In a word, yes, it’s okay to pay wages in the form of food and lodging. If in-kind compensation is provided on top of a cash payment of at least the minimum wage, the farmer has more flexibility. In other words, if the farmer pays her employee the going minimum wage rate per hour in cash and on top of that provides lunchtime meals as a bonus, the farmer doesn’t have to comply with the legal requirements for valuing and recording the costs of the lunches provided (discussed below). Where in-kind payments are used to achieve at least the minimum wage, the rules below apply.

Following the Rules

When in-kind wages are paid to cover minimum wage owed, additional rules apply. The law has strict guidelines and limitations on how to value and account for in-kind payments made to cover minimum wage requirements. Before we dive into the legal requirements, we need to reframe the lingo that we’ll be using.

Most folks think of an in-kind payment as just that, a payment. Typically, when making in-kind payments farmers add up all the in-kind payments and then top it off with cash to cover anything remaining. However, the law thinks of it differently. The law assumes that a cash payment is being made to cover the minimum wage. So it thinks of the payment of in-kind wages as a deduction from the cash wage. Along these lines, the farmer would say: “I owe you $200 in minimum wage. I’m offering you lodging that is equivalent to $100 and meals that are equivalent to $50, so I’m deducting the $150 from the $200 in cash owed.”

It’s really all the same in the end. However, this guide is using the phrase “deduction from wages” because that’s how the law thinks about it.

□ Deduct only in-kind payments that are allowed by the law and authorized and agreed to by the employee

The law specifically sets out what can and cannot be deducted from an employee’s paycheck. Specific types of in-kind wage deductions that are permitted by the law include meals, housing, and transportation. Nevertheless, the farmer cannot make deductions for these items unless the worker willingly authorizes it in writing and actually uses or takes these items when offered.

For example, if the farmer prepares daily lunches for her workers, she cannot automatically deduct the value of these meals from all her workers’ paychecks. She can only make the deduction for employees that actually agree to a meal plan and eat each of the meals offered. Farmers providing meals will therefore have to keep track of who eats what, whether through a log book or some other system.

A farmer cannot deduct items that would simply be for her own convenience or benefit. Examples of such items include tools and equipment used on the farm. Requiring the employee to pay for these items financially benefits the farmer as she’s passing on a necessary business expense. A farmer can deduct from wages for such items if, and only if, the farmer has already fulfilled her obligation of paying any minimum wage owed AND it does not financially benefit the farmer AND the employee willingly authorizes it in writing.

Education and training provided to workers falls into the category of something that’s primarily beneficial to the farmer. Sure, the worker benefits from learning general farming practices. But it’s really the farm that benefits the most by having well trained, efficient workers. The farmer could certainly put a value on the education and training she’ll provide and use that added value as a marketing piece to attract good workers.

Another option would be to run a separate educational series and charge employees tuition for it. However, the farm cannot force its workers to participate in these trainings. That would for all intents and purposes be the same thing as deducting it from their wages!

□ Have the worker sign an agreement acknowledging the in-kind payment arrangement

Any in-kind arrangement that the farmer has with an employee to fulfill the minimum wage obligation must be in-writing and signed by employee at the get go. Getting the arrangement in writing helps ensure that the farmer and the employee have a shared understanding of the details. This alone can help prevent unmet expectations or disagreements. In addition, it provides written proof that wages were in fact paid if an issue were to ever arise.

□ Properly assess the value of the lodging and meals

The federal rules set out a very specific method for determining the value of in-kind payments. Here’s the rule:

Farmers can deduct the lesser of two things:

+ The fair market value, or;

+ The actual cost to the farmer in providing it

This is easier to understand through an example. Let’s say that Farmer Amanda has a mobile home on her property that’s completely paid off. She wants to let one of her workers stay there in exchange for work. How much can she deduct for this lodging?

The first step is to determine the fair market value. The question to ask is what do mobile homes in Amanda’s area rent out for? If she’s in a rural area of Connecticut, it might not be much. If she’s near the heart of Hartford or some bustling small town, it will, of course, be more. Let’s say the going rate is $400 a month for Amanda’s area. The next step is to determine what it actually costs Amanda to have this mobile home. Let’s say she’s already paid it off in full, so her costs are minimal. Perhaps Amanda is only paying utilities for operation, which run her about $75 a month. This is the lesser of the two. Therefore, $75 a month for lodging is all that Amanda can deduct from the minimum wage she owes her worker. (Please note that Amanda’s valuation must comply with 29 CFR 531.3, which is not discussed in detail here. This is a simplified example. Please see Farm Commons’ forthcoming guide to in-kind wages for full details.)

