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How much should I pay my retiring dad?

PointImages/Getty Images Father and son shown in conversation in a wheat field
HANDING OFF THE BIZ: Landholder Dad wants to be an “on-call” employee of his son.
Profit Planner panelists address how younger farmer should compensate his dad as an employee.

I’m buying out my father who is retiring, and I’ll pay him rent for his land. He still wants to help in the spring and fall. What would be a fair wage to pay him?

Mike Evanish: Forget the minimum wage
You’re wise to pay your dad for the work he does after you take over the farm. You get a tax deduction. He gets income and workers compensation coverage. 

The minimum wage doesn’t recognize the wisdom and management ability you’re buying. A more reasonable value would be $10 to $15 an hour. If that generates a pay higher than he wants, needs or you can afford, simply limit his hours to a mutually agreed number. Just be sure to record his hours in your records in case IRS requests records.

You didn’t mention your father’s age. If he’s under 66 years old, there are wage restrictions that he needs to look out for if he’s collecting Social Security. He won’t want to violate the limit, and then have to pay back Social Security already received. If he’s 66 or older, that’s not a concern.

We work with this question every time a farm transitions from one generation to the next. The wage that’ll be paid is simply a part of the overall transition calculation of how much Mom and Dad need to live through retirement. It’s based on all sources of income and their desires for the other children. Successful transitions are based on everyone’s needs being equitably met.

George Mueller: Keep him on your team
His years of experience will be valuable and perhaps help you avoid some mistakes. There are many ways you can reward him. Something like $15 per hour and use of the farm pick-up truck plus the farm lawnmower when needed might be more than enough reward for his services.       

The real plus will be having his experience and knowledge at your side when challenges occur. Keeping him on your team is one of the nicest things you can do. Give him an opportunity to continue to make improvements in the farm. It’ll make your progress all that more enjoyable.

Work it out so it suits the needs of you both. Your dad will probably provide a little less help each year. Hopefully, a third generation will show interest and also benefit from your dad’s knowledge and experience.

Glenn Rogers: Still a business decision
It's difficult to come up with a fair wage for a relative, especially when you also have a purchase or sales agreement and a rental agreement. But don't let these other factors sway your estimate.

What’s his value to the operation as an employee? What are competitive wages in the area? What would it take to replace him?  How badly do you need his help and what can the operation afford to pay? Is he really the "right" person for the job?

Is he willing to accept that you’re the "boss," and that you may do things differently? Can you have meaningful discussions with him and learn from him — and he from you — and carry out the project as outlined?

Consult with others before tendering an offer.  This takes some of the emotion out of the decision. It must be done as a business decision since it affects your bottom line.

I expect your dad will put in more than his share of hours and not expect all the pay. Many parents put in long hours, at little or no pay, to help ensure their next generation’s business success. That dedication helps grow your business and the name associated with it.

He has worked for probably more than 40 years and at considerable sacrifice to himself and family to get here. He deserves a break, yet wants to balance that with being a valuable part of a team he's worked to build.

Got a question? Our experts await!
Our Profit Planner panel would like to hear it. The panel consists of Michael Evanish, farm business consultant and business services manager of Pennsylvania Farm Bureau’s Members’ Service Corp.; Dale Johnson, Extension farm management specialist at University of Maryland (unavailable for this question); George Mueller, dairy farmer from Clifton Springs, N.Y.; and Glenn Rogers, University of Vermont Extension professor emeritus and ag consultant.

Send your questions to “Profit Planners,” American Agriculturist, 5227 Baltimore Pike, Littlestown, PA 17340. Or e-mail them to [email protected]. All are submitted to our panel without identification.

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