In March 2022, the Oregon legislature passed House Bill (HB) 4002, which imposes new overtime pay requirements for agricultural workers beginning on January 1, 2023. The bill also establishes a refundable tax credit for eligible employers to help offset all or part of the additional wage expenses attributed to overtime pay. Now that these provisions are about to take effect, Oregon agricultural employers who have not yet done so should update their time, pay, and recordkeeping practices to comply with the new overtime requirements and begin planning to claim related tax credits next year if eligible.
Agriculture Overtime Pay Requirements
The law establishes a four-year incremental phase-in period for the new agricultural overtime pay requirements:
- Beginning January 1, 2023, employers must pay overtime to agricultural workers for hours worked beyond 55 hours in a workweek.
- Beginning January 1, 2025, employers must pay overtime to agricultural workers for hours worked beyond 48 hours in a workweek.
- Beginning January 1, 2027, employers must pay overtime to agricultural workers for hours worked beyond 40 hours in a workweek.
When applicable, employers must pay overtime hours at the rate of one and one-half the employee’s regular rate of pay.
For purposes of these overtime requirements, the law defines “agriculture” to include farming in all its branches, including cultivating and tilling the soil, dairying, producing, cultivating, growing, and harvesting any agricultural or horticultural commodities, raising livestock, bees, fur-bearing animals, or poultry and any practices performed by a farmer on a farm as an incident to or in conjunction with such farming operations, including preparing for market, delivering products to storage or to market or to carriers for transportation to market. The definition of “agriculture” generally does not include forest products or the harvesting of timber, but the law does consider workers engaged in the planting, pruning, and harvesting of Christmas trees to be agricultural employees covered by the overtime rules.
As a reminder, agricultural workers who handle or otherwise work on products not grown by their employer (including those who process or handle any amount of another farmer’s crop) or who do not work within the definition of agriculture above were not previously exempt from and remain covered by normal state and federal overtime laws requiring payment of overtime for hours worked after 40 hours in a workweek.
The new agricultural overtime law does not include daily overtime requirements or daily or weekly maximum hours of work requirements. However, preexisting Oregon laws establish certain daily overtime requirements for employees working in canneries, driers, and packing plants (excluding those located on farms that primarily process products produced on those farms), as well as daily overtime and maximum hours requirements for “manufacturing” establishments. To the extent an agricultural employer has operations and employees covered by those laws, those requirements also continue to apply.
Administrative or office staff of an agricultural employer may be covered by the preexisting or new overtime requirements depending on their job duties, unless they qualify as exempt.
Employers who violate these overtime pay requirements may be liable for regular pay, back pay, and civil money penalties.
Exemptions from Ag OT
The new agricultural overtime requirements do not apply to certain employees, including:
- Small Farm Exception for Piece-Rate Hand Harvesters and Pruning Laborers: Hand harvesters and pruning laborers are exempt from overtime if they are paid on a piece-rate basis (in an operation which has been and is customarily and generally recognized as having been paid, on a piece-rate basis in the region of employment), and the employer did not employ more than 500 piece-rate-work-days of agriculture labor in any calendar quarter of the preceding calendar year.
- Commuter Hand Harvesters: Hand harvesters are exempt from overtime if they commute daily from their permanent residence, are paid on a piece-rate basis (in an operation which has been, and is customarily and generally recognized as having been, paid on a piece-rate basis in the region of employment), and have been employed in agriculture less than 13 weeks in the previous calendar year.
- Minor Hand Harvesters: Hand harvesters who are 16 years of age or under are exempt from overtime if they are paid on a piece-rate basis (in an operation which has been, and is customarily and generally recognized as having been, paid on a piece-rate basis in the region of employment) and paid at the same piece-rate basis as older employees.
- Family Members: Agricultural employees are exempt from overtime if they are the parent, spouse, child, sibling, grandparent, aunt or uncle of the employer. However, whether the exemption applies may depend on ownership and structure of the business.
- Ranchers: Ranch workers are exempt from overtime if they work more than 50 percent of their time in the range production of livestock and are paid on a salary basis (defined under Oregon law as 2,080 hours times the current minimum wage, divided by 12).
- Salaried Administrative Employees: Employees of agricultural employers are exempt from overtime if their principal duties are administrative, executive or professional work, they perform predominantly intellectual, managerial or creative tasks, exercise discretion and independent judgment, and are paid on a salary basis.
Agricultural employers should consult with legal counsel to assist in evaluating whether an exemption applies, as the consequences of mistaken classification and failure to pay overtime when due can be significant.
Tax Credits
To help offset the increased wage costs related to the new overtime requirements, the Oregon legislature created a state refundable income or corporate tax credit for agricultural employers (excluding farm labor contractors), which covers a percentage of overtime wages paid to agricultural workers during calendar years 2023 through 2028. A three-year net operating loss carryback is also allowed.
The law excludes farm labor contractors from eligibility for these tax credits. However, an agricultural employer that uses the services of a licensed farm labor contractor is eligible to apply for these tax credits.
The amount and percentage of tax credit available will depend on the number of employees, and the percentage will decrease incrementally between 2023 through 2028, as set forth below.
The total amount of tax credits allowed per year for all eligible taxpayers combined will be $55 million. If total tax credit applications exceed that amount, the Oregon Department of Revenue will proportionately reduce the amount of credits among all approved applicants.
Employers must file applications for tax credits based on overtime payments during the calendar year 2023 by January 31, 2024. Thereafter, the Oregon Department of Revenue will notify qualifying applicants no later than June 1, 2024, and will specify the maximum amount the taxpayer will be eligible to claim on their return. Employers that apply for the tax credit will receive an automatic filing extension for state tax returns.
The Oregon Department of Revenue will continue to engage in rulemaking and work to establish the tax credit application process during the calendar year 2023, to be ready for the first round of tax credit applications in January 2024.
