June 1, 2016

After much anticipation, the U.S Labor Department (USDOL) has issued a final rule updating the salary and compensation levels needed for Executive, Administrative and Professional employees to be treated as exempt from the federal Fair Labor Standards Act's (FLSA) overtime, minimum-wage, and time-recordkeeping requirements. The rule takes effect on December 1, 2016.

While the new rule changes federal requirements, California farm employers must also comply with California law for similar—but not identical--exemptions.

In summary, the new federal rule brings these changes:

·         The federal minimum salary threshold for so-called “white collar” exempt employees is increasing to $913 per week, which equates to a minimum annual salary of $47,476 (a huge increase from the prior requirement of $455 per week, or $23,660 per year).

·         This earnings threshold will be "adjusted" (probably increased) every three years beginning on January 1, 2020. USDOL will announce each change 150 days before it will take effect.

·         Employers will be able to meet up to 10% of this new threshold through nondiscretionary bonuses and other incentive payments, including commissions, as long as these payments are made at least quarterly. This crediting will not be permitted for salaries paid to employees treated as exempt “highly compensated” employees.

·         The “highly compensated employee” threshold will increase from $100,000 to $134,004 (which will also be “updated” every three years).

USDOL did not change any of the "duties tests" relating to the kinds or amounts of work an exempt employee must do to qualify for this status.

Agricultural employers in California are undoubtedly wondering how—or even if—these changes affect them.

“Agriculture” has two meanings under the FLSA:

·         Primary meaning: Farming in all its branches and among other things includes the cultivation and tillage of the soil, dairying, the production, cultivation, growing and harvesting of any agricultural or horticultural commodities . . ., and the raising of livestock, bees, fur-bearing animals, or poultry, and;

·         Secondary meaning: Practices (including any forestry or lumbering operations) performed by a farmer or on a farm as an incident to or in conjunction with such farming operations, including preparation for market, delivery to storage or to market or to carriers for transportation to market.

In California, Industrial Welfare Commission Wage Order No. 14-2001 generally covers persons employed in agricultural occupations. But it does not apply to any employee engaged in work that is primarily intellectual, managerial, or creative and requires exercise of discretion and independent judgment, for which the remuneration is not less than twice the monthly state minimum wage for full-time employment. With the California minimum wage at $10 per hour, the remuneration requirement for such employees to be exempt from Order 14 remains at $3,467 per month ($41,600 per year).

California's exemption threshold won't catch up to (and surpass) the new federal level until 2019, when under recently enacted SB 3 the California minimum wage will reach $12 per hour for employers of 26 or more employees (those with 25 or fewer employees will have an additional year to comply with the new higher minimum wage). California’s exemption threshold will then be $4,160 per month ($49,920 per year).

 Unfortunately, the intersection of California and federal wage and hour law presents a quirky if not troublesome complication for California farm employers. As noted above, an employee is exempt from FLSA overtime pay in any workweek in which he is exclusively "employed in agriculture." But the FLSA regulations require an employer to keep time records for such an employee, unless the employee is exempt from the time-recordkeeping requirement because he meets the requirements for an exempt executive, administrative, or professional employee.

This means that while time records still won't have to be kept for an agricultural employee who meets California's exemption requirements for an intellectual, managerial, or creative employee (including its soon-to-be lower salary level), time records will have to be kept under the FLSA for the same employee whose salary won't meet the newly increased salary level under the FLSA.

Thus time records under the FLSA will have to be kept for the employee even though the employee won't be entitled to FLSA weekly overtime pay (because he's employed in agriculture), and the employee will continue to be exempt from California's overtime-pay, minimum-wage, and time-recordkeeping rules.