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The Maine minimum wage is higher than the federal minimum wage. Maine’s minimum wage is currently set at $11.00 per hour while the federal minimum wage is currently set at $7.25 per hour. The Maine minimum wage will increase to $12.00 on January 1, 2020 and each year thereafter it will increase by the increase of the cost of living, if any (i.e., consumer price index).
While most businesses in Maine must pay at least the Maine minimum wage, both Maine and federal law provide an agricultural labor exemption to minimum wage requirements. Maine law exempts agricultural employees from minimum wage entirely. Federal law only exempts employees who perform agricultural labor for farms under a certain size, which is based on a measure called “man- days.” This means that, depending on their size, farm businesses may have to pay employees performing agricultural labor at least the federal minimum wage. Also, if a farm has employees who perform tasks that are not considered agricultural labor, the farm will need to pay these employees at least the Maine minimum wage. Maine farm businesses must pay close attention to the rules if they wish to avoid the risks of noncompliance.
Again, Maine law entirely exempts employees who perform agricultural labor from the higher Maine minimum wage. The federal minimum wage exemption is more limited. Federal law only exempts Maine farms with 500 or fewer “man- days” of agricultural labor in each calendar quarter of the previous year. To put it another way, farms that used more than 500 man-days of agricultural labor in any calendar quarter of the last year are exempt from the higher Maine minimum wage; however, they must pay employees at least the federal minimum wage of $7.25. Farms that used 500 or fewer man-days in each calendar quarter of the previous year are exempt from having to pay both the Maine and federal minimum wages.
This rule sounds complicated. What is a man-day? What is agricultural labor?
These are important questions with detailed considerations. The flowchart below will help farmers breakdown the rule and determine whether the federal minimum wage applies to their farms. (Please do not use the flowchart without also reading the text below it, as it is necessary to effectively use the flowchart.)
Box 1: The first step is for a farm to determine how many man-days the farm had in each calendar quarter last year. 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 man-day. 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.
The spouse, children, and other members of the employer’s immediate family are not counted when calculating man-days. Roughly, 500 man-days equates to about five to six full-time employees, considering many farms employ workers six or seven days per week.
Now that we understand how a man-day is calculated, we need to count them. Divide the calendar January through March, April through June, July through September, and October to December. Now, determine the number of man-days in each calendar quarter. Do you have less than 500 man-days in each one? If the answer is yes, the farm is eligible for the minimum wage exemption (go to box 2). If the answer is no, the farm is not eligible for the exemption and must pay at least the minimum wage (go to box 4).
These calculations require careful record keeping. Remember that the 500-man- day rule applies to the previous year. To determine federal minimum wage obligations this year, we need to determine the farm’s man-days last year. If records were not kept last year or are not detailed enough, we will have a hard time demonstrating compliance with the law. In that case, the safe choice is for the farm to act as if the federal minimum wage requirement applies (go to box 4).
Box 2: We arrive at box 2 because we know we are at the acceptable size—we are under the 500-man-day threshold. Thus, we know we are eligible to pay less than the federal minimum wage. Now, we have one more question to ask to determine if we can actually pay less than both the federal and Maine minimum wages.
Both the Maine and federal agricultural labor exemptions apply only to agricultural labor. If an employee spends any time working on something that is not deemed agricultural, neither the Maine nor the federal minimum wage exemption applies. This means the farm must pay the employee the higher Maine minimum wage. What’s more, these exemptions do not apply with respect to all work—including agricultural labor—performed by that employee during that entire workweek. This means that if a farm employee spends even one hour of time on a non-agricultural task, the employee must be paid at least the higher Maine minimum wage for all hours worked in that week.
Whether work is agricultural labor under the law is not always intuitive. That’s because it’s based on legal definitions. It is also because the definition of “agricultural” has not been litigated very much in either the courts of Maine or federal courts. Litigation helps clarify legal definitions. For now, we’re left with a broad definition that does not account for the realities of modern and direct-to- consumer farms.
Diversified farms are sprouting up in Maine and throughout the country. These farms typically engage in activities—such as selling at farmers’ markets, making value-added products, organizing on-farm events, and so on—that fall outside the traditional scope of farming activities. Unfortunately, the legal definition of agricultural labor has not yet evolved to meet this new type of diversified farm. Without any statutes or case law for guidance, it can be challenging to draw the line between agricultural and non-agricultural labor.
