The Personal Income Tax Law imposes taxes on taxable income, as provided. Under existing law, every employer who pays wages to a resident employee for services performed either within or without this state, or to a nonresident employee for services performed in this state, is required to deduct and withhold from those wages, except as provided, for each payroll, a tax computed in an amount substantially equivalent to the amount reasonably estimated to be due under the Personal Income Tax Law. Under existing law, every employer required to withhold those taxes is required to, for each calendar quarter, file a withholding report, a quarterly return, and a report of wages in a form prescribed by the Employment Development Department, and pay over the taxes required to be withheld.

This bill would authorize an employer to claim a credit in an amount equal to the amount of overtime wages, as defined, paid during that quarter to specified agricultural employees covered by a certain wage order. The bill would require the credit to be claimed on the employers report of contributions, quarterly return, and report of wages, or in an electronic funds transfer, as specified. The bill would prohibit the total amount claimed in any given quarter from exceeding the amount that would have been remitted for that quarter to the Employment Development Department for employee withholdings.

The Personal Income Tax Law imposes taxes on taxable income, as provided. Under existing law, every employer who pays wages to a resident employee for services performed either within or without this state, or to a nonresident employee for services performed in this state, is required to deduct and withhold from those wages, except as provided, for each payroll, a tax computed in an amount substantially equivalent to the amount reasonably estimated to be due under the Personal Income Tax Law. Under existing law, every employer required to withhold those taxes is required to, for each calendar quarter, file a withholding report, a quarterly return, and a report of wages in a form prescribed by the Employment Development Department, and pay over the taxes required to be withheld.

This bill would authorize an employer to claim a credit in an amount equal to the amount of overtime wages, as defined, paid during that quarter to specified agricultural employees covered by a certain wage order. The bill would require the credit to be claimed on the employers report of contributions, quarterly return, and report of wages, or in an electronic funds transfer, as specified. The bill would prohibit the total amount claimed in any given quarter from exceeding the amount that would have been remitted for that quarter to the Employment Development Department for employee withholdings.

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Lola Smallwood-Cuevas, Chair

2025 - 2026 Regular

Bill No: SB 628 Hearing Date: April 23, 2025

SUBJECT: Employment: employer contributions: employee withholdings: credit: agricultural employees

KEY ISSUE

This bill would create a payroll tax credit to reimburse agricultural employers for overtime wages paid to their agricultural employees.

ANALYSIS

Existing law:

1. Requires employers to withhold specified amounts from their employee payroll and transfer those amounts to the Employment Development Department (EDD) for purpose of paying the Unemployment Insurance Tax (UI), State Disability Insurance Tax (SDI), Employment Training Tax (ETT) and the California Personal Income Tax (PIT). (Unemployment Insurance Code (UIC) §13020 et seq.)
2. Establishes the Phase-In Overtime for Agricultural Workers Act of 2016 that provided a four-year implementation schedule for larger employers and a three-year delay for smaller employers to effectively eliminate the previous exemption of agricultural workers from overtime pay requirements. (Labor Code §857 et seq,)

This bill:

1. Authorizes an employer whose employees are covered by Wage Order No. 14-2001 of the Industrial Welfare Commission to claim a credit, as specified.
2. Provides that the amount of the credit shall be equal to the amount of overtime wages paid for that quarter to agricultural workers, as specified.
3. Limits the total amount the employer may claim in any given quarter to the amount that the employer would have remitted for that quarter to EDD for employee withholdings.
4. Provides that the employer shall claim the credit in a form and manner prescribed by EDD pursuant to either of the following:
   1. On the report of contributions, quarterly return, and report of wages required under UIC §1088.
   2. In an electronic funds transfer pursuant to UIC §1110 (f) or §13021
5. Makes the following clarifications regarding the credit:
   1. It does not change the amount of taxes the employer is required to withhold from employees and report to the employee, EDD, the Franchise Tax Board, and the Internal Revenue Service.
   2. It does not require the employee to pay additional taxes or otherwise alter the employee’s tax liability.
   3. It makes a declaration that the Legislature intends that the bill’s operation does not require an appropriation of moneys by reducing moneys remitted by the employer to the EDD that would otherwise be deposited in the General Fund.
6. Authorizes EDD to adopt rules and regulations necessary or appropriate to implement the bill’s provisions.
7. Makes the following definitions:
   1. “Employee” has the same meaning as that term is used in Sections 3205, 3205.1, 3205.2, and 3205.3 of Title 8 of the California Code of Regulations, as those sections read on January 1, 2023.
   2. “Overtime wages” means the difference between the employees’ overtime rate of pay and their regular rate of pay.
   3. “Quarterly return” means the form on which the employer reports its employer contributions and employee withholdings pursuant to this code.
8. Makes the following Legislative Findings and Declarations:

