Getting Started

Bonuses and pay raises are powerful tools for motivating employees, increasing morale, and creating a positive workplace. When set up properly, they can be a win-win for the farm and employees. Bonuses and pay raises can also be tied to the farm’s goals and successes. Employees feel appreciated, which can inspire them to work hard and stay on the team. Most employees highly value the additional cash that they can freely spend.

While it sounds simple, it’s not always that straightforward. Farm employees often express frustration and resentment when their expectations for bonuses or pay raises are unmet. Perhaps misunderstandings or disputes arise over whether the criteria were fulfilled or whether promises were made in the first place. Or, unforeseen factors like a tough season or budget constraints get in the way of employees receiving the extra pay.

There’s a lot at stake. When expectations around bonuses and raises are unclear or unmet, farmers risk disappointing employees, damaging their reputation for future recruitment, or even facing legal disputes.

With careful planning and communication, these negative outcomes can be prevented.

The Basics

What is a bonus? A bonus is a one-time reward, typically given for a specific performance or achievement, like completing a project, meeting a target, or finishing a season. Bonuses are separate from an employee’s regular pay and do not affect their base salary.

What is a pay raise? A pay raise is a fixed increase in an employee’s regular salary, often tied to long-term performance, additional responsibilities, or staying with the farm. Unlike bonuses, pay raises affect future pay periods as they become the new baseline salary.

Ultimately, it’s up to the farm operation to decide why and when to give employees bonuses or raises. Careful attention to detail can prevent confusion and disappointment. Continue reading to learn what’s essential for each.

At-A-Glance Comparison Chart of Bonuses and Pay Raises

Bonuses

Aligning bonuses with farm goals

There are countless reasons to give farm employees a bonus. Bonuses that are aligned with the farm’s objectives can be most beneficial. Think about what is essential to your operation, then design bonus criteria that encourage employees’ actions to meet those goals. Consider the following examples:

●     Health and safety: Offer bonuses for having an injury-free month, quarter, or season.

●     Punctuality and extra work: Offer bonuses for consistently arriving on time or taking extra shifts at the farmers’ market or during peak seasons.

●     Complete a special project: Offer bonuses to employees who complete tasks outside their usual responsibilities, like installing an irrigation system or repairing a fence.

●     Reach milestones: Offer bonuses for working a full season (e.g., from planting through harvest), reaching sales targets (e.g., getting a set dollar amount in sales at the farmers’ market), meeting a specific harvest yield target (e.g., harvesting a set amount of produce per week). Employee bonuses could also be tied to the farm’s profitability, such as reaching a specified profit margin in a given period.*

A note on profit-sharing: If the bonus is tied to profit, it is considered a “profit-sharing” plan, which has its own set of nuances. While some of the tips in this guide may be relevant, profit-sharing plans are beyond the scope of this guide.

Consider employee input

Employees who have a say in how bonuses are structured are more likely to feel invested in achieving the goals. You might ask employees directly or conduct surveys to get feedback. What kinds of bonuses do they feel are motivating, fair, and attainable?

Note on spot bonuses: Sometimes farms offer a bonus simply for appreciation, such as a holiday or birthday gift or a “good” season after the fact. These are often referred to as “spot bonuses”—they’re given on the spot without meeting specific criteria. While employees appreciate spot bonuses, they come with pitfalls. Employees who don’t get one might feel it was unfair. Those who do may begin to expect similar bonuses in the future. If you choose to give out bonuses on the spot, it’s best to make them as inclusive as possible. To offset future expectations, clearly communicate to employees that this bonus is “special” and that the farm may not always be in a position to do it again.

Understand what it takes to offer bonuses

Before deciding to offer bonuses to your farm employees, it’s essential to understand what it takes to set them up. Let’s go through some highlights.

Assess financial costs

Be sure that you have a budget set aside for bonuses and that it aligns with the farm’s financial sustainability. Keep in mind the long-term impact of offering bonuses. Offering a bonus one year sets the stage for future expectations. Poor seasons or unexpected challenges can mean no bonus, which could backfire and create employee dissatisfaction.