Basically, the farmer cannot profit from offering in-kind wages. If Amanda deducted more than it cost her to provide housing, she would profit. Farmers providing lodging will need to do some research on rent prices in their specific area to provide evidence of the going rate. They’ll also have to be honest about what the lodging actually costs them. Bottom line, they’ll need to keep records to support the value that is being deducted in case an issue or discrepancy about wages paid were to ever arise—including a tax audit or a wage claim.

This same formula applies to meals. Let’s say that Amanda offers lunches and dinners for her workers. What can she deduct for these meals? First, she’ll need to determine what the fair market value is for lunch and dinner in her area. Let’s say it’s $8 for lunch and $10 for dinner for a comparable meal at the diner down the road. Now Amanda needs to figure out how much it costs her to make the meal. This includes her costs of the ingredients, including any products from the farm, as well as her time to make the meal. If it’s less, say $5 a meal, she can deduct only $5 per meal as in-kind wages. Farmers will need to keep records of how they valued the meals provided in case a dispute or discrepancy arises.

Most farmers are probably thinking: “This is way too cumbersome! Is it even worth it?” That question can only be answered by each individual farmer. The best route is to play it safe and be conservative by following the required method for valuing in-kind payments as well as keeping records sufficient to show you are complying with the requirements. Alternatively, a farmer may simply decide it’s not worth it and simply pay any minimum wage owed in cash and provide in-kind payments as a bonus.

□ Itemize deductions on each pay stub

Any deductions made for in-kind wages must be itemized on the pay stub that is provided to the employee at each pay period. This is required by both federal and state law as it provides the employee the opportunity to see what has been taken each time. In addition, it provides yet another way to prove that in-kind payments were in fact made.

Some farmers who provide enough cash to meet the minimum wage obligation would like to exclude lodging and meals from wages in order to reduce their tax burden. This is an entirely different issue with its own set of criteria and is beyond the scope of this guide. Farm Commons’ forthcoming guide to in-kind wages will provide more detailed information. Farmers who are in this situation should also seek the advice of a tax attorney or accountant or contact the IRS.

□ Investigate tax obligations

Wages paid in anything other than cash for agricultural labor are exempt from FICA (i.e. social security and Medicare tax) as well as federal income tax withholding obligations. This means that the farmer would not need to withhold federal income tax on the non-cash wages. In addition, neither the farmer nor the employee would need to pay social security and Medicare taxes on non-cash wages. However, taking advantage of this exemption comes with a whole new set of limitations and recordkeeping obligations. What’s more, it raises a huge risk for an audit. For more details on the risks and requirements of utilizing this exemption, see Farm Commons resource—Paying In-Kind Wages: The Federal “Commodity Wage” Exception to Payroll Taxes.

Other Rules When Providing Lodging

An array of laws come into play when farmers provide housing to their workers. These include zoning, federal Occupational Safety and Health Act (OSHA), the federal Migrant and Seasonal Farmworker Protection Act, and the Connecticut public health code.

□ Look into the local zoning code

Most, if not all, zoning ordinances have something to say about housing and occupancy of residences. Some zoning laws include restrictions on how many people may in on the property or how many non-related people may live in a single residence. Zoning laws could also have limitations or prohibitions on temporary structures such as RVs, tents, and yurts. Bottom line, farmers who provide housing to their workers will need to look into their zoning ordinance to be sure their plans coincide with what is permitted. While farmers could play the game of wait and see, they run the risk of costly fines and disputes down the road. They could even be forced to take down a structure that doesn’t comply with the ordinance. One approach would be to get a copy of the ordinance and read it yourself. However, these ordinances are not always a fun and straightforward read. Farmers could also ask neighbors or other farmers who house workers. Or, they could call the local zoning office to ask their questions directly.

