Farm Accounting Vol 104 - 105, Busing Russell
Relief milkers are used as a short-term solution on the farm when the normal milkers have taken leave or are sick. They provide an essential service and are available at short notice.
Relief milkers normally provide cover over a large area and work with many farmers. They seem to fall into two categories; professional relief milkers and those that provide a casual service to friends and neighbours.
When selecting a relief milker, farmers need to consider:
• Tax implications
• Insurance
• Health and safety
Tax
The tax treatment for relief milkers causes significant problems for farmers, as farmers generally require a relief milker at short notice. It can be hard to find a trustworthy and competent relief milker, and this may cause a farmer to feel pressured into paying cash wages. The correct tax treatment for a relief milker depends on whether the relief milker is operating as an employee or as a contractor.
Casual agricultural employees are people engaged to do casual seasonal agricultural work on a day-to-day basis for up to three months. They are taxed through the PAYE system at a flat tax rate using the tax code 'CAE'. As the majority of relief milkers are generally an employee, the farmer is required to deduct PAYE using the CAE tax code with PAYE deducted at a flat tax rate. The employee is required to complete an IR 330 showing CAE as the tax code.
If the relief milker is a contractor, the payments received are subject to withholding tax. The definition of Agricultural contractors includes workers contracted for maintenance, development or any other work on farming or agricultural land. The fact that a person or business is GST registered for GST makes no difference. Agricultural contractors are required to provide the farmer with a current Certificate of Exemption (IR 331) to avoid having withholding tax deducted at a rate of 15%.
When completing an IR348 Employer Monthly Schedule, the farmer should use the 'WT' tax code for a worker receiving a schedular payment. The cash payments create an issue for farmers as the farmer must pay tax for the relief milker. Failure to do so exposes the farmer to penalties. Possible penalties could include:
• Having to gross up the wages payment for PAYE at the 'no disclosure' rate
• Late payment penalties
• IRD use of money interest
• ACC Levies, plus any penalties and interest for late payment
• Tax penalties imposed by IRD
• Possible prosecution by IRD for failure to deduct and return PAYE
Certificates of Exemption From Withholding Tax
Relief milkers and other agricultural contractors can apply for a Certificate of Exemption from withholding tax if they meet the following criteria:
• Are engaged in business
• Receive schedular payments that are subject to a prescribed rate of tax under Schedule 4 of the Income Tax Act 2007
• Have a good tax compliance history with the IRD Individuals, Trusts, partnerships and companies are eligible to apply for a Certificate of Exemption.
If a contractor has this exemption, they can receive payments without having withholding tax deducted. The certificate does not provide an exemption from PAYE deductions from an employee's salary or wages. These certificates need to be renewed annually.
Insurance
Farmers should check that both they and the relief milkers have appropriate insurance policies to cover damages or loss of income caused by the relief milkers. Possible areas of risk include milk spoilage, damage to machinery and public liability. Given that the farm owner is generally off-farm when the relief milker is employed, it may take some time for the owner to be notified of any damages or losses. This makes insurance a necessity.
Health and Safety
Farmers need to ensure they are following the requirements of the Health and Safety at Work Act 2015 (HSWA). Under this Act, business officers have a duty of due diligence to ensure that the business understands and manages its health and safety risks.
These duties include the following:
• Have relevant and updated knowledge of workplace health and safety
• Understand the nature of the business and its operations, and its health and safety risks
• Ensure that the business has appropriate resources and processes to eliminate or minimise risks • Ensure that the business has processes for reviewing, considering and responding to risks and hazards.
Under HSWA, a person conducting a business or undertaking (PCBU) must look after the health and safety of its workers and any other workers it influences or directs. The business or undertaking is also responsible for the health and safety of other people at risk from its work, including customers, visitors or the general public. This is called the 'primary duty of care'. The term 'workers' is a broad definition and includes employees, contractors and sub contractors.
From a practical point of view, farmers should take the time to ensure that relief milkers are shown the appropriate areas of the farm and dairy shed, and advised of any risks and hazards. As all farms are different, farmers should take the relief milker through the milking plant's procedures, provide a farm map showing hazards and check that they are proficient in using any plant and machinery. Accountants should be recommending to all farming clients that they have appropriated written health and safety policies.
