Paying farm kids

Last month, I told you all about my ongoing foray into the world of finances, taxes and accounting. Tonight, as I sat down at our desk to write up this month’s story, in front of the keyboard was a stack of time sheets and a shiny folder from our local bank. I’m not behind on payroll, or at least not for the employees I’m not related to. They all get their hours added up and checks written the first and 15th of each month. These time sheets are from our kids. Finishing up adding up hours and getting them paid is next on my list, I swear.

In the past, we paid the kids with commodity wages by giving them a calf or cow to sell in their name at the sales barn every now and then. If you’re not familiar with that IRS loophole, you can pay an employee in commodities and avoid having to withhold payroll taxes. At this point, I should make some kind of legal-sounding disclaimer that I am in no way a tax professional, and you should probably ask a CPA if you plan to apply anything I mention in this article to your business.

That said, you have been warned. Paying the kids in calves is both a good way to reward them for their hard work on the farm as well as familiarize them with the variable nature of pay in the agricultural industry. Some years, you may get $700 for a day-old Holstein bull calf, and some years, you almost have to pay someone to take a month-old Jersey calf. The kids come to the barn six mornings a week to help finish morning chores, for which they will continue to receive calves and cull cows as compensation. They are now doing much more on the farm, and even with the high price of calves this year, it’s time to start writing them checks.

When Emily and I joined the farm, Dad and I formed a limited liability company to transfer ownership of operational assets and to split the land off from the operational part of the farm. Because I don’t own 100% of the LLC shares, I can’t pay the kids directly from the farm without us and them paying payroll taxes unnecessarily. Unless the place they work for is a sole proprietorship owned by a parent, the business will have to withhold federal payroll tax. This is why there is a shiny folder from New Market Bank next to the timesheets. We formed a sole proprietorship that our kids will work for and opened a business checking account. Our new family business will provide casual labor for such tasks as calf feeding, milking and fieldwork, which will be billed to the LLC. I’ll put the money in the checking account, then I’ll write out checks to the kids for their hours worked. We need to negotiate wage rates and their employment contract, which I hope will be a fun learning lesson for them in conducting business.

The next thing to do with the kids is set them up with Roth individual retirement accounts to invest their hard-earned wealth in. They may be a long way from worrying about how much money they have set aside for retirement, but the sooner they start investing their money, the less they’ll have to put away every month later on in life, thanks to compounding growth and a whole lot of years to do it. They can also pull money out of a Roth IRA for college or a home purchase, if they so choose. Otherwise, it will sit there, growing tax free, until they need it when they retire someday.

The part of getting paid more that they are less excited about is that we will be asking them to pay for more of their expenses, such as clothes and activities. A bed and food are complimentary, but registering for a rock climbing competition or going to a summer camp are options they can now decide whether they value enough to write the check for them. Hopefully, making these hard decisions will prepare them for the many tradeoffs they’ll be analyzing soon when they leave home and maybe return or find their own passions to pursue.

Until next time, keep living the dream, and don’t forget to pay yourself. Sometimes, that’s the hardest check to write at the end of the month.

Tim Zweber farms with his wife, Emily, their three children and his parents, Jon and Lisa, near Elko, Minnesota.