What is salary?
Folks who have worked in a salary position before know the basics: salaried employees don’t get paid by the hour. They get paid a flat amount regardless of hours worked. In other words, salaried employees do not get paid overtime for hours worked over 40 in the week. On the bookkeeping side of things, salary can also simplify payroll. Sounds pretty great, right?
Before going too far, a few words of caution on what salary is NOT. Salary is not a strategy to avoid paying minimum wage. If minimum wage is required, the employer must pay it. Salary is also not a strategy to manage cash flow by doing payroll less often or in a lump sum. State and federal laws require that wages be paid out at certain intervals, usually at least monthly, and salary doesn’t change anything there.
With a clear idea of what salary is and isn’t, let’s explore when it might be a good compensation strategy for a farm or ranch.
When to Consider Paying Salary
For many farmers and ranchers, paying by salary doesn’t offer much benefit. This is because the key benefit of paying salary is that the salaried employee isn’t eligible for overtime pay at all hours worked over 40 in a week. But, and many farms and ranches are exempt from overtime requirements. So basically, the benefit of salaried compensation is avoiding something many agricultural employers don’t have to do in the first place. However, some farm businesses are required to pay overtime and for them, paying by salary can be a real game changer.
So which farms are required to pay overtime? It’s complex, but gives strong guidelines to abide by.
Let’s first look at who does NOT have to pay overtime. Most farms/ranches do not pay overtime for hours worked over 40 in the week and under federal law they are NOT required to pay overtime for agricultural labor, being the work of tending to crops and/or livestock and related wholesale marketing of the farm’s own agricultural products. Many states also adopt the same federal law and farmworkers in those states are not entitled to overtime pay. However, not every state follows federal law. Some states like California, New York, and Minnesota are more strict and do require that overtime wages be paid even for agricultural labor. If you’re wondering what your state’s rules are, read Farm Commons’ Selected Essentials in Farm Employment Law guide for your state.
Generally, farm businesses that assign non-agricultural labor DO owe overtime to employees doing that work for hours worked over 40 in the week. When non-agricultural labor is performed, the farm loses the exemption from overtime that an employee who performs exclusively agricultural labor is afforded. Many farms that host on-farm events, have a farm store, and sell at market might fear they can’t possibly afford overtime wages. This is where salary may be an especially attractive option for compensating employees.
Now this isn’t about using the law to avoid paying employees fairly and justly, this is about efficiently managing employment responsibilities in a manner that honors employees and the longevity of the farm business, while ensuring the work that’s needed gets done. Rather than having overtime costs limit a farm’s viability through diversification, some farmers and ranchers can offer selected workers a salary. If specific criteria are met, then the farm may not owe these select workers time and a half for all hours worked over 40 in the week.
If you are paying (or are obligated to pay overtime) and salary seems like a potential solution, don’t go running off to your payroll provider to set it just yet. The law says only certain employees are eligible to be paid a salary, so let’s walk through that next.
According to the law, salary can be used to avoid overtime pay for employees who fit certain categories. These categorical exemptions to overtime go by three broad names:
- Executive exemption
- Administrative exemption
- Professional exemption
It comes as no surprise that the employees who qualify for salary treatment can be generally described as executives, administrators, and professionals! But, let’s work through each of them specifically, as titles can be misleading.
The administrative and professional exemption are not viable possibilities for manual labor positions and so most farms and ranches will look at the Executive Exemption. Still, we provide background on the Administrative and professional exemptions for the desk jobs that exist on some farms after the Executive Exemption.
The most likely suitable exemption for farm and ranch businesses is the Executive Exemption. “Executive” doesn’t mean the person has to be a CEO or other formal executive officer. It means the employee must be (1) managing and regularly directing the work of at least 2 other full-time employees or their equivalent. This worker should also have (2) the authority to hire and fire other employees, in addition to giving suggestions for which staff deserve promotions. Lastly, the Executive Exemption requires that the employee must (3) be making at least $684 in gross wages per week for every week in which they do ANY work. Most people don’t think about salary in terms of the week, so let’s say that’s the same as an annual salary of about $35,568 for the year. Keep in mind that this income threshold may change in the future. These are 2022 numbers we’re working with here.
Most states also adopt this salary exemption basis into their laws, but variations on the theme exist. Double check for your state before relying on this exemption.
Let’s also discuss our options for farms that offer desk jobs as opposed to positions involving manual labor. These farms may consider the Administrative and Professional Exemptions.
The Administrative Exemption offers the following criteria: 1) The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and 2) The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Many farms will have workers whose job relates to general business operations, definitely. Many farm workers also exercise discretion and judgment around significant matters like which tomatoes are ripe and whether an animal is in distress. But the problem is in the specific limiting of this exemption to “non-manual work.” Most farm work is manual, unless the position is primarily in the office. Farms that hire marketing help, order coordinators or other office jobs may find good opportunity in this exemption.
Lastly, the Professional Exemption outlines the following criteria: 1) the employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; and 2) The advanced knowledge must be in a field of science or learning. These criteria are tricky. Much of farm work is intellectual in character and does require consistent exercise of judgment. Farming is a field of science. But, the problem is that the intent of overtime was to protect manual laborers and limit workers’ bodies from undue wear and tear. Although it feels disrespectful to say farming isn’t primarily intellectual and isn’t a field of science, it is quite risky to use this exemption for a farm work position. It simply wasn’t the intent and if the situation ever landed in court, a farm would have an uphill climb to prove farm worker eligibility for this exception.
Tips for moving forward
Now that you’ve got a good basic understanding of when and why to pay salary on the farm, you’re in a better position to move forward by following these 3 tips:
- Identify whether or not you’re required to pay overtime to your employee(s). Reference Selected Essentials for Farm Employment Law for your state.
- If overtime is required, decide whether to pay it where required or explore alternative solutions, including paying salary.
- If the farm chooses to follow the Executive, Administrative or Professional Exemption, the farm should first explore state law to confirm that their state follows a similar framework.
- If state law also allows the desired exemption, the farm should put the paperwork and documentation in place to show that they meet the criteria for the exemption before going forward with salaried wages that don’t provide overtime.