August 25, 2017

Agricultural Services and the Indiana Unemployment Compensation Act: When is an Agribusiness not an Agribusiness?

Written By

John P. Broadhead
Member, Stoll Keenon Ogden PLLC

An Indiana Court of Appeals case highlights the need for Indiana agribusinesses to be careful when determining whether their employees fall within the Indiana unemployment compensation system. The case is C. Subah Packer vs. The Indiana Department of Workforce development.

As a general rule, services performed by an individual in agricultural labor do not require the employer to contribute to the Indiana unemployment compensation system, and the employee is not entitled to unemployment compensation in the event of termination of employment.  Agricultural labor includes services performed on a farm involving raising and cultivation of crops and raising and caring for livestock.

There are statutory exceptions to this rule.  If the employer, even though a farmer hiring employees engaged in agricultural labor (1) has paid wages to employees engaged in agricultural labor in an amount in excess of $20,000 during any one quarter of the current or preceding calendar year, or (2) has employed 10 or more individuals in agricultural labor for some part of a day in each of 20 different calendar weeks in either the current or the immediately preceding calendar year, then the exemption from the unemployment compensation system does not apply.

The recent case illustrates another exception.  It involved an employer who operated a horse farm with the primary business of raising, caring for and training horses. But the horse farm also boarded horses for others and gave riding lessons.  The employer assumed the exemption from the unemployment compensation system applied to all of its employees’ activities.

A terminated employee filed a claim for unemployment. This triggered an audit by the Indiana Department of Workforce Development, which administers the Act.  The Department found that the services rendered by the employees related to boarding of horses and riding lessons were not for agricultural labor. But the Department went further.  It also found that the employer did not keep records of time and wages for agricultural labor services specific from time and wages for boarding horses and teaching riding lessons. Without adequate records to divide the labor, the Indiana Department ruled that all wages were subject to the Unemployment Compensation Act.  The Indiana Department assessed the employer with liability for unemployment compensation not remitted in prior years, plus interest and penalties.  The decision of the Department was sustained by the Indiana Court of Appeals.

Accordingly, it is important for Indiana agribusinesses to carefully assess their business activities and determine whether there are any portions of the business that do not qualify as “agricultural labor” under the Act.  If so, the employer will be liable for contributions to the unemployment compensation system for those services that do not constitute agricultural labor and will need to keep separate payroll records for those services.  This may be of particular interest to Indiana agribusinesses who are “crossing over” into agriculture-related businesses, such as agritourism businesses, or who operate a companion business such as an excavation business or a trucking business.

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