Paul Kerins: Working for the love of the family

Paul Kerins is an accounting and business advisory partner at Findex.

OPINION

I have come across many examples of family members returning to the family farm for any number of reasons and have stayed to continue working there.

This usually includes accommodation, and cash to fund living expenses and life. This means they are working as one labour unit for the entity, generating income, but the entity doesn’t get a deduction against that income earned because no actual wage has been paid.

This situation can lead to several issues regarding ACC cover, employment agreements, and taxation.

ACC levy

Regarding ACC levies, this family member doesn’t have any ACC cover because they are not being paid a wage.

Because this family member is not an employee, they are not benefiting from any ACC work cover. As an employee being paid a PAYE wage, the ACC levy is deducted from the wage and you are protected if anything were to happen to you at work, including providing up to 80 per cent of your weekly wage if needed. As we all know, accidents can be serious and sudden. Can this family member afford to have no income if something were to happen? Who else would be affected by this loss of income?

Employment agreement

Working in New Zealand means you have basic rights that ensure you are safe at work and that your employer treats you well. At the commencement of new employment, your employer is legally required to provide you with a signed employment agreement that outlines the terms and conditions of the role including minimum rights such as hours of work, salary or hourly rate, and leave entitlements. Setting out the terms of your employment before commencing the role can result in a better professional relationship and means both parties agree on the expectations. If the employer fails to provide a written agreement per employee, this could result in an infringement notice.

Taxation

The family member/labour unit that is working on the farm is generating farming income with the duties they are performing. Because no wages are being paid, no deduction can be claimed against this income. For example, if the farm is owned by a company, any income retained and taxed in the company pays taxes at 28¢ for every dollar. If we use $48,000 as the wage, tax on this is then $7420 and the company claims the wage deduction. But if the $48,000 is taxed in the company, this would cost $13,440. Overall, the family would have tax savings of $6020.

Any employee, whether they are a family member or not, should be paid a market salary for the job they are performing, be provided with an employment agreement, and have regular reviews with the employer regarding performance. This can result in a good working relationship between both parties. We all know finding and retaining good staff is not easy now, so look after what you have, and they will look after you. For further help and to contact an agribusiness financial specialist, find us at findex.co.nz