Relief milkers normally provide cover over a large area and work with many farmers. They seem to fall into two categories; professional relief milkers and those that provide a casual service to friends and neighbours.
When selecting a relief milker, farmers need to consider:
• Tax implications
• Insurance
• Health and safety
Tax
The tax treatment for relief milkers causes significant problems for farmers, as farmers generally require a relief milker at short notice. It can be hard to find a trustworthy and competent relief milker, and this may cause a farmer to feel pressured into paying cash wages. The correct tax treatment for a relief milker depends on whether the relief milker is operating as an employee or as a contractor.
Casual agricultural employees are people engaged to do casual seasonal agricultural work on a day-to-day basis for up to three months. They are taxed through the PAYE system at a flat tax rate using the tax code 'CAE'. As the majority of relief milkers are generally an employee, the farmer is required to deduct PAYE using the CAE tax code with PAYE deducted at a flat tax rate. The employee is required to complete an IR 330 showing CAE as the tax code.
If the relief milker is a contractor, the payments received are subject to withholding tax. The definition of Agricultural contractors includes workers contracted for maintenance, development or any other work on farming or agricultural land. The fact that a person or business is GST registered for GST makes no difference. Agricultural contractors are required to provide the farmer with a current Certificate of Exemption (IR 331) to avoid having withholding tax deducted at a rate of 15%.
When completing an IR348 Employer Monthly Schedule, the farmer should use the 'WT' tax code for a worker receiving a schedular payment. The cash payments create an issue for farmers as the farmer must pay tax for the relief milker. Failure to do so exposes the farmer to penalties. Possible penalties could include:
• Having to gross up the wages payment for PAYE at the 'no disclosure' rate
• Late payment penalties
• IRD use of money interest
• ACC Levies, plus any penalties and interest for late payment
• Tax penalties imposed by IRD
• Possible prosecution by IRD for failure to deduct and return PAYE
Certificates of Exemption From Withholding Tax
Relief milkers and other agricultural contractors can apply for a Certificate of Exemption from withholding tax if they meet the following criteria:
• Are engaged in business
• Receive schedular payments that are subject to a prescribed rate of tax under Schedule 4 of the Income Tax Act 2007
• Have a good tax compliance history with the IRD Individuals, Trusts, partnerships and companies are eligible to apply for a Certificate of Exemption.
If a contractor has this exemption, they can receive payments without having withholding tax deducted. The certificate does not provide an exemption from PAYE deductions from an employee's salary or wages. These certificates need to be renewed annually.
Insurance
Farmers should check that both they and the relief milkers have appropriate insurance policies to cover damages or loss of income caused by the relief milkers. Possible areas of risk include milk spoilage, damage to machinery and public liability. Given that the farm owner is generally off-farm when the relief milker is employed, it may take some time for the owner to be notified of any damages or losses. This makes insurance a necessity.
Health and Safety
Farmers need to ensure they are following the requirements of the Health and Safety at Work Act 2015 (HSWA). Under this Act, business officers have a duty of due diligence to ensure that the business understands and manages its health and safety risks.
These duties include the following:
• Have relevant and updated knowledge of workplace health and safety
• Understand the nature of the business and its operations, and its health and safety risks
• Ensure that the business has appropriate resources and processes to eliminate or minimise risks • Ensure that the business has processes for reviewing, considering and responding to risks and hazards.
Under HSWA, a person conducting a business or undertaking (PCBU) must look after the health and safety of its workers and any other workers it influences or directs. The business or undertaking is also responsible for the health and safety of other people at risk from its work, including customers, visitors or the general public. This is called the 'primary duty of care'. The term 'workers' is a broad definition and includes employees, contractors and sub contractors.
From a practical point of view, farmers should take the time to ensure that relief milkers are shown the appropriate areas of the farm and dairy shed, and advised of any risks and hazards. As all farms are different, farmers should take the relief milker through the milking plant's procedures, provide a farm map showing hazards and check that they are proficient in using any plant and machinery. Accountants should be recommending to all farming clients that they have appropriated written health and safety policies.