• 1. California’s agricultural industry is facing historic economic challenges. A few thousand California farmers and ranchers will likely go out of business in the next two or three years.
     1. Climate change-induced drought has caused California’s irrigated farmland to shrink by 752,000 acres in the last five years. According to the United States Department of Agriculture’s 2022 Census of Agriculture, the number of California farms fell 10.5 percent between 2017 and 2022, a decrease of 7,387 farms. In 2024, the United States Secretary of Agriculture called the numbers in the 2022 Census of Agriculture a “wake-up call.”
     2. The Department of Food and Agriculture reported that in 2023, California’s farms and ranches received $59.4 billion in cash receipts for their output. This represents a 1.4-percent increase in cash receipts compared to the previous year. This was significantly behind California’s inflation rate in 2023 that was 3.9 percent as measured by the California Consumer Price Index. This means that in 2023, California’s agricultural industry was $1.5 billion behind simply keeping up with inflation, which would have been breaking even.
     3. In January 2024, at the State of the Industry at the Unified Wine and Grape Symposium, the California wine industry was urged to remove 50,000 acres of grapevines statewide to correct the oversupply issue. In 2024, the French government saw the same problem and allocated €120,000,000 in subsidies aimed at funding the permanent removal of vineyards. Their objective was to remove up to 100,000 hectares of vineyards in France. In 2023, the French government provided $215,000,000 in funding to wineries to sell off their surplus wine. To date, California has provided no similar financial support for California wineries and vineyards that are competing in a global market.
     4. In August 2024, AgWest Farm Credit reported high interest rates, falling farm income, shifting water availability, and regulations are among the main drivers lowering agricultural land values in California.
     5. In September 2024, AgWest Farm Credit conducted a profitability analysis of its core commodities and reported that only the cattle industry is “profitable.”
  2. California’s 400,000 agricultural employees face incredible challenges and need help.
     1. The Public Policy Institute of California in 2022 reported, “A trend taking shape over decades is the increasingly settled nature of farm work, with workers living in the United States year-round. In the past, patterns of settling were quite different by immigration status.” This report highlights the need of agricultural employees for year-round services including health care.
     2. A November 2024 report from the Rural Health Information Hub stated, “The challenges that rural residents face in accessing healthcare services contribute to health disparities.” The barriers to healthcare access include distance and transportation, healthcare workforce shortages, cost of insurance, and lack of access to broadband, privacy, and health literacy.
     3. Work in vineyards, orchards, and fields is hard work. Section 858 of the Labor Code states, “Agricultural employees engage in back-breaking work every day. Few occupations in today’s America are as physically demanding and exhausting as agricultural work.” Yet Section 3441 of Title 8 of the California Code of Regulations is a barrier to using technology to make the work safer and less labor intensive.
     4. Agricultural employees have a difficult time finding housing in California as the state has some of the highest housing prices in the nation. In the coastal area of the Counties of Monterey and Santa Cruz, a consortium of local agencies released a housing report in 2018 that found that about 73,000 agricultural employees live in the Salinas and Pajaro Valleys year round. An estimated 77 percent live in overcrowded or extremely overcrowded conditions, with multiple families sharing bedrooms. Little has been done by the State of California to help create new agricultural housing.
     5. Regarding other state’s approach to addressing this issue:
        1. Recognizing the needs and importance of supporting its agricultural employees, the Oregon Legislature approved House Bill 4002 in April 2024. The measure requires agricultural employers to pay certain workers for overtime hours worked and created a refundable personal or corporate income tax credit for employers for a percentage of wages paid as overtime pay to agricultural workers for calendar years 2023 through 2028.
        2. The State of New York has also created a farm employer overtime credit. The credit is 118 percent of the overtime hours the agricultural employer paid multiplied by the difference between the employees’ overtime rate of pay and their regular rate of pay.
  3. In 2016, the Legislature passed legislation that was intended to increase the take-home pay of California agricultural employees who are working overtime.
     1. It was the intent of the Legislature, “to enact the Phase-In Overtime for Agricultural Workers Act of 2016 to provide any person employed in an agricultural occupation in California, as defined in Order No. 14-2001 of the Industrial Welfare Commission (revised 07-2014) with an opportunity to earn overtime compensation under the same standards as millions of other Californians.”
     2. According to a 2023 study by the University of California, Berkeley, California farmworkers have made less money since the Phase-In Overtime for Agricultural Workers Act of 2016 became law. The study concluded, “This early evidence suggests that the law may not be benefiting the workers they aim to protect.”
     3. The USDA Farm Labor Survey found that the average weekly hours of directly hired California workers fell relative to the average weekly hours of all United States directly hired farm workers. In 2016, California’s directly hired farm workers averaged 2.7 more hours a week than all United States farm workers. That fell to 1.9 more hours a week in 2019, 0.1 more hours in 2021, and one less hour in 2023, which means that directly hired California farm workers averaged an one hour less per week in 2023 than all United States farm workers.
  4. As California’s agricultural industry faces economic challenges causing the reduction of overtime hours available to employees, the unintended consequence of the Phase-In Overtime for Agricultural Workers Act of 2016 is that employees are losing money. Therefore, it is in the public interest to support agricultural employees through public financial support of overtime wages.
     1. The intent of enacting Section 13200 of the Unemployment Insurance Code is to recognize the findings and declarations in subdivisions (a) through (c), inclusive, and to provide a much-needed investment in the well-being of agricultural employees.
     2. In September, 2024, Governor Gavin Newsom stated, “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.”

