Overtime phase-in for sheepherders under AB 1066

STATE OF CALIFORNIA Gavin Newsom, Gaverrwr
DEPARTMENT OF IN DUSTRIAL RELATIONS
Division of Labor Standards Enforcement
Headquarters Office
1515 Clay St., Suite 401
Oakland, CA 94612
Tel: (510) 285-2118 Fax: (510) 285-1365

July 26, 2019

George H. Soares
Kahn, Soares & Conway, LLC
1415 L Street, Suite 400
Sacramento, CA 95814

     Re: Application ofAB 1066's Overtime Phase-In to Sheepherders

Dear Mr. Soares:

Thank you for contacting the Labor Commissioner's Office on behalf of the California Wool
Growers Association regarding the application of new agricultural overtime mles to sheepherders,
which commenced on Januaiy 1, 2019 pursuant to AB 1066 (Chapter 313, Statutes of 2016, Labor
Code sections 857-864). You have asked for the Labor Commissioner's interpretation concerning
how to calculate overtime for sheepherders who earn a monthly minimum wage for all hours
worked. (See Labor Code section 2695.2(a); Industrial Welfai·e Commission ("IWC") Wage
Order Number 14 ("Wage Order 14") subd. 4(E), Cal. Code Regs., tit. 8, § 11140, subd. 4(E).) 1

By way of background, we note that the Labor Code and Wage Order 14 contain specific
provisions for sheepherders. Labor Code section 2695.2, subdivision (a)(l), which was enacted in
2001 , provides that where a sheepherder is employed on a regulai·ly scheduled 24-hour shift on a
seven-day-a-week "on call" basis, an employer may, as an alternative to paying the minimum
wage for all hours worked (the state minimum wage is set fo1th in Labor Code section 1182.12 and
Wage Order 14 subd. 4(A)), instead elect to pay the sheepherder monthly minimum wage adopted
by the IWC on April 24, 2001. This letter addresses the situation where the election under this
section has been made, which we understand pertains to most, if not all, sheepherders in the state.
The amount of this monthly 1ninimum wage increases in tandem with the state minimum wage by
applying the same percentage increase of the new rate over the previous rate to the 1ninimun1
monthly wage rate. (See Lab. Code,§ 2695.2, subd. (a)(2).) As the state minimum wage rates are
cmTently staggered depending on whether the employer employs 26 or more employees or 25 or
fewer employees, the cunent monthly minimum wage amom1ts for sheepherders employed on a
regulai·ly scheduled 24-hour shift on a seven-day-a-week "on call" basis are similarly dependent
on whether the employer employs 26 or more employees or 25 or fewer employees, as provided in
Wage Order 14 section 4(E).

1 "Sheepherder" as defined under Wage Order 14 means "any individual who is employed to do any of the following:

tend flocks of sheep grazing on range or pasture; move sheep to and about an area assigned for grazing; prevent sheep
from wandering or becoming lost, or using trained dogs to round up strays and protect sheep against predators and the
eating of poisonous plants; assist in the lambing, docking, and shearing of sheep; provide water or feed supplementaiy
rations to sheep; or perfonn the work of a sheepherder pursuant to an approved j ob order filed under the provisions of
Section l 01 (a)(l 5)(H)(ii)(a) of the federal Immigration and Nationality Act ( commonly refeITed to as the "H-2A"
program (see 8 U .S.C. Section 11 01 et seq.), or any successor provisions." (Cal. Code Regs., tit. 8, § 11 140, subd.
2(N).)

