(1)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 specify a refund of any credit amounts exceeding the amount that would have been remitted for that quarter to the Employment Development Department for employee withholdings. The bill would make implementation of the above-described refund contingent upon appropriation by the Legislature.

(2)Existing law requires farm labor contractors to be licensed by the Labor Commissioner and to comply with specified employment laws applicable to farm labor contractors. Existing law requires a person acting in the capacity of a farm labor contractor to provide a grower with whom the contractor has contracted to supply farmworkers a payroll record for each farmworker providing labor under the contract. Existing law requires the above-described payroll record to include certain disclosures, including the net and gross wages earned by each farmworker. Under existing law, a person who violates farm labor contractor requirements is guilty of a misdemeanor.

This bill would, instead, require the above-described disclosure to include the net and gross wages earned, less the amount of credit the farm labor contractor received pursuant to the above provisions, by each farmworker. By imposing a new requirement on farm labor contractors, the violation of which is a crime, the bill would impose a state-mandated local program.

(3)The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Lola Smallwood-Cuevas, Chair

2025 - 2026 Regular

Bill No: SB 921 Hearing Date: April 22, 2026

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

KEY ISSUE

This bill creates a payroll tax credit to reimburse agricultural employers for overtime wages paid to their agricultural employees, as specified.

ANALYSIS

Existing law:

1. Establishes the Department of Industrial Relations (DIR) in the Labor and Workforce Development Agency (LWDA), and vests it with various powers and duties to foster, promote, and develop the welfare of the wage earners of California, to improve their working conditions, and to advance their opportunities for profitable employment. (Labor Code §50.5)
2. Sets wage, hour, and meal break requirements, and other working conditions for employees and requires an employer to pay overtime wages to an employee who works in excess of a workday or workweek. (Labor Code §§500-556, 558)
3. Establishes, under the Phase in Overtime for Agricultural Workers Act of 2016, an implementation schedule for large employers and small employers that phases in overtime requirements for persons employed in an agricultural occupation, as defined. (Labor Code §§857-964)
   1. Beginning January 1, 2022, requires that any work performed by a person employed in an agricultural occupation in excess of 12 hours per day be compensated at a rate no less than twice the employee’s regular rate of pay.
   2. Beginning January 1, 2025, for an employer who employs 25 or fewer employees, requires that any work performed by a person employed in an agricultural occupation in excess of 12 hours per day be compensated at a rate no less than twice the employee’s regular rate of pay.
   3. Requires DIR to update Wage Order No. 14-2001 of the IWC to be consistent with these provisions, except in specified circumstances the wage order provides greater protections or benefits to agricultural employees.
   4. Specifies “employed in an agricultural occupation” has the same meaning as in Order No.14-2001 of the Industrial Welfare Commission (revised 07-2014).
4. Establishes the Industrial Welfare Commission (IWC) within DIR, to regulate wages, hours and working conditions in California. (Labor Code §§70-74)
5. Establishes the Employment Development Department (EDD) within the LWDA. EDD is responsible for, among other duties, the administration of the Unemployment Insurance (UI) and Disability Insurance (DI) programs. (Unemployment Insurance Code §301)
6. Requires employers to withhold specified amounts from their employee payroll and transfer those amounts to the EDD for purpose of paying the Unemployment Insurance (UI) Tax, State Disability Insurance (SDI) Tax, Employment Training Tax (ETT) and the California Personal Income Tax (PIT). (Unemployment Insurance Code §13020 et seq.)
7. Requires every licensed farm labor contractor to, among other things, make specified disclosures to employers and workers, maintain specified records, promptly pay all moneys owed to workers, conspicuously post information related to workers' rights, provide mandated training, including sexual harassment prevention training for all supervisors and farm workers, and comply with all federal law requirements, as specified. (Labor Code §1695-1696)

