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Wage and Withholding Considerations

Wage and Hour Laws: Minimum Wage

Who must comply?
Labor on a farm is exempt from Pennsylvania's minimum-wage laws. Seasonal farm workers, however, are to be paid at least the statutory minimum wage or a piece rate equivalent to it.

Agriculture is exempt from federal and Pennsylvania overtime requirements. Federal minimum-wage laws do apply to those farmers who hired over 500 work-days of labor in a calendar quarter of the preceding year. A work-day is as little as one person putting in one hour of work on any given day.

For example, an employer who employs seven people to work at least 1 hour per day for 5 days in a given week has generated 35 work days for that week. If these seven workers work 5 days a week for the full 13-week calendar quarter, then the employer has generated 455 work days during the calendar quarter. Employers who hire many workers to work only short periods should note there are many ways to generate more than 500 work days in a calendar quarter. For example, 50 workers employed to work at least 1 hour a day for 12 days will generate 600 work days in the calendar quarter when the work is performed.

If a farm retail outlet sells only the farm's own produce, the above minimum-wage test and the overtime exemption apply. Such a retail store is part of agriculture.

An employee is employed in agriculture if the employee's duties involve activities that fall within either the primary or secondary meaning of agriculture. Under the primary meaning agriculture includes farming, and all of its branches, whether that involves cultivating and tilling the soil; dairying; the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities; and the raising of livestock, bees, fur-bearing animals, or poultry.

The secondary meaning of agriculture is broader than the primary meaning. It includes any practices, whether or not they are themselves farming practices, which are performed either by a farmer or on a farm as an incident to or in conjunction with a farming operation, which includes forestry or lumbering. Persons who are not employed in farming, or by a farmer, or on a farm are not considered to be employed in farming.

To come within the secondary meaning of agriculture, a practice must be performed either by a farmer or on a farm. It must be performed either in connection with the farmer's own operations or in connection with farming operations conducted on the farm where the practice is performed. In addition, the practice must be performed as an incident to or in conjunction with farming operations. Performance on a farm of any practice that may be incidental to farming operations will not constitute agriculture if the practice is performed upon any commodities that have been produced elsewhere than on such farm. With respect to all practices that are performed on products, such as packing, storing, or selling at retail, and for which an agricultural exemption is sought, the practices must be performed only on the products produced or raised by the particular farmer or on the particular farm.

2007–2009 Federal and State Minimum Wage Provisions
Federal Minimum Wage Rates in General
The federal minimum wage for covered nonexempt employees is $5.85 per hour, effective July 24, 2007; $6.55 per hour effective, July 24, 2008; and $7.25 per hour, effective July 24, 2009. Where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate.

Limited Federal Wage Rates for Employees under Age 20
A federal minimum wage of not less than $4.25 may be paid to employees under the age of 20 for their first 90 consecutive calendar days of employment with any employer as long as their work does not displace other workers. After 90 consecutive days of employment, or when the worker reaches age 20 (whichever comes first), the worker must receive at least the federal minimum wage.

Pennsylvania Minimum Wage Rates in General
The Pennsylvania minimum wage is $7.15 per hour effective July 1, 2007.

Special Pennsylvania Wage Rate for Employers of 10 or Fewer Full-Time-Equivalent Employees
Employers with the equivalent of 10 or fewer full-time employees calculated on a 40-hour week can follow a different rate schedule. An employer who has an employee complement composed of the equivalent of 10 or fewer full-time employees may use the following minimum wage implementation schedule until July 1, 2008. This calculation is based on a 40-hour workweek.

The schedule for increasing the minimum wage from $5.15 per hour for smaller employers is as follows:
• To $5.65 per hour, effective January 1, 2007
• To $6.65 per hour, effective July 1, 2007
• To $7.15 per hour (the regular Pennsylvania minimum wage), effective July 1, 2008
• To $7.25 per hour (the federal mandated minimum wage), effective July 24, 2009

The equivalent of 10 or fewer full-time employees is calculated on a 40-hour workweek. A workweek is a period of seven consecutive days starting on any day selected by the employer. For example, four part-time employees who each worked 20 hours for a total of 80 hours in a workweek (4 x 20 hours) would be the equivalent of two full-time employees. Where the total employee complement hours worked in any workweek exceeds 400 hours, the employer is not eligible for the modified minimum wage implementation schedule. For example, five full-time employees and eight part-time employees (who worked 30 hours each during a workweek) would not qualify for this small business minimum wage (5 x 40 hours + 8 x 30 hours = 440 hours).