Letter to Mr. Soares
July 26, 2019
Page 2

While we recognize there is no clear legislative history discussing sheepherders in the new
overtime rules, the language of the statute itself now encompasses overtime for sheepherders. In
order to compute the correct overtime rate it is necessary to harmonize the specific statutory and
Wage Order 14 provisions regarding the monthly minimum wage for sheepherding work with
the new overtime requirements in AB 1066. The Legislature intended the special sheepherder
provisions to be “in addition to, and . . . entirely independent from, any other statutory or legal
protections, rights, or remedies that are or may be available under this code or any other state
law or regulation . . . .” (Lab. Code, § 2695.1, subd. (a).) When the Legislature enacted AB
1066 and mandated — notwithstanding any other provision of law — that any person employed
in an agricultural occupation in California shall receive overtime compensation for work that is
performed beyond the new overtime thresholds, this overrode sheepherders’ historic overtime
exemption in the Labor Code and under Wage Order 14. (See Lab. Code, § 860.) However, the
Legislature did not specify how the new overtime rules would apply to sheepherders earning a
monthly minimum wage. As explained below, the Labor Commissioner’s Office has determined
that the best way to apply the overtime phase-in to sheepherders earning a monthly minimum
wage is to take into account both that the monthly wage is intended to constitute a minimum
wage for all hours worked, and that sheepherders are now entitled to earn an overtime premium
for hours worked in excess of the weekly phase-in thresholds. 2

In California, as under the federal Fair Labor Standards Act (“FLSA”), overtime is computed
based on the regular rate of pay. The Division of Labor Standards Enforcement (“DLSE”),
directed by the Labor Commissioner, has taken the position that the failure of the IWC to define

2 Labor Code sections 860 and 862 and Wage Order 14 section 3 set forth the overtime phase-in schedule for

agricultural workers covered by Wage Order 14. For employers of more than 25 employees: Starting January 1,
2019, an employee shall not be employed more than nine and one-half (9½) hours per workday or fifty-five (55)
hours per workweek unless the employee receives one and one-half (1½) times such employee’s regular rate of pay
for all hours worked over nine and one-half (9½) hours in any one workday or more than fifty-five (55) hours in any
one workweek. Starting January 1, 2020, an employee shall not be employed more than nine (9) hours per workday
or fifty (50) hours per workweek unless the employee receives one and one-half (1½) times such employee’s regular
rate of pay for all hours worked over nine (9) hours in any one workday or more than fifty (50) hours in any one
workweek. Starting January 1, 2021, an employee shall not be employed more than eight and one-half (8½) hours
per workday or forty-five (45) hours per workweek unless the employee receives one and one-half (1½) times such
employee’s regular rate of pay for all hours worked over eight and one-half (8½) hours in any one workday or more
than forty-five (45) hours in any one workweek. Starting January 1, 2022, an employee shall not be employed more
than eight (8) hours per workday or work in excess of forty (40) hours per workweek unless the employee receives
one and one-half (1½) times such employee’s regular rate of pay for all hours worked over eight (8) hours in any
workday or more than forty (40) hours in any workweek and double the employee’s regular rate of pay for all hours
worked over twelve (12) hours in any one workday. For employers of 25 or fewer employees, the above-referenced
overtime thresholds phase-in beginning January 1, 2022 through January 1, 2025. In addition, pursuant to Labor
Code sections 861 and 862(b), other provisions of the Labor Code regarding compensation for overtime work, such
as section 510, now apply to sheepherders. This includes section 510, subdivision (a)’s requirement that the first
eight (8) hours worked on the seventh (7th) day of work in any one workweek be compensated at the rate of no less
than one and one-half (1½) times the employee’s regular rate of pay, and that any work in excess of eight (8) hours
on any seventh (7th) day of a workweek shall be compensated at a rate of no less than twice the employee’s regular
rate of pay.

Letter to Mr. Soares
July 26, 2019
Page 3

the term “regular rate” indicates the IWC’s intent that California will adhere to the standards
adopted by the U.S. Department of Labor for purposes of the FLSA to the extent that those
standards are consistent with California law. (See, e.g., DLSE Enforcement Policies and
Interpretations Manual (“DLSE Manual”) § 49; DLSE Opn. Letter No. 2003.01.29, Calculation
of Regular Rate of Pay (2003) pp. 2 fn.1, 3; Huntington Mem’l Hosp. v. Superior Court (2005)
131 Cal.App.4th 893, 902-903.) The FLSA defines “regular rate” as “all remuneration for
employment paid to, or on behalf of, the employee[.]” (29 U.S.C. § 207(e).)