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 is equal to the amount of overtime wages paid for that quarter, as specified, to employees who are covered by Wage Order No. 14-2001.
3. Provides that the credit must be claimed, in a form and manner prescribed by the department, pursuant to either of the following:
   1. On the report of contributions, quarterly return, and report of wages, as specified.
   2. In an electronic funds transfer, as specified.
4. Provides that this section does not change the amount of taxes required to be withheld from employee, as specified, and required to be reported to the employee, the EDD, the Franchise Tax Board (FTB), and the Internal Revenue Service (IRS).
   1. This section does not require additional taxes to be paid by the employee or otherwise alter the employee’s tax liability, as specified.
   2. It is the intent of the Legislature that the operation of this section 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.
5. Authorizes EDD to adopt rules and regulations that are necessary or appropriate to implement this section.
6. Defines the following terms for purposes of this section:
   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, as specified.
7. Provides that for the payroll record that a farm labor contractor has to provide to any grower, includes a disclosure of the net and gross wages, minus the amount of credit the farm labor contractor received, as specified, in addition to total hours worked, and total hourly and piece rate earnings for each farmworker.
8. Requires the employer to receive a refund, as specified, if the total amount claimed, as specified, in any given quarter exceeds the amount that would have been remitted by that employer for that quarter to the EDD for employee withholdings, as specified.
   1. Implementation of this section is contingent upon appropriation of sufficient funding by the Legislature in the annual Budget Act or other statute for that purpose.
9. Makes a series of legislative findings and declarations.

COMMENTS

1. Background:

Overtime Pay

In 1938, Congress passed the Fair Labor Standards Act (FLSA), which established minimum requirements for labor laws in all states. The FLSA establishes minimum wage, overtime pay, recordkeeping, and child labor standards affecting employees in the private sector and in federal, state, and local governments. As with all provisions with the FLSA, states are allowed to exceed the requirements laid out in the federal law.

In California, the general overtime provisions are that a nonexempt employee shall not be employed more than 8 hours in any workday or more than 40 hours in any workweek, unless they receive overtime pay. In California, employees are required to be compensated for overtime at no less than:

• One and half times the employee’s regular rate of pay for all hours worked in excess of 8 hours, up to 12 hours, in any workday, and for the first 8 hours worked on the seventh consecutive day of work in a workweek, and
• Double the employee’s regular rate of pay for all hours worked in excess of 12 hours in any workday, and for all hours worked in excess of 8 hours on the seventh consecutive day or work in a workweek.

There are several exemptions and exceptions from California’s overtime law, meaning that overtime law does not apply to certain employee classifications, and that overtime is paid to a certain classification of employees on a different basis as well.

Agricultural Workers and Overtime Pay

Under the FLSA, agricultural employees are exempt from overtime pay provisions. They do not have to be paid time and one-half their regular rates of pay for hours worked over 40 per week under the FLSA. California law had been silent on issue of overtime for agricultural employees until 1941. In 1941, however, the California Legislature exempted all agricultural employees from the statutory requirements of overtime, similar to the FLSA. This statutory exemption was retained when the eight-hour day was codified in 1999.

This statutory exemption, however, did not prohibit the IWC from legally promulgating overtime provisions beyond the traditional eight-hour standard of California law. Prior to the passage of AB 1066 in 2016 (as described below), the applicable wage order for agricultural employees required the payment of overtime wages when an agricultural employee works longer than 10 hours in a single day, and more than six days during any workweek.

Industrial Welfare Commission (IWC) Wage Orders

The IWC is a commission under DIR made up of five members, appointed by the Governor and approved by the Senate, responsible for setting the wages, hour of work, and working conditions of California employees. The IWC has 17 “Wage Orders.”

Wage Order 14, or IWC Order No. 14-2001, applies to agricultural employers and employees.^[1] Agricultural workers are defined in Wage Order 14 and includes employees engaged in the preparation, care, and treatment of farmland as well as the care and harvesting of crops.

