemption.  If the duties of the farmhand meet the conditions of the above exemption, then he will be exempt under the FLSA.

 

Farmhands and Workers' Compensation in Nebraska

 

Under the Nebraska Workers' Compensation Act ("Act"), Neb. Rev. Stat. §48-101 et seq., employers engaged in an agricultural operation are required to provide workers' compensation insurance coverage for all unrelated employees if the employer employs 10 or more unrelated, full-time employees on each working day for 13 calendar weeks, whether consecutive or not, during any calendar year.  This includes employees at all locations of the agricultural operation.  When an employer has met these requirements, workers' compensation insurance coverage must be obtained no later than 30 days after the end of the 13^th calendar week.

 

What is an agricultural operation?

 

As above, "agricultural operation" is defined as the cultivation of land for the production of agricultural crops, fruit, or other horticultural products; or the ownership, keeping, or feeding of animals for the production of livestock products. 

 

What is a full-time employee?

 

"Full-time employee" is defined as a person who is employed to work one-half or more of the regularly scheduled hours during each pay period.

 

What about relatives?

 

The Act does not apply to agricultural operations that employ only related employees.  Related employee is defined as a spouse of an employer and an employee related to the employer within the third degree by blood or marriage.  This includes parents, grandparents, great-grandparents, children, grandchildren, great-grandchildren, brothers, sisters, uncles, aunts, nephews, nieces, and spouses of the same.

 

What about partnerships, limited liability companies, and corporations?

 

If the employer is a partnership, limited liability company, or corporation in which all of the partners, members, or shareholders are related within the third degree by blood or marriage, then related employee means any employee related to any such partner, member, or shareholder within the third degree by blood or marriage.

 

Can coverage be dropped?

 

If an agricultural operation subject to the Act no longer employs 10 or more unrelated, full-time employees, coverage must continue in effect during the remainder of that calendar year and for the next full calendar year.  The employer may then elect to return to exempt status by posting a written or printed notice.  The notice must state that the employer will no longer carry workers' compensation insurance for the employees and the date coverage will end.  This notice must be posted continuously in a conspicuous place at all employment locations of the employees for at least 90 days.  After the 90 day posting period has passed, the employer may then cancel the workers' compensation policy.  Failure to provide this notice voids an employer's attempt to return to exempt status.

 

Can coverage be provided voluntarily?

 

An agricultural operation that is otherwise exempt from the Act may nevertheless elect to become subject to the Act and provide workers' compensation insurance coverage for its employees.  This is done by obtaining a workers' compensation policy from an insurer licensed by the Nebraska Department of Insurance to write workers' compensation insurance in Nebraska.

 

An agricultural operation that has voluntarily chosen to provide workers' compensation insurance coverage for its employees may elect to return to exempt status by posting a written or printed notice.  The notice must state that the employee will no longer carry workers' compensation insurance for the employees and the date coverage will end.  This notice must be posted continuously in a conspicuous place at all employment locations of the employees for at least 90 days.  After the 90 day posting has passed, the employer may then cancel the workers' compensation policy.  Failure to provide this notice voids an employer's attempt to return to exempt status.

 

Must employees be notified?

 

In addition to the notice requirements for terminating coverage, every employer who is exempt under the Act and does not voluntarily elect to provide workers' compensation insurance coverage must give all unrelated employees the following written notice at the time of hiring or at any time more than 30 calendar days prior to the time of injury: "In this employment you will not be covered by the Nebraska Workers' Compensation Act and you will not be compensated under the Act if you are injured on the job or suffer an occupational disease.  You should plan accordingly."  Failure to provide this notice subjects an employer to liability and inclusion in the Act for any unrelated employees to whom such notice was not given.

 

What are the penalties for failure to provide coverage?

 

Penalties for failing to obtain workers' compensation insurance coverage when required include (1) a civil fine of up to $1,000.00 for each violation, with each day of continued failure to obtain coverage constituting a separate violation, and (2) criminal misdemeanor penalties of imprisonment for not more than one year, a $1,000.00 fine, or both.  The employer may also be enjoined from doing business in Nebraska until coverage is obtained.

 

Liability of Employers for the Negligent Acts of Their Farmhands

 

In Nebraska, and employer is held liable for the negligent acts of the employee committed while the employee is acting within the scope of the employer's business.  Kocsis v. Harrison, 249 Neb. 274, 543 N.W.2d 164 (1996).  This rule certainly extends to the negligent acts of a farmhand committed while he is working.  As you can imagine, there are an unlimited number of ways a farmhand could be negligent, and his employer held liable, in the farming context.  For example, an employer could be held liable if a farmhand causes an automobile accident on the highway while driving a tractor.  An employer could also be held liable if his farmhand causes an accident while at a grain elevator while unloading grain.  This rule makes it even more important for a farm owner to be diligent when hiring farmhands and other employees.  Any evidence of past accidents or recklessness should be taken into account.  Further, having knowledge of this possible liability should help a farm owner or operator to better assess and prepare for various risks that can occur in such an operation.