A complement of employees includes all employees, managers, supervisors, officers, and similar individuals employed by an employer. The owner is not considered an employee.

In calculating whether a business is a “small business,” an employer is not limited to one business location. In other words, an employer owning several business locations must calculate the number of hours of all the employees working for the employer at all locations.

Limited Pennsylvania Training Wage Rates for Employees under Age 20
Under Pennsylvania minimum wage law, a 60-day training wage may be paid to employees under 20 years old, effective January 1, 2007. This wage is $5.85 per hour. Employers do not have to meet any training requirements to pay an eligible youth this training wage. Eligible employees may be paid the training wage up to the day before the employee’s twentieth birthday or 60 days, whichever occurs first. On and after the employee’s twentieth birthday, pay must be raised to the regular Pennsylvania minimum wage even if the 60-day period has not expired. Should federal minimum wages increase, then the same increase will occur in the Pennsylvania training wage for youths as follows:

• $5.85 per hour, effective July 24, 2007
• $6.55 per hour, effective July 24, 2008

Youth under 20 years of age may be paid the training wage for up to 60 consecutive calendar days after initial employment with any employer, not just the first employer. The fact that an eligible youth may be employed at the same time by more than one employer (unrelated to each other) does not affect either employer’s right to pay the training wage. The 60-day period starts on the first day of work. The 60-day period is counted as consecutive days on the calendar, not as days worked or business days. A break in employment (e.g., vacation, school year) does not affect the calculation of the 60-day period of eligibility and does not allow the employer to “restart” the 60-day period.

An employee may be “initially employed” only once by any one employer even if there are breaks in employment. Employers must notify these employees at the time of hire of this wage and their right to receive the regular Pennsylvania minimum wage after 60 calendar days. Current employees may not be displaced, have their hours reduced, or have their wages or employment benefits reduced to allow hiring of persons eligible for the training wage.

For more information
Write or call the nearest office of the U.S. Department of Labor.

Pennsylvania Wage Payment and Collection Law

Caution: Employers should note that several provisions of the Wage Payment and Collection Law are superseded by other laws, particularly the Pennsylvania Seasonal Farm Labor Act. Before making important decisions or taking other action, employers should carefully review both acts.

Who is covered?
Every person, firm, partnership, association, corporation, or receiver and any agent of any of the previously mentioned classes who employs any person in the Commonwealth.

What is meant by "wages"?
"Wages" includes all earnings of an employee, regardless of whether determined on time, task, piece, commission, or other method of calculation. The term also includes fringe benefits or wage supplements, whether payable by the employer from his or her funds or from amounts withheld from the employee's pay by the employer.

What does the act require?

• Every employer is required to pay all wages on regular paydays designated in advance by the employer. If this period is not designated in a written contract of employment, the pay period should reflect the standard period that is customary in the trade, or be every 15 days. Every employer is required to notify his or her employees at the time of hiring of the time and place of payment, the rate of pay, and the amount of any fringe benefits or wage supplements to be paid to the employee. If changes in these payments occur, the employer is to notify the employee of these changes before they are effective. This requirement can be met by posting the required information in a conspicuous place at the employer's place of business.
• Wages are to be paid in cash or check.
• When an employee separates, quits, or resigns, wages or compensation earned are due and payable at the next regular payday. If requested by the employee, this payment must be made by certified mail.
  

All employers must make their payroll records and other employment records available for inspection by the Department of Labor and Industry.

Who enforces the act?
The Secretary of Labor and Industry has the duty to enforce this act and investigate complaints of violations. The Secretary's right is not exclusive, however, and employees, labor organizations, or parties to whom the wages are payable may initiate legal actions to enforce the terms of this law.

Penalties or sanctions an employer faces for violating the act
An employer who violates this law may be liable for a penalty of 10 percent of the unpaid wages or compensation found to be due an employee. In addition, a court involved in deciding a question of violation of the act may award the parties who bring the action costs of their reasonable attorney's fees.