Phase in Overtime for Agricultural Workers Act of 2016

In 2016, the Governor signed AB 1066 (Gonzalez, Chapter 313), also known as the Phase-in Overtime for Agricultural Workers Act of 2016. AB 1066 created a phase-in schedule for agricultural workers to receive overtime pay. It created two timelines:

• Larger agricultural employers (with 26 or more employees) will have to pay their employees overtime (1.5 times the regular rate of pay) after 8 hours per day or 40 hours per week by January 1, 2022.
• Smaller agricultural employers (with 25 or fewer employees) will have to pay their employees overtime after 8 hours per day or 40 hours per week by January 1, 2025.
• In addition, agricultural employees will begin to receive double the employee’s regular rate of pay after 12 hours in any workday beginning January 1, 2022 (for large employers) and January 1, 2025 (for small employers).

AB 1066 ensured that by January 1, 2025, all agricultural employees would receive overtime pay on the same basis as workers in most other industries.

Agricultural employees are also entitled to time and one-half pay for the first 8 hours worked on the seventh consecutive day of work and double-time pay for all work performed in excess of 8 hours on the seventh consecutive day of work. These protections from Wage Order 14 (Agricultural Employers) continue to apply, consistent with Labor Code section 510, regardless of employer size.

Agricultural workers also became entitled to all statutory protections in the working hours and overtime requirements in Labor Code Sections 500 through 556, and Labor Code Section 558.1, from which they were previously excluded. This includes standards regarding meal periods, alternative workweek schedules, make-up work time, the one day’s rest in seven requirement, and the administrative, executive, or professional overtime exemption standard.

2. Committee Comments:

This bill seeks to create a payroll tax credit to reimburse agricultural employers for overtime wages paid to their agricultural employees. As noted above, when the Legislature enacted AB 1066, they created two schedules to allow agricultural employers and other small employers to gradually phase-in this requirement in order for employers to adjust and absorb additional costs. By creating a payroll tax credit to reimburse agricultural employers for overtime wages, it sets a troubling precedent. The committee must consider its responsibility to ensure that California employers appropriately compensate their employees, including agricultural employees, for their labor.

Opponents argue that this bill would essentially reward agricultural employers who already have a legal responsibility to pay their agricultural employees for overtime hours worked, and that this bill does not honor the protections agricultural employees earned with passage of AB 1066 by making “the state foot the bill.”

Proponents point to research^[2] by the UC Berkeley’s Department of Agricultural and Resource Economics that shows that on average, there has been a decrease in farmworkers’ hours and wages in the first two years since AB 1066’s implementation. However, the research further states that “overall, the results are consistent with employers cutting hours to avoid paying the higher overtime rate.”

3. Need for this bill?

According to the author, “AB 1066 was approved in 2016 and required that farm workers receive overtime premiums (50% of the employee’s regular rate of pay) for hours worked after 8 in a workday and 40 in a work week. 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 overtime premiums. Consequently, those overtime hours were reduced substantially.

SB 921 would create a payroll tax credit to reimburse agricultural employers for overtime wages paid to their agricultural employees. The goal is to increase overtime hours for agricultural workers, increasing their take home pay, and alleviating the financial pressures felt throughout rural California.”

4. Proponent Arguments:

According to the California Farm Bureau and California Association of Winegrape Growers, co-sponsors of this bill:

“SB 921 […] creates a tax credit for agricultural employers equal to the amount they pay in overtime wages to agricultural employees. Since AB 1066 took effect in 2017, agricultural employees have seen a steady drop in take-home pay as ag overtime wages have declined.

SB 921 addresses a very linear situation: When agricultural employers cannot afford to pay overtime wages, overtime hours will fall and take-home pay for agricultural employees will decline as well. This reality was verified by a study by UC Berkely which documented the detrimental effects of AB 1066 (approved in 2016) on agricultural employees.

