Say Yes to the Ag Overtime Tax Credit

What would Ag Overtime Tax Credit do?

The Ag Overtime Tax credit will support California farmers and agricultural employees by creating a payroll tax credit to reimburse farmers for overtime premium wages (the “half” in “time-and-a-half”) paid to their employees. It would improve work opportunities and increase take-home pay for employees, delivering millions of dollars to working families and rural communities.

Background

In 2016, California adopted legislation to require that agricultural employees—like workers in other sectors—be paid time-and-a-half when they work more than forty hours in a workweek or eight hours a workday. Previously, due to the seasonal nature of agriculture, farmers could employ workers for up to 60 hours a week without paying overtime.

This legislation was touted by its proponents to increase earnings for agricultural employees. But research suggests the law lowered employee earnings as employers cut hours to keep their operating costs in check –because for California agricultural producers, employees’ wages is a major production cost . During the first two years the law was phased in, the proportion of agricultural employees in California working more than 50 hours a week—the overtime threshold at that point in the phase-in—dropped by about half, according to a 2023 study by Alexandra Hill, an agricultural and resource economics professor at the University of California, Berkeley, which analyzed data from 2019 and 2020. The changes brought about by overtime legislation “may not be benefiting the workers they aim to protect,” the study concluded.

California’s world-renowned agriculture sector faces major challenges. Farmers and ranchers are struggling with rising production costs and low prices for many of the state’s signature crops. From 2017 to 2022, California lost 10% of its farms, according to the most recent Census of Agriculture released by the U.S. Department of Agriculture. An analysis by the American Farm Bureau Federation found that California farm bankruptcies rose 55% in 2024.

Because farmers sell perishable products in interstate and international markets, they are unable to raise prices for their commodities to recover the cost of overtime premium wages they must pay if they allow employees to work more than eight hours in a workday or forty hours in a workweek. Because farmers are obliged to take the price for their products the market offers to them, the economic stresses they are current experiencing means they cannot simply absorb the cost of paying overtime premium wages.

Before 2016, agricultural employees in California often counted on working up to sixty hours a week when crops were in season in anticipation of going without work for months at a time during the offseason – an average, agricultural employees in California work 36 to 40 weeks a year. Changes in overtime for agriculture have resulted in some employees losing up to a third of their hours and income, as the peak-season work week was cut back on many farms from 60 hours to 40 hours. The losses are concentrated in rural farming communities in counties with the highest poverty levels in the state.

The solution

The Ag Overtime Tax Credit would address the unintended consequences of ag overtime legislation and make good on the state Legislature’s intention to increase earnings for agricultural employees. By reimbursing farmers for overtime wages, the tax credit would incentivize farmers to restore overtime hours for employees who want them. Every dollar of the credit would go directly to paying employees.

The Ag Overtime Tax Credit:

• Is a win for agricultural workers.
• Provides more overtime pay and hours to work.
• Keeps families together by giving workers more hours and pay and therefore lets them stay in California rather than travel to other states for work.
• Allows that new income to stay in hardworking farm and rural communities thereby boosting the local economy.

Other states have already acted to restore overtime work hours on farms. Oregon created a refundable personal or corporate income tax credit for farmers based on overtime wages paid. New York created a similar agricultural overtime tax credit.

The Ag Overtime Tax Credit follows the model created by the California Film & Television Tax Credit Program, capped at $330 million a year, which has proven successful at protecting the state’s iconic film and television industry. Governor Gavin Newsom has proposed increasing the cap on that tax credit to $750 million.

The Ag Overtime Tax Credit could cost the state budget $200 million to $300 million a year, according to an estimate by the California Farm Bureau. The figure does not factor in economic benefits to farm businesses and rural communities the credit may create, or state revenues that would derive from those benefits.

As Governor Newsom said last year, “Farmworkers are the backbone of California’s nation-leading agricultural industry and play a critical role in ensuring the stability of the state, nation and world’s food supply. Investing in their well-being is investing in California’s success.”

Who supports the Ag Overtime Tax Credit?

California farmers and ranchers support improved wages for their employees and support decisions by California policymakers to forgo General Fund revenues to reimburse agricultural employers for the cost of overtime premium wages that have already been paid directly to California agricultural employees and their families.

Learn more

• California Farm Bureau: California farmworkers advocate for overtime tax credit - Video
• California Farm Bureau: New Legislation Aims to Boost Farmworker Pay and Support Agricultural Employers
• Ag Alert: State eyes Hollywood boost after denying agriculture
• Ag Alert: Tax credit proposed to offset cost of farmworker overtime
• Ag Alert: Research shows overtime law costs workers $100 per week
  
• Ag Alert: Overtime tax credit bill a plus for farmers, workers
  
• Fresno Bee: California farmers should get a tax break for overtime paid to their workers | Opinion
• Bakersfield Californian: Community Voices: From fields to families: SB 628 restores farmworker overtime pay
  

Contact

• Bryan Little, California Farm Bureau, Senior Director, Policy Advocacy; blittle@cfbf.com

Increase take-home pay for agricultural employees