Be mindful of legal implications

Bonuses must be given in addition to, and not in substitution of, any required minimum wage and overtime pay. If your farm operation is exempt from minimum wage or overtime rules and does not offer this traditional pay structure already, paying minimum wage and overtime might be a more attractive and straightforward way to offer employees additional pay than a bonus.

In addition, bonuses must be awarded fairly and without discrimination based on race, gender, age, or other protected characteristics. If one employee receives a bonus for a certain achievement, others who meet the same criteria should be similarly rewarded.

Finally, setting clear and measurable criteria, putting the criteria in writing, and maintaining records are best practices for preventing any legal disputes that could arise from confusion or ambiguity. This brings us to paperwork.

Evaluate the paperwork load

Most issues with bonuses arise from unclear criteria, so it’s important to be precise. Here are a few factors to consider when putting your bonus system in writing.

Create a written bonus policy to avoid issues. A best practice is to create a written bonus policy that outlines the criteria for earning bonuses, how they are calculated, when they will be distributed, and any other key details. This policy can be included in the employee handbook or sent separately as an email or letter. A written policy helps ensure the employee is on the same page.

Use clear, specific, and measurable criteria for when a bonus is awarded. Clear and measurable criteria make it easy for employees to understand what they need to do to earn a bonus. Vague terms like “work hard” or “be a team player” leave room for interpretation and conflict. The criteria should be measurable to avoid any ambiguity. Ambiguity can lead to confusion, frustration, resentment, and even a legal dispute. Consider these examples of clear and measurable criteria:

• Seasonal Commitment: “Employees will receive a bonus for completing the entire growing season, from planting to harvest (May–October).” List key dates and minimum shifts per week, and specify parameters around approved time off.
• Punctuality: “Employees will receive a bonus for arriving on time for every shift over the next three months.” Describe what counts as being “on time” (e.g., being at the worksite and ready to start at the scheduled time with proper attire on).
• Harvest Yield: “Employees will receive a bonus for meeting a weekly yield target.” The target should be realistic and measurable (e.g., 100 bushels of tomatoes per week). Explain how the yield will be tracked and measured.
• Safety Equipment: “Employees will receive $75 to buy approved closed-toe boots.” Provide a list of brands or other specifications. If money is given in advance, specify a deadline for the purchase and what happens if they don’t buy boots (e.g., if boots aren’t purchased within 14 days, the amount will be deducted from the next paycheck).
• Farm Profitability: “Employees will receive a bonus if the farm reaches a 3% profit margin for the season.” Specify how profit is defined and calculated. When numbers like this are involved, it’s helpful to include a formula and an example.

 By being specific, employees will better understand expectations, which will, in turn, make them more likely to meet the criteria. And they’ll likely be more agreeable if they don’t get a bonus. That said, creating too many criteria could overwhelm employees and make them lose interest at the get-go. Focus on key priorities.

Set realistic and achievable criteria to motivate employees. While you may want to challenge employees, take care that the criteria are attainable. Setting unrealistic expectations can quickly backfire—employees may become discouraged if the goals feel out of reach (e.g., doubling production in one month may not be possible with the available resources).

It can also be frustrating if too many variables are outside of the employee’s control, such as damage from storms, pets, or wildlife. Discussing these risks upfront and agreeing on who takes on the risks helps employees acknowledge the challenges involved.

Again, the bonus structure and criteria should be outlined in a written policy and communicated to the employee (such as in the employee handbook, email, or letter). Ideally, the employee signs the policy to acknowledge they have read it and understand the criteria.

Keep records and communicate regularly. Keep thorough documentation of employee actions and progress related to bonus criteria, bonus calculations, payments, and employee communications. It’s also helpful to periodically remind employees of the criteria and update them on their progress in writing. You’ll also need to update payroll to include the bonus payments and tax withholding adjustments. This brings us to taxes.

Account for tax benefits and costs

For farm operations, bonuses are considered a deductible business expense. The farm’s taxable income is reduced by the amount of the bonus. For the employee, bonuses are considered supplemental pay. The bonus amount will be subject to tax withholdings for the employee when paid. The farm must report the bonus amount on the employee’s W-2 forms at the end of the tax year, along with regular wages.

