Employee compensation

[buckfarmer]

I would like to offer some sort of profit sharing as a alternative to a raise for the one part time(20 hrs/ week) employee I have. He is 21 years old and still lives with his parents. I pay him $12 per hour. There are not to many opportunities for him in our area. If he could get some experience in a factory maintenance setting he could make twice what I'm paying him. We talked about doing some kind of profit sharing but have not set anything up yet. For years I have worked of the farm wich alowed me to reinvest everything into the farm. Therfore I don't show any profit at the end of the year. My question is what would be a good way to pay some sort of profit sharing to him.

[farm160]

After paying the fair wages you could do a % of grain produced, or X bushels as an incentive to stay with you through harvest.  Or if you raise livestock, perhaps give him X # of head if he creates a certain level of efficiency in production.  Typically the bonus or added compensation should be something the employee has control over. 

But I'm curious how you're able to not show a profit.  To be considered a trade or business entity and have expenses that are deductible for IRS purposes you must show a profit in 3 of the past 5 years; otherwise it's considered a hobby activity.  In an audit situation you must show a profit motive.  If you're reinvesting in assets for the farm, wouldn't you need to show a profit to enable purchase of the items?   If you're only reinvesting in deductible expenses in order to not show any profit then you're not meeting the profit motive. http://www.agecon.purdue.edu/extension/pubs/faq/FAQ_14.pdf

Maybe somebody else can address this part further.

[R John]

Keep it simple. Simply start an IRA for him, preferably a Roth. Or give him an acre or two of the crop or something such as that. Don't make it any more complicated than necessary.

[buckfarmer]

Was thinking Something like $.05 -.10 per bushel anyone know of a down side to do something like this. Btw thanks for that tax link. May have to start buying pickup trucks and ATVs that are not deductible instead of tile and bins. Then I'll have to show a profit and pay more taxes. Every other year or so I ask my tax guy about that. He never seems concerned. Just quit my well paying factory job to be a stay at home dad being supported by my architect wife. Sure seems like we have paid more than our share of taxes the past several years.

[Kay/NC]

I think h\you have to be really careful with paying bonuses for anything other than things he can directly affect with his work performance.  For example, if you tell him you are giving him so much per bushel, then suffer a drought, which is totally beyond his control, then the incenctive promised evaporates, and his morale suffers. 

I also have a problem with paying someone "extra' for doing things he simply ought to do anyway.  Parents screw up all the imte by paying kids for good grades and respectable behavior.  A kid should so his or her best in school and behave.  Corollaries for an employee are showing up on time, being responsible with equipment, etc. 

Maybe offer him a few extra hours regularly each week, at his rate of pay, for coming up with chores of his own design...maybe the farm shop needs a good cleaning, or a shed needs a paint job.  With the off-farm employment for both you and your wife, there simply has to be stuff that he could do, to help you to have more time to relax when you are home, more time to enjoy your family. 

[Kay/NC]

I made some comments below, but here's a different tack:  Why not offer to pay his tuition  to community college, where he could learn that higher-paying skillset?  The workload you describe allows for a fulltime student, at least one carrying a minimum load. 

Attach a minimum GPA condition to your continuation of this support.  Let him apply for Pell grants and such for his books and other expenses.  If he's got any gumption, it might be a good idea.  If he's a good guy, you want him to advance himself in life. 

Just a thought. 

[Kay/NC]

Reimbursement for higher educaiton or technical training is a typical employee benefit at many companies. 

Our daughter who passed away in May had earned $3500 a year for her good schoolwork, by working at Home Depot parttime her junior and senior years.  It required a C average, or they didn't  reimburse for any course with a grade lower than a C, I cannot remember which.  I think it was the latter.  She had to submit a copy of her semester grade report. 

You might ask someone with such a plan how it works out.  The costs might be deductible as employee training, but ask your accountant.  Good idea for him to learn CPR and such.  Depending upon his desires, he may end up in a career like firefighting or EMS, which allows for a lot of off days each week, and may allow him to continue working for you parttime down the road. 

You may get him to apply for grants or student loans, and then reimburse, I suppose.  In community college, the tuition is usually so low, you might consider just paying straight up.  Books are still a B, though.  Again, ask your accountant.