Agricultural labor certainly includes growing and harvesting crops, raising livestock or poultry, and preparing unmanufactured farm products for market and delivery to market. Generally, agricultural labor includes work done on a farm in connection to farming operations. Conversely, most if not all work done off farm is likely not farm labor. For example, because sales at a farmers’ market are conducted off the farm they are most likely not agricultural labor. Similarly, marketing activities such as pitching products to restaurants and grocery stores are likely not agricultural labor. In addition, some work done on a diversified farm is tangential to agricultural production, for example, making value-added products, planning and hosting agri-tourism, or on-farm events such as dinners, weddings, and potlucks. These activities most likely do not fall within the agricultural labor definition. Aggregating and packing products from another farm, for example into a CSA box, is a gray area. Most likely, it would not be considered agricultural labor as it’s more akin to marketing and providing value to the customer, more so than agricultural production.
The safest route is to assume that off-farm activities and any activities that are tangential to farming, such as those just mentioned, are not agricultural labor.
A farm can quickly resolve any legal risk by paying at least the Maine minimum wage and paying overtime for any hours worked over 40 in a week to all employees. If the farm pays at least the minimum wage plus overtime, there is no need to determine if tasks are agricultural or not.
Box 4: If the work assigned to an employee is non-agricultural, then the higher Maine minimum wage is owed—as neither the Maine nor federal minimum wage exemption for agricultural labor applies.
Box 5: Again, when an employee does non-agricultural labor, the employee is owed the higher Maine minimum wage for the entire workweek, not just for the non-agricultural hours worked. As a reminder, farms need to keep complete records to demonstrate compliance with minimum wage law. Timesheets recording the date, hours worked, and tasks performed are essential, even if no minimum wage is owed. The records are necessary to show that minimum wage is not owed.
Box 3: If we arrive here, then the hours worked by the agricultural employee do not fall under minimum wage laws. When a farm is under the 500-man-day threshold last year and assigns only agricultural labor tasks, the farm is allowed to pay less than the minimum wage. Now, that doesn’t mean no rules apply to the wage-payment relationship. Of course, the farm is obligated to pay the employee whatever the farmer said the employee would be paid for the work. If a farmer promises to pay $3 per hour and then pays the employee just $2 per hour, the farm could certainly be sued by the employee for breaking that promise. The farmer couldn’t be sued under minimum wage laws, but laws covering our mutual agreements and contracts still apply.
Farms are exempt from paying overtime to farm employees under Maine and federal laws, regardless of the size of the farm. Just as with minimum wage, the federal exemption to paying overtime only applies to agricultural labor. If the employee performs non-agricultural labor, the farm must pay at least the federal overtime rate for all hours worked over 40 in that week (i.e., 1.5 times the federal minimum wage per hour worked over 40). If the employee performs exclusively farm labor in a week, no overtime is owed for hours worked over 40.
The Maine overtime exemption is broader than agricultural labor, or on farm tasks related to farming. The Maine overtime exemption also applies to workers who process, preserve, can, freeze, dry, market, store, pack for shipment or distribute agricultural produce, meat and fish products, and perishable foods.
This means that the farm does not need to pay the higher Maine overtime rate for workers performing these tasks; however, the farm must still pay the federal overtime rate.
Maine’s laws related to payment of wages and employment conditions apply regardless of whether a farm is exempt from minimum wage or overtime requirements. Farms must pay workers at regular intervals that are at least every 16 days. Each payment must include all wages earned to within eight days of the payment date. Farms must provide a pay stub with each payment that includes the date of the pay period, the hours, total earnings, and all itemized deductions. Any changes to the pay rate must be communicated at least one day in advance. All employers must also display a poster notifying employees of the minimum wage rules. This poster and other required posters can be found on the Maine Department of Labor website: https://www.maine.gov/labor/posters/. The posters can also be found by searching for the agency name with the phrase “mandatory posters.”
Maine labor laws require employers to give employees at least a 30 minute break after six hours of work if three or more workers are on duty. The employer and employee can negotiate more or less breaks, but both must agree (this should be in writing). Employees performing agricultural labor tasks are exempt from these requirements. However, farms that have three or more employees on duty would need to provide breaks or negotiate a mutual understanding with workers who perform non-agricultural tasks.
Maine provides smaller farms several exemptions to carrying workers’ compensation. Even so, these farms must still secure some form of employers’ liability insurance for their employees.
Farms that have only seasonal or casual employees who engage in agriculture labor are exempt from having to secure workers’ compensation if the farm maintains at least: (1) $25,000 in employers’ liability insurance and (2) $5,000 in medical payments coverage. In this context, “casual” means infrequent or occasional and “seasonal” refers to workers who begin after the planting or seeding season and end at or before harvest.
