Accountants: New ag overtime rules require special planning

KENNEWICK — With all farm workers now entitled to overtime, farmers and farm managers need to plan for their labor needs carefully.

“So, one of the big things that everyone is thinking is, is there a way that I can get my employees exempt from overtime?” said Jared King, an accountant with Leffel, Otis & Warwick in Davenport.

King, along with his father Todd, addressed a packed hall at the annual Northwest Hay Expo on Jan. 20 in Kennewick. Leffel, Otis & Warwick is an Eastern Washington accounting firm founded in 1954 and based in Davenport that specializes in farm and small business accounting and taxes.

Previously, farm workers were exempt from receiving overtime pay. However, in response to a Washington State Supreme Court ruling in November 2020 against the DeRuyter Bros. Dairy, finding that state law exempting dairy workers from overtime violated the state constitution.

Under a new state law that came into effect in July 2021, farm workers can work 55 hours in a week without being paid overtime — time-and-a-half — beginning on Jan. 1, 2022. That limit falls to 48 hours on Jan. 1, 2023, and down to 40 hours on Jan. 1, 2024.

There are a few exemptions from overtime for salaried employees, Jared explained, but those overtime exemptions are very specifically limited to managers or employees with very specific technical knowledge.

“Labor and Industries say anybody that is harvesting, planting, or doing any type of work on that farm will more than likely not be exempt from overtime,” Jared said.

In order for managers to qualify, they must have executive decision-making authority and the ability to hire and fire, Jared said. They also must make a minimum salary of roughly $53,000 per year in 2022. In order for technical employees to qualify, their primary job needs to be “predominantly intellectual in nature” and probably have an advanced degree and meet the same minimum salary requirements.

The advanced degree is essential, Jared added, since years of experience in the field do not qualify, according to the Washington Department of Labor and Industries.

“An example that we ran into recently — there was somebody that worked for (a farmer) as a field man for 35 years,” Jared said. “But he technically didn’t have that level of knowledge because he didn’t have an agronomy degree from WSU.”

“Sure, he’s got 35 years of experience,” he explained. “But because he didn’t have the paper, he didn’t qualify. So it’s something to think about, and (L&I) are pretty nitpicky about this.”

Todd King explained he recently sat down with a farmer with “75 or 80 employees” to talk about how the rules would apply to his farm, and said maybe six or eight of those workers were going to be exempt from the new overtime rules.

“Most farm employees aren’t going to fit these exemptions (Jared King’s) talking about,” Todd said. “If they meet the duties test, chances are they’re going to get that salary anyway. But if you’re trying to take a common day laborer, and force him into one of these exemptions, he probably doesn’t meet the salary thresholds.”

Jared said given the complexity of the new rules, the simplest course will be to make most employees simple hourly workers.

“And it really won’t make much of a difference compared to your other options,” he said.

The overtime rates for hourly employees are pretty simple, Jared said — time-and-a-half for any hours worked over the legal limit. For an hourly employee making, say, $20 per hour and limited to a 40-hour week, Jared said any hours over that would be paid at $30 per hour.

“So it’s pretty simple. Not a whole lot to it. It’s a calculation that can be done by most people,” he said.

Where it gets complicated, Jared explained, is for salaried employees. Employers need to reach very specific agreements with salaried employees as to what their hours will be and when they will work those hours, he explained, and all hours over 40 per week will still be paid overtime. However, how those hours are paid will depend on the details of the contract.

Jared gave the example of a theoretical salaried employee paid a base monthly salary of $4,750 to work 40 hours per week for 35 weeks (at roughly $27 per hour) and 70 hours per week for 17 weeks in a year (for roughly $15.66 per hour). The salaried employee without a written work agreement would be paid time-and-a-half for all hours worked over 40 hours per week on top of 70-hour salary, nearly $21,000, while the employee with the written work agreement would only be paid half-time for the additional hours, roughly $4,000, Jared said.

The difference between the two is nearly $17,000, Jared noted. And unless there is a written employment agreement, anything over 40 hours has to be paid at time-and-a-half.

Jared warned producers to be careful and have their lawyers help them draw up precise work agreements and to keep complete and accurate records, because the risk to farmers if they get these rules wrong — three years back overtime plus 12% interest, penalties and legal fees — are significant.

“There are going to be a few salaried employees who are going to fit the deal,” Todd said. “And if they fit the deal, make sure you’ve got an employment attorney that’s wrapped up an employment agreement that’s signed, and you’re keeping that on file.

Because 90% of the people who work on a farm, ranch, orchard or vineyard ought to be paid hourly, Todd said.

“You should pay the overtime,” he added.

Charles H. Featherstone can be reached a cfeatherstone@columbiabasinherald.com.