COMMENTS

1. Need for this bill?

According to the author:

“AB 1066 was approved in 2016 and required that farm workers receive overtime wages for overtime hours. The law was built on an assumption that employers would keep providing the same amount of overtime hours to be worked. However, data has shown that agricultural employers could not afford to pay those wages. Consequently, those overtime hours were reduced substantially.”

2. Proponent Arguments

According to the California Association of Winegrape Growers and the California Farm Bureau:

“The agricultural overtime law was intended to help farm workers. The law specifically states, it was the intent of the Legislature, ‘to enact the ‘Phase-In Overtime for Agricultural Workers Act of 2016’ to provide any person employed in an agricultural occupation in California, as defined in Order No. 14-2001 of the Industrial Welfare Commission (revised 07-2014) with an opportunity to earn overtime compensation under the same standards as millions of other Californians.’

But as predicted during the debate on AB 1066, and for the reasons enumerated in the UC report, that opportunity has not been realized. This is because when agricultural employers cannot afford to pay overtime wages, overtime hours will not be available to employees.

This means that the agricultural overtime law has not only failed to meet the needs of farm employees, but it is also causing financial harm to those same farm employees while hurting ag employers and rural communities as well.”

3. Opponent Arguments:

According to the California Federation of Labor Unions:

“Ultimately, SB 628 would set a harmful precedent for California, as it would require the state to pay employers to follow existing law. The Legislature passes, and the Governor signs into law, bills with which they intend and expect residents and businesses to comply, regardless of economic or other circumstances. Instead of honoring the hard-won protections in AB 1066, this bill represents employers’ further attempts to exempt themselves from labor law, only this time they also want the state to foot the bill. At a time when the California legislature is debating how to allocate tax dollars to fund all the state’s priorities in education, housing, health and human services, infrastructure, energy, etc., this proposal is additionally harmful. Farm workers deserve equal rights and protections in law, and employers should not have to be subsidized to comply.”

4. Prior Legislation:

AB 3056 (Gallagher, 2024) sought to repeal the specified provisions of the phase-in of overtime for agricultural workers and provide that agricultural workers shall be entitled to one-half times their regular rate of pay for all hours worked over 45 hours in any workweek, or over 48 hours if the employer employees 25 or fewer employees. The bill died in the Assembly Labor and Employment Committee.

SB 375 (Alvardo-Gil, 2023) would have provided a tax credit, as specified, to employers for their costs to comply with Cal/OSHA’s COVID-19 Prevention / Non-Emergency Standard regulation. The bill died in the Senate Appropriations Committee.

AB 1066 (Gonzalez, Chapter 313, Statutes of 2016), enacted the Phase-In Overtime for Agricultural Workers Act of 2016, as specified.

AB 1313 (Allen, 2011) would have made daily overtime statutory provisions that require overtime for hours worked in excess of eight hours in one workday applicable to agricultural employees, as specified. The bill died in the Assembly on concurrence.

SB 1121 (Florez, 2010, Vetoed) would have removed the exemption on agricultural workers from overtime and meal period requirements. The Governor vetoed the measure.

SUPPORT

California Association of Winegrape Growers (Co-sponsor)

California Farm Bureau (Co-sponsor)

Agricultural Council of California

Almond Alliance

American Pistachio Growers

CA Cotton Ginners & Growers Association

California Avocado Commission

California Chamber of Commerce

California Cotton Ginners & Growers Association

California Fresh Fruit Association

California League of Food Producers

California Rice Commission

California State Beekeepers Association

California Walnut Commission

Central Valley Community Foundation

County of Fresno

Family Winemakers of California

Fowler Packing Company, INC.

Greater Bakersfield Chamber of Commerce

Grower-shipper Association of Central California

Kern County Farm Bureau

Kern County Supervisor 2nd District

Kern County Supervisor Jeff Flores

Kern County Veterans Chamber of Commerce

Kern Economic Development Foundation

Milk Producers Council

National Federation of Independent Business

Tulare County Farm Bureau

Western Growers Association

Western Tree Nut Association

Wine Institute

OPPOSITION

California Federation of Labor Unions

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