In addition, a farm that either has six or fewer agricultural workers at a given time or has a weekly payroll total that does not exceed 240 hours at any time for 52 weeks do not have to secure workers’ compensation if the farm maintains at least: (1) $100,000 in employer’s liability insurance multiplied by the number of full time workers and (2) $5,000 in medical payments coverage.
Like the minimum wage exemption, the above workers’ compensation exemptions only apply to agricultural labor. Even if the farm meets the exemption threshold, it must at least carry workers’ compensation for any employee who engages in non-agricultural labor tasks.
Other exemptions to workers’ compensation in Maine include a sole proprietor, partner, and owners of LLCs. While such farm owners are exempt from carrying workers’ compensation for themselves, they still must carry it for their employees unless another exemption applies.
In addition, individuals owning 20% or more voting stock of a corporation may waive their benefits in workers’ compensation by filing an Application of Waiver with the Maine Workers’ Compensation Board. Parents, spouses or children of sole proprietors, partners, LLC owners, or corporate owners with 20% or more voting stock may also waive their workers’ compensation benefits by filing an Application of Waiver.
Farms in Maine have several options for securing workers’ compensation. They can purchase it from one of over 300 companies authorized to sell workers’ compensation in Maine. Cost and services vary considerably from company to company. Beginning farms with no record of claims experience or farms having difficulty obtaining workers’ compensation coverage can contact the Maine Employers’ Mutual Insurance Company (MEMIC). MEMIC is required to provide workers’ compensation coverage to employers who cannot obtain insurance elsewhere.
Alternatively, farms can obtain approval to self-insure individually or as a group. To do this, the farm would need to file an application with the Maine Bureau of Insurance, Self-Insurance Division. For information on self-insurance, contact the Self-Insurance Division at (207) 624-8475.
Overall, the cost of workers’ compensation is determined by several factors including the classification of the labor performed, the frequency of injuries by workers performing that labor, and the total dollar value of the business’ payroll, among other factors. For farm businesses that use only traditional employees and pay cash (not in-kind) wages, a quote is easy to come by. Farm businesses that pay wages in the form of food and lodging may have a harder time determining the value of their payroll and will need to work more closely with their insurance providers. Likewise, a farm seeking coverage for interns, volunteers, and other non-traditional employees may need to work closely with their insurance provider to ensure coverage is secured for all individuals performing work for the farm. Insurance rates may vary, so farms may want to contact several different authorized carriers to compare rates.
Farms may only hire individuals who are eligible to work in the United States. The employer satisfies the duty to verify eligibility by properly completing Form I-9 (for employees not hired through a worker program). This form is available from the U.S. Citizenship and Immigration Services agency. It is available online and instructions are included. The form is not submitted to the agency. Rather, the employer copies the necessary documentation and keeps the form on file.
The completed forms should be kept for the longer of the following: (1) three years after the worker began employment, or (2) one year after the worker leaves the position. The forms and documentation must be available if an enforcement agency inspects the farm.
Farms are required to withhold a percentage of an employee’s wages and remit the withheld portion to both the IRS and the Maine Department of Revenue.
A farm must begin withholding state and federal income taxes when either of the following happens: the farm pays a total of $2,500 or more in wages to all employees performing agricultural labor, or any individual employee performing farm labor receives cash wages of $150 or more per year. Most farms with an employee will have to withhold income taxes. Note too that this rule applies only for farm labor. Farms employing workers performing non-agriculture tasks must withhold state and federal income taxes once any wages are paid.
To begin the federal income tax withholding process, the farm needs a completed IRS Form W-4 from the employee. This form allows employees to choose the number of withholding exemptions. Form W-4 is not sent into an agency; it remains in the farm’s files. The farm then uses the tax tables in IRS Publication 15 (Employer’s Tax Guide) to determine the withholding amount per paycheck based on the individual’s pay, exemptions, and payment frequency.
Form W-4 and the Employer’s Tax Guide can be downloaded from the IRS website: https://www.irs.gov/. The farm must record the amount withheld and remit it to the IRS. The due date is dependent on the total tax owed. For most farms, the tax must be deposited monthly.
The IRS uses an online system, the Electronic Federal Tax Payment System (EFTPS), and deposits must be made electronically. Farms must register with the EFTPS system ahead of time as it can take a few days to receive the passwords. Registration can be completed at https://www.eftps.gov/eftps/.
To begin the withholding process in Maine, farms must create an online tax account with Maine Revenue Services (MRS). There is no fee to register with MRS. All new employees must complete form W-4ME, which can be downloaded on the MRS website. Farms must either file quarterly or semi-weekly withholding reports and an annual reconciliation report. The schedule will depend on the amount of Maine income tax withholding the farm reported the previous year. The annual reconciliation report is due by February 28. These reports must be electronically filed on Maine Revenue Services website using the I-file system for payroll taxes.