Pay Raises

Align pay raises with farm goals

Pay raises are not just a reward for doing well—they can also be a powerful tool to help achieve farm objectives. Consider what your goal or hope is for that employee in the long run. Then, design criteria to support that goal. Consider the following examples:

• Increased Responsibility: Offer pay raises when employees take on additional responsibilities, such as becoming a crew lead or taking over management of a specific farm task (e.g., managing crews, coordinating a food safety plan, or overseeing farmers’ market sales).
• Skill Development: Offer pay raises when employees acquire new skills or certifications that benefit the farm, such as completing a food safety course, soil health training, or crop advisor certification.
• Longevity and Commitment: Offer pay raises for employees who stay with the farm for a set number of seasons or who demonstrate a high level of dedication, such as consistently working during peak times or taking on difficult shifts.
• Profitability and Sustainability: Pay raises could be tied to the farm’s profitability, where employees receive a raise if the farm hits certain financial targets (e.g., increasing overall sales by a set percentage or reaching a profit margin target).

Consider employee input

As with bonuses, it can be beneficial to gather feedback from employees about the pay raise process. Ask your employees what kind of performance or milestones they think would be deserving of a pay raise or what motivates them to stay and improve. When employees are involved in designing the criteria, they are more likely to feel engaged and motivated to meet those expectations.

Understand what it takes to offer pay raises

Before you implement pay raises, it’s important to understand the key factors that will guide this process. Here are some highlights of what’s involved:

Assess financial costs

Be sure that your farm has the financial capacity to support pay raises. While pay raises are often tied to improved productivity or farm profitability, they still represent a long-term commitment. It’s important to clearly understand the farm’s budget and future projections before committing to any pay raise schedule. Remember that once you give a pay raise, the employee will expect it to be sustainable or fluctuate up, but not down.

Be mindful of legal implications

Pay raises must be given in addition to, and not in substitution of, any required minimum wage and overtime pay.

In addition, bonuses must be awarded fairly and without discrimination based on race, gender, age, or other protected characteristics. It’s best to offer pay raises through a transparent process to avoid any perception of favoritism or inequity among employees.

Just as with bonuses, the criteria and process for awarding pay raises must be well documented to prevent confusion and disputes. This brings us to paperwork.

Evaluate the paperwork load

Taking the time to create clear records for pay raises can help prevent misunderstandings and disputes down the road. For example, when an employee receives a pay raise due to increased responsibilities, be sure to put in writing the new duties and how the raise was calculated and share it with the employee. Keep a record of all communication about the pay raise to support a transparent and fair process. The following highlights some best practices for the paperwork involved.

Create a written pay raise policy to avoid issues. Putting a pay raise policy in writing can help ensure fairness and clarity. It can be included in the employee handbook or sent separately as an email or letter.

The policy should outline:

• The criteria for receiving a pay raise (e.g., performance milestones, increased responsibilities, length of employment).
• How often pay raises are considered (e.g., annually, after meeting certain performance goals, or after a set time period of employment).
• A clear description of the process for requesting or negotiating a raise (e.g., performance review meetings, employee feedback, etc.).

Use clear, specific, and measurable criteria for giving pay raises. To avoid ambiguity, ensure that the criteria for a pay raise are as specific as possible. Vague benchmarks, like “work hard” or “show initiative,” leave room for interpretation, which could lead to disputes. Here are examples of clear and measurable criteria:

• Increased responsibility: “Employees will receive a raise after taking on leadership of a seasonal crew or managing farmers’ market sales.”
• Skill development: “Employees will receive a raise after completing a certification in food safety or farm equipment operation and demonstrating the skills in practice.”
• Loyalty and longevity: “Employees will receive a raise after completing three full seasons of employment with the farm, including working all major harvest periods and contributing to farm projects during off-seasons.”
• Farm profitability: “Employees will receive a raise if farm sales increase by 10% in the next season or if the farm achieves a specified profit margin.”

