TN 13 (07-09)
RS 01401.120 Agricultural Wages
A. General policy for SSA Ruling 95-3P
SSA Ruling 95-3P, Transactions Involving Noncash Transfers for Agricultural Labor, changed the way certain transactions involving noncash transfers for agricultural labor are treated by SSA for wage purposes. Prior to the ruling, SSA excluded noncash transfers from wages. Effective August 7, 1995, certain noncash transfers are wages under Section 209(a) of the Act. The noncash remuneration now treated as wages and referred to as in-kind payments, includes lodging, food, clothing, agricultural or horticultural commodities such as livestock, grain, milk products, and other noncash items.
Some employers provide cash or credit for food, clothing, etc., and later deduct the amount from the farmworker's share of the net proceeds of the commodity. In this situation, the farmworker's cash wages for the year are his or her share of the net proceeds before reduction for the amount owed.
1. Beginning 1988
Cash payments are wages if:
the employer paid $2,500 or more for agricultural labor in a year; or
the employer paid less than $2,500 in a year, but the employee was paid $150 or more.
EXCEPTION: The $2,500 a year test does not apply to certain seasonal agricultural workers. For instructions on Seasonal Agricultural Labor, see RS 01402.025.
2. 1957 through 1987
Cash payments of $150 or more in a calendar year are wages.
Cash payments of less than $150 are wages if the employee worked for the employer for 20 or more days during the year and the cash payment was computed on a time basis.
3. 1955 through 1956
Cash payments of $100 or more in a calendar year by the employer are wages.
4. 1951 through 1954
Cash payments of $50 or more in any calendar quarter of regular employment are wages. Prior to 1951, agricultural labor was excluded from coverage.
B. Policy for principal farm employee
The wage status of cash payments made to a principal employee who hires an additional employee depends on whether the principal employee has the authority to hire on behalf of the employer.
1. Principal employee has authority to hire
The principal employee's wages are the difference of what the employer pays the principal employee and what the principal employee pays the additional employee.
2. Principal employee does not have authority to hire
The worker is considered an employee of the principal employee and employer payments are the principal employee's wages.
NOTE: In both instances, cash wages paid by the principal employee to the worker are wages for the worker under the cash-pay rules in RS 01401.120A.1.- RS 01401.120A.4. (In this section)
C. Policy for determination of in-kind payments
The agreement or understanding (verbal or written) between the farm operator and the employee is a deciding factor in determining whether the payment represents payment-in-kind or cash wages. When payment-in-kind is involved, you need to determine if it is readily convertible to cash and, therefore, considered cash wages.
When a noncash transfer occurs, it is wages when all the following conditions are present:
1. Employer and employee relationship
A bona fide employer/employee relationship must exist.
If no employment relationship exists, there are no wages. To determine whether an employer/employee relationship exists, see RS 02101.020.
2. In-kind payment equivalent to cash
The in-kind payment must be equivalent to cash. Although Section 209(a) (7) (A) of the Act excludes from the definition of wages remuneration paid in any medium other than cash for agricultural labor, if a bona fide transfer of the noncash medium from the employer to the employee has not occurred and the transaction is, in economic reality, equivalent to a payment in cash, the wage exclusion does not apply.
3. Employers’ dominion and control over noncash item
The employer must exercise dominion and control over the noncash item.
In determining whether the transaction involving a noncash medium is, in economic reality, a payment in cash, SSA will consider the extent to which the employer exercises dominion and control over the noncash item. The following are things to consider:
Has the employer transferred a readily identifiable portion of an item?
Does documentation of the transfer exist?
What is the length of time between the receipt of the item by the employee and the sale of the item?
Does the employee negotiate the subsequent sale of the item?
Does the risk of gain or loss shift to the employee?
Does the employee bear costs incident to ownership of the item, e.g., storage, feeding, or maintenance costs?
D. Procedure for development of in-kind payments
Review the following kinds of evidence:
Documentation of the existence of an employer/employee relationship;
Information concerning the terms of the agreement; and
Evidence of the transfer of commodities.
Obtain written evidence such as receipts, contracts, bills of sale, or any other documentation that supports the determination of in-kind payments.
Example 1: A farm operator agrees to give an employee 30 head of cattle for services performed on the farm. The farm operator sells 100 head of cattle to a commodity purchaser. The commodity purchaser gives the farm operator a check for 70 head of cattle and the employee a check for 30 head of cattle. These facts indicate that the cash proceeds from the sale are wages because the employee did not exercise dominion and control over the cattle.
Example 2: A farm operator pays an employee $50 a month plus 10 head of cattle per month for services performed on the farm. The employee pays the farmer rent to maintain the cattle on the farm property in an area separate from the farm operator's livestock. The employee assumes the costs of feeding, maintaining, and transferring the cattle to the market for sale. The employee is paid directly by the commodity purchaser for the cattle. These facts indicate that the commodity payments are not wages because the employee exercises dominion and control over the cattle subsequent to receipt and bears the cost incident to ownership of the cattle.
Example 3: An employment agreement provides that a farmer will compensate his wife in cash wages of $100 per month and transfer 100 head of cattle each year. The wife's cattle are raised and maintained with the husband's cattle. Under the employment agreement, the farmer delivers the cattle to a market location agreed upon by the wife and at the market transfers ownership to the wife. The wife's cattle were not distinguishable or readily identifiable from the other cattle taken to market. The wife receives a check directly from the market for the cattle. Since the sale of the cattle occurs almost simultaneously with their delivery to the wife, these facts indicate that the in-kind transfer is, in substance, equivalent to a cash payment and therefore wages for Social Security purposes.