Several different methods are permitted for calculating how much state income tax to withhold. For more information, check the latest version of the publication Maine Withholding Tables for Individual Income Tax. The publication is updated each year and is available for download from the MRS website.
Most farms are required to withhold Social Security and Medicare taxes from the worker’s paycheck. The same rules apply as for withholding federal income tax: The obligation begins when the farm’s total payroll for employees exceeds $2,500 or an individual’s wages exceed $150 per year.
Where the amount of income tax to withhold is determined by using the IRS’s tables, Social Security and Medicare taxes are calculated as percentages of the employee’s wages for that pay period. The most recent percentages will be listed in IRS Publication 51 (Agricultural Employer’s Tax Guide). Currently, 6.2% of wages are withheld for Social Security and 1.45% for Medicare. Each time the employee receives a paycheck, a portion of the Social Security and Medicare taxes are withheld. This is then remitted to the IRS through the same EFTPS process used for remitting withheld income taxes.
The checklist item above explains that a portion of Social Security and Medicare taxes owed by the employee must be withheld from the employee’s paycheck.
This checklist item discusses the Social Security and Medicare taxes owed by the employer. These are two different taxes—the employee is taxed and the employer is taxed. The employee’s tax is deducted from wages. The employer’s tax is paid by the employer, and may not be deducted from wages. The taxes go to the same agency for the same ultimate purpose, but are separate.
The farm is taxed at the same threshold where the employee must be taxed. (See the $2,500 or $150 rule above.) Currently, the farm is taxed at the same rate as the employee, although this may change—6.2% of wages are withheld for Social Security and 1.45% for Medicare. The most recent percentage will be listed in IRS Publication 51 (Agricultural Employer’s Tax Guide).
Although the employee’s and employer’s shares of Social Security and Medicare taxes are technically separate, they are deposited at the same time through the IRS’s EFTPS process.
Farmers who work with a payroll service provider can escape the details of withholding and remitting taxes. Payroll service providers help employers determine which taxes are owed and assist in coordinating payment of the taxes. Farmers who can afford a payroll service may find it well worth the money.
Unemployment tax is paid by the farm and is not deducted from an employee’s wages. This tax contributes to a compensation fund available to individuals who have become unemployed. Most employers are required to pay unemployment tax immediately; however, farms are exempt until the operation reaches a certain size. Maine and the federal government follow the same rules for farms. When a farm owes unemployment tax to the federal government, the farm will also owe it to the state.
The farm must begin paying federal and state unemployment taxes when either of the following happens: (1) the farm pays wages of $20,000 or more to workers during any calendar quarter of the current or previous year; or (2) the farm employed 10 or more workers for any part of a day (even if not at the same time during the day) during any 20 or more weeks in the current or previous year. After a farm crosses either threshold, the farm must begin paying into federal and state funds.
The farm will pay federal unemployment tax on up to $7,000 of each employee’s wages. The tax is determined by percentage; the latest percentage is listed in IRS Publication 51. Federal unemployment tax is paid through the same EFTPS procedures as income withholding and Social Security/Medicare taxes.
The farm will pay Maine unemployment tax on up to the state’s current taxable wage base for the calendar year. The taxable wage base was $12,00 in 2018. Each year, the farm will receive a “Notice of Contribution Rate” (Form ME TAX-13). It explains how the individual rate for a calendar year was determined. There are a number of factors considered when computing an employer’s tax rate, such as the annual taxable wages of the employer, benefit charges, and contributions paid.
The Maine unemployment tax is paid by filing quarterly unemployment contributions. Businesses can file and pay unemployment contributions electronically on the ReEmployME portal (https://www.maine.giv/reemployme) or they can file the paper ME UC-1 form with the Maine Department of Labor. Quarterly Reports are due no later than 30 days after the end of a calendar quarter (i.e., April 30, July 31, October 31, and January 1).
Just as with minimum wage, overtime, and workers’ compensation, the rule above is for farms assigning farm labor to their employees. For non-farm enterprises (which may include diversified farms engaging in separate, non- agricultural enterprises, such as packing other farmers’ produce, hosting on-farm events and agri-tourism, and so on as discussed in the minimum wage section), farmers may need to follow the regular unemployment tax rules.
For non-farm businesses, federal and state unemployment tax is owed when either of the following happens: (1) the business has one or more employees during some portion of a day in 20 different calendar weeks in either the current or prior year (whether consecutive weeks or not); or (2) the business paid out $1,500 or more in gross wages during any calendar quarter of the current or previous year.
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