Introduction to In-Kind Wages

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Paying workers “in-kind,” or with non-cash goods and services such as food and lodging in place of cash, can be a win-win situation for both the farmer and the workers. One big boon for farmers is that offering in-kind payments can reduce cash flow concerns. A farmer might even be able to meet their minimum wage obligations by paying workers with resources the farm already has in abundance. Providing in-kind payments can also help cultivate a friendlier and more fulfilling experience for the farmer and worker who both might otherwise feel isolated in a rural setting. The perks of in-kind payments might attract workers interested in a richer experience, including living on the farm, having access to fresh, valuable farm products, and perhaps even enjoying shared meals.

While paying workers in-kind comes with a unique set of legal implications, the good news is that it generally can be done. This guide highlights 12 things farmers need to know and do when paying workers with goods and services. Equipped with this knowledge, farmers can decide whether paying in-kind is a good option for them, and, if so, know how to do it with minimum legal risk.

The Fair Labor Standards Act (FLSA) is the law creating federal minimum wage obligations. The definition of “wages” under that law is where it says paying in-kind is allowed. 29 USC 203(m).

The sections in Part 1 apply to all types of in-kind payments. The sections in Part 2 apply only to in-kind payments in the form of housing. Farmers not providing housing to their workers can skip these latter sections.

Meet farmers Anne, Frank, and Sally. They each have farms in various states. They’re all interested in compensating their workers with goods and services in some form. They’ll be asking questions throughout to help identify unique issues that arise when paying in-kind.

Before we dive into the legal rules and requirements for paying workers in-kind, we need to reframe the lingo that we’ll be using.

Most folks think of an in-kind payment as just that: a payment. Typically, when making in-kind payments to workers, farmers add up all the in-kind payments and then top it off with cash to cover any remaining amount to reach the required minimum wage payment owed. However, the law thinks through these things a bit differently.

The law assumes that a cash payment is being made to cover the minimum wage. Certain forms of in-kind payments are considered “equivalent to cash” and therefore can be applied as a “wage credit” to meet the minimum wage owed.

A word of caution: certain forms of in-kind payments are not permitted to count toward minimum wage obligations. See Part 1 for more details.

Nevertheless, when accounting for or documenting an in-kind payment as a wage, the law generally speaks of the in-kind payment as a deduction from the cash wage. This might best be explained by an example.

Let’s say that farmer Sally owes her worker $200 in minimum wage payments. She offers housing that’s valued at $100 and meals that are valued at $50. She pays the remaining $50 in cash.

The law will consider the $150 in housing and meals as “equivalent to cash” for purposes of Sally’s minimum wage obligations. In other words, she’ll get a “wage credit” of $150 for the goods and services she provides. Nevertheless, when Sally does her bookkeeping, including itemizing the in-kind payments on her worker’s paystub, she’ll need to refer to the in-kind payments as a deduction from cash wages.

Okay, so I’ll say it as the law thinks of it: “I owe you $200 in minimum wage. I’m offering you lodging that is equivalent to $100 and meals that are equivalent to $50, so I’m deducting the $150 from the $200 in cash owed.”

Yes! This guide often uses the phrase “deduction from wages” because that’s how the law thinks about it.

Legal Briefing
A word of caution, the lingo actually used can have legal implications depending on the context. For example, not all forms of in-kind payments are considered “equivalent to cash” and deserving of a “wage credit” to meet minimum wage requirements (see Part 1 section 2). Nevertheless, the value of most in-kind payments must be included as wages when calculating the “regular rate” for overtime requirements (see Part 1 section 5).

In addition, most if not all in-kind payments will need to be “deducted” from wages, particularly in the context of paystubs (see part 1 section 7) and payroll taxes (see part 1 section 8).

Your state might even use different lingo for documenting in-kind payments. Ultimately, it’s best to use whatever lingo a particular agency or department uses when making any filings.

Introduction to In-Kind Wages

Using this Guide

First, a word about lingo

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