 

 

Medicare Tax on Real Estate Transactions

Julie M. Karavas

 

 

 

 

The Reconciliation Act, commonly referred to as the Healthcare Bill, added a provision that imposes a tax on individuals equal to 3.8% of the lesser of the individual's net investment income for the year or the amount the individual's modified adjusted gross income (AGI) exceeds a threshold amount. For married individuals filing a joint return and surviving spouses, the threshold amount is $250,000; for married taxpayers filing separately it is $125,000; and for other individuals it is $200,000. There is a special rule for estates and trusts, in which the tax equals 3.8% of the lesser of undistributed net investment income or AGI over the dollar amount at which the highest trust and estate tax bracket begins.

 

Net investment income is defined as investment income reduced by deductions properly allocable to such income. Of particular interest to those with real estate interests, investment income includes rents and net gains from disposition of property, including the sale of the primary residence, other than income derived in the ordinary course of a trade or business. 

 

So how does this work?  First, there is no change to the application of capital gains tax.  If the transaction is subject to capital gains tax, it will be so taxed, and the new Medicare Tax, if applicable, will be in addition to the capital gains tax.  In short, the Medicare Tax applies to the net gain attributable to the disposition of property that is taken into account in computing taxable income.  This means it does not apply to all of the gain/profit on a sale of property, rather just that amount of gain/income which is taxable income.  Remember, the first $250,000 in profit on the sale of a primary residence ($500,000 for a married couple) is excluded from taxable income.  That exclusion is not available for vacation homes or rental properties, thus, all the gain on the sale of vacation homes and rental properties is taxable income.

 

If the sale of real property would result in investment income, presuming the AGI of the taxpayer(s) exceeds the income thresholds, consider:

 

Is the property a primary residence?
 

If yes, the first $250,000 in profit on the sale of a primary residence ($500,000 for a married couple) is excluded from taxable income.  The 3.8% Medicare Tax will only apply on any profit above the $250,000 or $500,000 amounts.  For example, if a married couple sells its primary residence and makes a $600,000 profit, only $100,000 will be subject to the 3.8% tax - or $3,800 in Medicare Tax (and, similarly, $100,000 will be subject to capital gains).  If the same couple sells the same house for a $300,000 gain, the 3.8% tax will not apply.

 

If no, any profit/gain on the sale of a vacation home or rental property will be subject to the 3.8% Medicare Tax, and likely subject to capital gains.  Remember, there is no $250,000/$500,000 exclusion for these types of properties.

 

This is the general rule - each taxpayer's unique financial condition may add variables to the general rule which will result in a different tax consequence.  The taxpayer can use this as a general guide, but should consult with her tax accountant for specific advice regarding her situation.  And, remember, if the taxpayer's income (AGI) doesn't reach the thresholds mentioned in the opening paragraph, then the 3.8% tax does not apply.

 

In addition, it may also be of interest to you that investment income includes income from interest, dividends, annuities, and royalties. However, income from passive activities and from a trade or business of trading in financial instruments or commodities is also included in the definition of net investment income. In the case of the disposition of a partnership interest or stock in an S corporation, only net gain or loss attributable to property held by the entity that is not property attributable to an active trade or business is taken into account. Income, gain, or loss on working capital is not treated as derived from a trade or business, and accordingly may be considered investment income. Investment income does not include distributions from a qualified retirement plan or amounts subject to SECA tax.

 

This is an overview of the Medicare Tax on real estate transactions.  This summary is to inform you of its existence and the general rule of application.  To understand whether it may result in an income tax consequence to you, please consult your accountant or tax professional.

On September 30, 2010, Jill Schroeder presented on current legal issues at the National Alliance of Medicare Set-Aside Professionals (NAMSAP) annual meeting in Arlington, VA.  Jill was also honored at the event for her years of service on the Board of Directors and for her service as secretary of the organization.

 

Julie Karavas was appointed by the National Conference of Commissioners on Uniform State Laws (NCCUSL) to participate in the Drafting Committee on Harmonization in Business Entities, which most recently met September 24 to 26 in Minneapolis.  As a practicing attorney, and the chair of the Business Law Section of the Nebraska Bar Association, Julie has been involved with the drafting of business entity legislation in Nebraska and works with state legislators as well as Uniform Law Commissioners.  NCCUSL provides states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of the law. NCCUSL's work supports the federal system and facilitates efficient business transactions among business organizations by providing rules that are consistent from state to state.  Uniform Law Commissioners must be lawyers, qualified to practice law. They are lawyer-legislators, attorneys in private practice, state and federal judges, law professors, and legislative staff attorneys, who have been appointed by state governments as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands to research, draft and promote enactment of uniform state laws in areas where uniformity is desirable and practical.

 

Baylor Evnen | in the Community 

 

Brenda Spilker was recognized with the Outstanding Volunteer Award by the Girl Scouts Spirit of Nebraska at its annual Adult Volunteer Awards reception on October 9 in Lincoln. Brenda was recognized for the dedication and enthusiasm she brings to her position as a Service Unit Manager for troops in the Raymond, Ceresco, Waverly, Eagle, Greenwood and Ashland areas.

 

Baylor  Evnen | in the Courtroom
 

Disclaimer:  The matters referenced above in the "Baylor | in the Courtroom" section are merely a synopsis of the cases tried, mediated or argued by the attorneys of Baylor Evnen.  They should not be considered advice or projections of the outcomes of any types of cases.  Additionally, the above is for informational purposes only and should not be used or considered in evaluating any specific cases or circumstances.