This bill deals with this problem by providing a tax credit to make it possible for agricultural employers to offer overtime hours and the opportunity for agricultural employees to earn both the hourly straight-time wage and overtime premiums again. SB 921 will help accomplish the stated goal of AB 1066 – increasing take-home pay for agricultural employees.”

5. Opponent Arguments:

According to the California Federation of Labor Unions, who are in opposition to this bill:

“In 2016, California passed AB 1066 (Gonzalez), providing overtime pay for farm workers. The law simply requires employers to pay workers overtime, similar to what every other employer in California is required to do. AB 1066 included a reasonable timetable to phase in overtime pay for farm workers until 2022, when they would be entitled to overtime pay after 40 hours a week. It also allowed small employers, those with 25 or fewer employees, an additional 3 years to comply until 2025. Yet, employers vehemently fought, and continue to fight, this basic labor protection that covers every other worker so they could continue to exempt themselves from paying overtime.

SB 921 states that the intent of the bill is “to provide a much-needed investment in the well-being of agricultural employees.” AB 1066 did just that. It invested in farm workers’ well-being to ensure they are paid overtime for the long, arduous hours they work producing the agricultural bounty that feeds the nation and drives the state’s economy. That bill was just one step to addressing the challenges facing farm workers, many stemming from low-pay and long hours—all challenges that employers have the power to address on their own through increased wages, better working conditions, and collective bargaining with union representatives. Yet, employers have fought legislation and unionization drives, intended to directly improve farm workers’ well-being, which do not just help them, but provide legal protections and a seat at the table to negotiate with employers as equals.

Ultimately, SB 921 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 health care, education, housing, 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.”

6. Prior Legislation:

SB 628 (Grove, 2025) is substantially similar to this bill and would have created a payroll tax credit to reimburse agricultural employers for overtime wages paid to their agricultural employees. This bill failed passage in the Senate Labor, Public Employment and Retirement Committee.

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 failed passage 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 was held under submission in the Senate Appropriations Committee.

AB 1066 (Gonzalez, Chapter 313, Statutes of 2016), enacted the Phase-In Overtime for Agricultural Workers Act of 2016, which removed the exemption for agricultural employees regarding hours, meal breaks, and other working conditions, including specified wage requirements, and created a schedule that would phase in overtime requirements for agricultural workers, as defined, over the course of 4 years, from 2019 to 2022, inclusive. Beginning January 1, 2022, the bill required any work performed by a person employed in an agricultural occupation in excess of 12 hours in one day to be compensated at the rate of no less than twice the employee’s regular rate of pay. The bill provided employers who employ 25 or fewer employees an additional 3 years to comply with the phasing in of these overtime requirements. The bill required DIR to update a specified wage order for consistency with these provisions, as specified.

SUPPORT

California Association of Winegrape Growers (Co-sponsor)

California Farm Bureau (Co-sponsor)

24 Carrot Farm, LLC

Agricultural Council of California

Allied Grape Growers

Almond Alliance of California

California Citrus Mutual

California Cotton Ginners and Growers Association, INC.

California Fresh Fruit Association

California Strawberry Commission

California Walnut Commission

Exeter Chamber of Commerce

Fowler Packing Company, INC.

Greater Bakersfield Chamber of Commerce

Grower-Shipper Association of Central California

JSM Organics, INC.

Kern County Farm Bureau

Munger Farms

Proteus, INC.

Tulare County Farm Bureau

Tulare County Supervisor Dennis Townsend

Western Tree Nut Association

OPPOSITION

California Federation of Labor Unions

California Rural Legal Assistance Foundation

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1. IWC 14-2001, https://www.dir.ca.gov/IWC/WageOrders2024/IWCArticle14.pdf ↑

2. Hill, Alexandra E., “California’s Overtime Law for Agricultural Workers: What Happened to Worker Hours and Pay?” Giannini Foundation of Agricultural Economics, University of California. Oct. 2023. https://s.giannini.ucop.edu/uploads/pub/2023/12/13/v27n1_1.pdf ↑