□ Determine whether by providing housing to workers the farm is subject to the federal Occupational Safety and Health Act (OSHA)

Farmers must be aware that by providing housing to their workers, they may subject their farms to an inspection under the federal Occupational Safety and Health Act, commonly known as OSHA. Although OSHA is not generally enforceable against smaller farms, that exception does not apply when housing is provided in a “temporary labor camp.” Temporary labor camps are defined broadly. Basically, they include any housing that is provided to a temporary worker as a condition of employment. In other words, it’s a temporary labor camp if the worker, for all intents and purposes, has no other choice than to live in the housing provided by the farm based on the location or other circumstances of the job. For example, this could be the case if the farm is located in a rural area, and there’s practically no other affordable place nearby to live. If this is the case, the farmer will want to be sure that they are in full compliance with OSHA housing standards.

Farmers wanting to learn more about OSHA enforcement when providing housing, as well as a basic overview of the housing standards, can refer to Farm Commons’ resource—Paying In-Kind Wages: OSHA Impacts When Providing Housing. The US Department of Labor oversees OSHA compliance and enforcement on farms in Connecticut. Farmers in Connecticut can contact the federal OSHA offices in Bridgeport or Hartford for more information. In addition, the Connecticut Department of Labor’s CONN-OSHA Program provides free, on-site OSHA consultation services to eligible employers. Detailed information is available on the Department of Labor’s website: http://www.ctdol.state.ct.us/osha/consulti.htm.

□ Determine whether the farm is subject to the federal Migrant and Seasonal Farmworker Protection Act

When a farmer provides housing to “migrant workers,” the farmer may subject the farm to the federal Migrant and Seasonal Agricultural Worker Protection Act (called the MSPA) requirements. Despite what many may believe, “migrant workers” are not limited to out-of-state or foreign workers. Migrant workers include anyone who must stay overnight away from their regular home to make it feasible for them to work on the farm. A migrant worker could be someone who regularly lives just an hour or two away from the farm, if such a lengthy drive makes it impractical for them to fulfill their obligations on the farm each day they’re required to work.

A few exemptions to the MSPA are available. Just as for the federal minimum wage, farms that have fewer than 500 man-days in each calendar quarter of the previous year are exempt. (A man-day is any day on which a person does at least one hour of work. Each person who works is counted as a separate manday. For example, if three individuals work for one hour each on the same day, the farm has three man-days. If three individuals work for eight hours each on the same day, the farm still has three man-days. As long as the person worked at least one hour in a day it is considered a man-day; it doesn’t matter how long they worked.) In addition, farms that are exclusively owned and run by a single farmer or his or her immediate family members (i.e. legal spouse, children (biological, step, adopted, foster), and parents) are also exempt. Finally, if the housing provided is also provided to the general public, the farm is exempt from having to comply with the MSPA.

Farmers who provide housing to “migrant workers” and don’t meet one of the available exemptions must comply with the MSPA requirements, which includes maintaining certain housing conditions and following recordkeeping and disclosure requirements. Farmers wanting to learn more about the MSPA requirements can refer to Farm Commons’ resource—Paying In-Kind Wages:Migrant Worker Laws and Providing Housing. Farmers can also contact the Environmental Health Section of the Connecticut Department of Health (CT DOH) at 860-509-7293 for more guidance. The CT DOH oversees migrant labor housing compliance and enforcement in Connecticut.

□ Comply with the Connecticut health code standards for agricultural worker housing

All farmers in Connecticut who provide housing to their workers are responsible for making sure the housing meets sanitation and safety standards established in the Connecticut public health code. The required housing standards include the condition of structures, water supply, the sewage disposal system, toilet and bathing facilities, cooking and eating facilities, sleeping accommodations, and laundry and trash disposal facilities.

Farmers providing housing to migrant workers are subject to an inspection by the Environmental Health Section of the Connecticut Department of Health. The Department can inspect any migrant labor housing facility on its own initiative or in response to a complaint. The Department can also delegate its inspection authority to local health departments.

Farmers providing housing to non-migrant workers must also comply with the public health code housing standards. The Division of Occupational Safety and Health, Connecticut Department of Labor oversees non-migrant labor housing facilities.

Connecticut farmers wanting to learn more about the state health code standards for agricultural worker housing can review the Connecticut public health code themselves or contact the Department of Health at 860-509-7293 or the Department of Labor at 860-263-6791 for more guidance.