Withholding Income, Social Security, and Medicare Taxes

Who must comply?
Farmers whose total payment for agricultural labor provided by all employees is more than $2500, or who pay an individual employee more than $150 in cash wages during the year, must withhold income, Social Security, and Medicare taxes.

Wages paid to a child aged 18 to 21 years by a parent-employer, and wages paid to a spouse by his or her spouse-employer, are considered wages for Social Security purposes.

Wages paid to employees are exempt from income and Social Security withholding if the employee meets all of the following requirements:

• earns less than $150 from an agricultural employer
• is employed as a hand-harvest laborer
• is paid on a piece-rate basis
• commutes daily from his or her permanent residence
•  is employed in agriculture less than 13 weeks during the preceding calendar year
  

Wages paid to employees meeting these requirements, although exempt from Social Security, are still counted toward the $2,500 amount by which coverage is determined for other employees who do not qualify for this exemption.

Cost to the employer
Employers who are required to withhold income taxes from their employees should refer to the tax withholding tables found in Circular E, the Employer's Tax Guide, published by the Internal Revenue Service (IRS). These tables will enable the employer to calculate the correct amount of tax to be withheld.

For Social Security purposes, an employer in 2006 withheld 6.2 percent of an employee's gross wages, matched that amount, and deposited the total amount of 12.4 percent with an authorized bank. The maximum amount of wages to which the Social Security withholding and employer tax rates applied was $94,200 in 2006. This amount, known as the wage base, is subject to change as average wage levels change. In addition, a Medicare tax of 1.45 percent of an employee's gross wages was imposed on an employee and employer in 2006 for a total tax of 2.9 percent. This tax applied to the full amount of an employee's wages.

For more information
Contact your local IRS or Social Security office.

Unemployment Compensation: Federal

Who must comply?
Agricultural employers are subject to the Federal Unemployment Tax Act (FUTA), if they meet either of two tests:

1. Total cash wages paid were $20,000 or more in any calendar quarter during the current or preceding year, or
2. Ten or more farm workers were employed at least part of one day during 20 different calendar weeks of the current or preceding year.
   
   For example, if an employer had 10 people employed for 1 hour on any single day, that week would be counted as one of the 20 weeks. Family members and children under the age of 21 are not included in the wage determination or in counting the number of farm workers. Also, wages paid to alien workers are not subject to FUTA tax but are included in the wage test.

Cost to the employer
The FUTA tax rate is 6.0 percent of the first $7,000 of wages paid. Employers also subject to Pennsylvania Unemployment Compensation are eligible for a reduction of up to 5.4 percent, resulting in a net liability of 0.8 percent.

Tax deposits and forms
Taxes must be deposited in a Federal Reserve Bank or authorized financial institution within one month following the close of a quarter when liability exceeds $100. Amounts less than $100 are carried to the next quarter. Deposits are made on Federal Tax Deposit Coupons.

An annual return, Form 940, or Form 940-EC Employer's Annual Federal Unemployment Tax Return must be filed by January 31, following the close of a calendar year. Any tax due is payable with the form. If no tax is due, forms must be filed by February 10. Form 940 must be filed on a calendar-year basis even if your farm operates on a fiscal-year basis.

Unemployment Compensation: State

Who must comply?
Employer eligibility rules for Pennsylvania Unemployment Compensation are the same as for FUTA, except for two areas. FUTA taxes exempt the wages of children under the age of 21. Pennsylvania rules exempt the wages only of children under the age of 18. It is possible for an employer to be subject to Pennsylvania Unemployment Compensation, but exempt from FUTA. The wage base for Pennsylvania Unemployment Compensation is $8,000, compared to $7,000 for FUTA.

Cost to the employer
Contribution rates for employers vary. Beginning rates are 3.5 percent. Rates change after the employer establishes a payment record. At that time, rates are determined by several components. Currently, contribution rates vary from 2 to 9.7 percent on the first $8,000 of taxable wages. These rates are subject to periodic adjustments.

Tax deposits and forms
Form UC-2 and 2a is filed quarterly on or before the last day of the month following the close of the calendar quarter.

For more information
Contact your local office of the Pennsylvania State Job Service.