New Federal Overtime Rules in Agriculture

The Obama administration announced new overtime rules effective December 1, 2016. In the past, farmers generally have assumed they did not need to worry about overtime rules because of the federal agriculture exemption. This still holds true for the most part, but farms should understand how the agriculture exemption works and what the new overtime rules mean for a farm. Today's farms often include a number of business entities (commercial trucking, custom farming, processing, etc.). In some cases, work for those entities may not be exempt from overtime rules.

First, the existing agriculture exemption. The Fair Labor Standards Act (FLSA) requires employers to pay a required minimum wage and to pay overtime. There are, of course, many exceptions, exemptions, and special rules to complicate the Act. "Agricultural work" is exempt from the overtime rules. This includes "primary" and "secondary" agricultural work.

Primary agriculture includes what we typically think of as farming: cultivation and tilling of soil; production, cultivation, growing, and harvesting agricultural and horticultural commodities; and raising of livestock, bees, fur-bearing animals, poultry, and worms(!). Secondary agriculture includes any practices performed by a farmer or on a farm as an incident to or in conjunction with farming operations, including preparation for market, delivery to storage or to market or to carriers for transportation to market. Generally, a practice qualifies as secondary ag if it constitutes an established part of agriculture, is subordinate to the farming operations, and does not amount to an independent business. Even certain office or maintenance work can qualify as exempt secondary agricultural work, such as secretaries, clerks, night watchmen, engineers, and others who are employed by a farmer or on a farm if their work is part of the agricultural activity and is subordinate to the farming operations. The agricultural exemption is intended to cover all agriculture, but is not intended to cover practices that are more akin to manufacturing. 

Second, let's review the new overtime rule. The stated intent of the rule is to "put more money in the pockets of middle class workers." This is a worthy goal, but the new rule may have unintended consequences for small businesses, like heavy payroll increases. The rule makes several changes to the FLSA scheme, but one main update relevant here: it raises the salary threshold for overtime exemption from $455/week ($23,660/year) to $913/week ($47,476/year). Workers earning more than $47,476 and meeting a function/duty test are exempt from overtime rules. Most salaried workers earning less than $47,476 will be entitled to overtime for working more than 40 hours in a week. Non-discretionary bonuses can make up to 10% of an employee's salary for purposes of determining whether the $47.476 threshold has been met. 

Finally, let's put it all together. The new rule does not affect the agricultural exemption, but can affect employees on a farm who are not directly involved in agricultural work. For example, office workers performing "secondary agricultural work" may be exempt from overtime rules, but only if their work is part of the agricultural activity and is subordinate to the farming operations. A middle manager who makes $40,000 annually will likely be entitled to overtime. Under the old rules, he probably was exempt because he met both exemption requirements (salary threshold and duties/functions). Under the new rule, he will meet the duties/functions test for the exemption, but his salary won't meet the threshold. Depending on the manager's work, he may qualify for the agriculture exemption.

A quick note on hourly workers. Hourly agriculture workers are not entitled to time and half overtime, but they still must be paid for each hour worked. So, an ag hourly worker who makes $10/hour and works 45 hours should be paid $450. A non-ag non-exempt hourly employee who makes $10/hour and works 45 hours should be paid $475.

Employers have some options moving forward under the new rule. They can move salaried employees over to be hourly workers. Employers can increase an employee's salary to meet the exemption threshold. They can reduce or eliminate overtime hours or reclassify the employee as non-exempt and pay overtime. Non-exempt employees may continue to receive a salary, provided they are compensated for overtime. Another option is to reduce the amount of pay allocated to a base salary (provided the employee earns at least the minimum wage) and add pay to account for overtime to keep that worker's pay relatively constant. An employer can adopt a creative combination of these options to address each employer's factual circumstances.

This should not be relied on as legal advice. Every example is different. I expect the Department of Labor to release additional guidance on the new rule between now and December. Contact an attorney to discuss your company's preparations for the new federal overtime rules.