Setting clear, specific, and measurable goals helps employees understand what they need to do to earn a raise. Be careful not to overwhelm employees with too many criteria. Focus on what’s most important to the farm and your operation’s success.

Set realistic and attainable criteria to motivate employees. As with bonuses, setting realistic and achievable criteria is critical. Pay raises should feel like a motivating reward for good work, not an unrealistic hurdle. Setting goals that are too ambitious can frustrate employees or cause them to disengage. For example, setting a target of increasing production by 50% in one season might not be feasible due to weather conditions or lack of resources.

Also, consider external factors beyond the employee’s control. If unforeseen challenges like weather damage impact farm performance, discuss how these factors will affect raise eligibility. Being clear and upfront about these risks helps prevent frustration later on.

Keep records and communicate regularly. Once you’ve established clear criteria for pay raises and communicated them to employees, keep thorough records of progress. Track performance metrics, raise calculations, and any relevant communications. Keeping accurate records will protect you in case of disputes and ensure transparency in the process.

To keep employees motivated, communicate regularly about performance and progress toward meeting pay raise criteria. This can be done during annual reviews or more frequently if needed. Employees should know where they stand and what they need to improve or maintain in order to receive a raise. Regular feedback sessions can help employees feel invested in their growth and progress, and it gives you an opportunity to reset goals if circumstances change.

You’ll also need to update payroll records to account for the pay raise and required withholdings, which brings us to taxes.

Account for tax benefits and costs

For the farm, pay raises increase payroll costs and should be factored into the farm’s overall budget planning.

For the employee, pay raises are subject to tax withholdings as part of the employee’s regular wages. The increase in salary will be taxed at the employee’s usual rate and will be reported as part of the employee’s total earnings on their W-2 at the end of the year.

Taking Action on Bonuses and Pay Raises

Now that you’ve considered the responsibilities of these options, have you decided on which one would work for your farm business?

• Bonuses
• Pay raises
• None for now, but maybe in the future

If you decide to offer a bonus or pay raise to your employee(s) soon, here are some key tips to keep in mind:

• Be intentional: Align bonuses and raises with farm goals and get input from employees. That way, employees will be more motivated to contribute to the farm’s success.
• Set objective and attainable criteria: Use clear, measurable criteria to clarify expectations and prevent confusion or ambiguity. Be sure the criteria are achievable and not too challenging.
• Be Consistent: Be fair and consistent in how bonuses and raises are given. If one employee is rewarded for a certain achievement, others who meet the same criteria should be similarly rewarded.
• Put it in writing: Create a formal, written policy for bonuses and raises to ensure transparency and fairness.
• Communicate regularly: Keep employees informed about their progress and the criteria for receiving a raise. Regular feedback helps keep employees engaged.
• Keep records: Maintain thorough records of employee performance, bonus or raise eligibility, and all communication regarding bonuses and raises. This helps prevent confusion or disagreements down the road.

By setting clear criteria, maintaining open communication, and ensuring fairness in the process, you can utilize the tools of bonus and pay raises to motivate employees, increase retention, and create a positive work environment.

A final note on offering in-kind payments for bonuses or raises

Farms might prefer to offer farm products, lodging, or other kinds of goods and services as a bonus or pay raise. This can be done so long as the employee agrees to it in writing AND any relevant minimum wage obligation has been met with dollars first. Other words of caution include:

• You’ll still need to keep records and account for the value of these in-kind payments, as well as include itemizations on the workers’ paystub.
• You’ll still need to properly account for these in-kind payments for tax purposes.
• If overtime requirements apply, you’ll need to follow a separate set of conditions and include these in-kind payments when calculating the “regular rate.”
• If you’re providing housing, you’ll still need to abide by applicable requirements.
• Stricter requirements might apply under your state’s law.

 For more details, see the Farmer’s Guide to In-Kind Wages.

Funder Acknowledgments

This material is based upon work that is supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, under award number SUB00003520 through the Southern Sustainable Agriculture Research and Education program under subaward number #EDS24-065. USDA is an equal opportunity employer and service provider.