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Article

Oregon agribusiness overtime requirements and tax credits

May 29, 2023 · Authored by Jackie Merrill and Colin Quill

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In April 2022, former Oregon Governor Kate Brown signed into law House Bill (HB) 4002, establishing an overtime pay mandate for employers of agricultural workers. Oregon is the eighth state to enact such requirements.

Additionally, HB 4002 allows employers to claim a tax credit equal to a percentage of the overtime pay. This article highlights what Oregon agricultural employers need to know to stay in compliance and plan for potential tax credits.

Learn more about the bill below and what tax credits could become available to agribusiness employers.

What is the new agribusiness overtime requirement law?

The bill establishes an overtime pay mandate and creates a tax credit for employers, aimed at offsetting financial burdens related to increased wage costs.

Why did the bill get passed?

Designed to correct historical exemptions excluding agricultural workers from overtime laws, the new regulations prohibit employers from requiring employees to work overtime unless they're compensated with overtime pay.

The bill further attempts to balance workers' rights with agricultural businesses' needs, providing a refundable tax credit for eligible employers to recover wages attributed to overtime pay.

What is considered overtime and overtime pay?

The bill dictates a four-year phase-in period for the new overtime pay requirements, with incremental decreases in maximum allowable hours. For calendar years 2023 and 2024, overtime must be paid to agricultural employees who worked more than 55 hours in a workweek. For calendar year 2025 and 2026, employers are required pay overtime for more than 48 hours per workweek.

Starting Jan. 1, 2027, overtime is paid to employees who worked more than 40 hours per workweek.

Overtime must be paid at the rate of one and one-half the regular pay rate on hours over the permitted threshold for every workweek, not pay period. When piece rate is paid, wage rates are determined by dividing total piece-rate wages by the total number of hours worked in each workweek. A failure to comply carries significant consequences, and any employer in violation will be liable for regular pay, back pay, and civil money penalties.

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Jackie Merrill

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

What kind of worker is affected by this bill?

Under the bill, an agricultural worker is broadly defined as "an individual who performs services in agriculture for an employer in exchange for an agreed remuneration or rate of pay." For purposes of the new overtime requirements, agriculture encompasses all aspects of farming, including:

  • Cultivating and tilling soil
  • Dairying
  • Producing, cultivating, growing, and harvesting any agricultural or horticultural commodity
  • Raising livestock, bees, fur-bearing animals, or poultry
  • Any other practices related to farming operations, including preparation for market, delivery to storage or to market, or delivery to carriers for transportation to market

Forest products or timber harvesting are generally not included, but workers engaged in planting, pruning, and harvesting of Christmas trees are covered by the new rules.

Exempt workers

HB 4002 likely applies to any agricultural worker who's not specifically excluded under certain exemptions. Employees who process or handle products not grown by their employer remain covered by existing state and federal overtime laws, as do manufacturing employees working in canneries, driers, and packing plants not located on farms.

The regulations allow for additional exceptions, and overtime requirements don’t apply to certain employees, including:

  • Family members. A parent, spouse, child, sibling, or other member of the employer’s immediate family is exempt, though exemptions may depend on ownership and structure of the business.
  • Small employer piece-rate hand harvesters. Hand harvesters and pruning laborers who are paid on a piece-rate basis are exempt, if the employer didn’t require more than 500 piece-rate workdays of agricultural labor during any calendar quarter in the preceding year.
  • Ranchers. Workers who are primarily engaged in the range production of livestock are exempt from overtime pay, as long as more than 50% of their time is spent in the range production of livestock and they are paid on a salary basis.
  • Commuters. Hand harvesters or pruning laborers paid on a piece-rate basis are exempt if they commute daily from a permanent residence and have been employed in agriculture for fewer than 13 weeks in the previous calendar year.
  • Minor hand harvesters. Hand harvesters who are 16 years old or younger, and who are paid on a piece-rate basis at the same rate as older employees on the same farm, are exempt.
  • Salaried executive or professional employees. Employees whose principal duties are administrative, executive, or professional are exempt, as are those who perform primarily intellectual, managerial, or creative tasks, exercise discretion and independent judgment, and are paid on a salary basis.

Agricultural work overtime tax credits: Requirements, deadlines, and how to apply

To ease the burden imposed by increased wage costs, the bill also establishes tax credits for agricultural employers. The state credit is refundable and may be used to offset personal income tax and corporate income or excise taxes, including the minimum tax. The credit covers a percentage of overtime wages, starting in 2023, and decreasing incrementally through 2028, as new overtime pay requirements are phased in.

The amount of the credit is calculated as a percentage of overtime wages paid and depends on the number of employees, based on full-time equivalents, not actual workers. While farm labor contractors are excluded, employers who use the services of licensed farm labor contractors are eligible.

Total tax credits permitted are capped at $55 million per calendar year for all eligible taxpayers combined. If applications exceed that amount, allowances will be proportionally reduced among all qualifying applicants.

Additionally, overtime wages from 2023 will not be reimbursed until at least the middle of 2024. To offset financial hardships posed by delayed credits and proportional allowances, the Oregon legislature also provided a one-time allocation of $10 million. These funds establish a grant, loan, or lending program designed to offer financial assistance for agricultural employers impacted by increased wage costs related to new overtime pay regulations.

To claim tax credits, employers must file applications by Jan. 31, 2024, based on overtime paid in 2023. The application must include:

  • The taxpayer’s address and Employer Identification Number (EIN)
  • A statement of the number of overtime hours worked by agricultural employees
  • Overtime wages paid on an hourly basis to each worker during the calendar year
  • Any other information required by the Oregon Department of Revenue (DOR)

Qualifying employers will be notified of the maximum amount eligible to claim by June 1, 2024. Upon receipt of an application, the DOR is mandated to immediately allow an automatic filing extension for state tax returns.

The Oregon DOR is expected to continue refining the tax credit application process throughout 2023, in preparation for the first round of applications at the start of 2024.

As these new overtime laws are now in effect, Oregon agricultural employers need to prepare. Time, pay, and recordkeeping practices should be updated to comply with overtime regulations and begin planning for allowed tax credits. Because the implications of mistaken exemptions or failure to pay overtime can be significant, agricultural employers should consult with knowledgeable advisors to evaluate eligibility for exemptions, assist in the application process, and stay abreast of potential changes in rules.

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