The monthly alternative minimum wage for sheepherders is a special minimum wage created by
the IWC and the Legislature to compensate sheepherders whose employers elect to use it. The
monthly alternative minimum wage compensates the sheepherder for up to 24 hours worked per
day, seven days per week. In other words, the Legislature has provided us with the regular rate
of pay for sheepherders under this provision. Therefore, the method to arrive at the hourly rate is
to divide the weekly wage by 168 hours (24x7). This is an express exception to only using the
non-overtime hours worked in a workweek to determine the regular rate of pay. As all hours
worked have been paid at this special rate, in order to be compliant with the new overtime
requirements for all agricultural workers, one half of that rate needs to be paid in addition to the
special minimum wage as an overtime premium.

Using the current monthly minimum wage rate of $2,133.52 for an employer with 26 or more
employees, we would multiply that amount by 12 to arrive at a yearly amount of $25,602.24, and
divide by 52 to arrive at a weekly amount of $492.35 per week. This is the standard way in
which a monthly salary is converted into a weekly salary, and the sheepherder monthly minimum
wage is a monthly fixed sum akin to a monthly salary. (See DLSE Manual § 49.2.1.1; 29 C.F.R.
§ 778.113(b).)

We would then divide the weekly wage by 168 hours to arrive at the regular hourly rate of pay,
$2.93 per hour. Although a regular rate of pay that is below the minimum wage would not
typically be permissible, we recognize that the IWC and the Legislature have established a
specific sheepherder monthly minimum wage for all hours worked on a regularly scheduled 24-
hour shift on a seven-day-a-week basis, which results in a regular hourly rate of pay that is below
the state minimum wage. In this situation, in order to provide the overtime premium, which is
one and one-half times the regular rate of pay, we would then add one-half of the regular rate
(half of $2.93 is $1.47) to each hour worked in excess of the overtime threshold, which is
currently 55 hours per week for an employer with more than 25 employees. By subtracting 55
hours from the total weekly hours of 168, we arrive at 113 hours for which overtime pay is
required.

Sheepherders are also now entitled to premium wages on the seventh day of work in a
workweek, which includes one and one-half times the regular rate for the first eight hours on the
seventh day of work and double the employee’s regular rate of pay for all hours worked over
eight hours on the seventh day of work in the workweek. (In addition, sheepherders will be
entitled to double time after 12 hours on any workday in 2022 for employers with more than 25
employees, and in 2025 for employers with 25 or fewer employees.) Because sheepherders

Letter to Mr. Soares
July 26, 2019
Page 4

working on a 24-hour schedule, seven days per week, would exceed the current overtime
threshold of 55 hours before the seventh consecutive day of work, they will already be entitled to
the half-time premium for the first eight hours on the seventh day, but they would also earn a
double time premium (an additional $2.93 over the compensated regular rate of pay or special
minimum wage) for hours worked over eight on that day. Since there are 16 hours over eight on
the seventh day of work, this equals a total of $46.88 in double time pay (16 hours multiplied by
$2.93). The remaining hours in the week for which sheepherders are owed the half-time
overtime premium is 97 (113-16). Ninety-seven multiplied by $1.47 is $142.59. Therefore, the
total weekly amount for overtime and double time premiums due a sheepherder by a large
sheepherder employer in 2019 is $189.47. This is in addition to the regular rate of pay or special
minimum wage.

You also inquired whether the costs associated with benefits that employers are required to
provide under the H-2A program – the federal visa program that applies to foreign sheepherders
working in the U.S. – would be added into the regular rate of pay. For example, under the H-2A
program, sheepherder employers are required to provide meals and housing. (See 20 C.F.R. §
655.210, subds. (c) & (e).) Under the Labor Commissioner’s long-established enforcement
policy (which closely tracks the federal regulations in this regard), housing, meals, and other
benefits are added to the cash wage paid for purposes of determining the “regular rate” of pay.
(DLSE Manual § 49.1.2.2.) Similarly, under FLSA regulations, where payments are made to
employees in the form of goods or facilities that are “regarded as part of wages,” for example,
where “an employer furnishes lodging to his employees in addition to cash wages,” the
reasonable cost or fair value of such facilities must be included in the regular rate. (29 C.F.R. §
778.116.)

However, 29 C.F.R. § 778.116 cross-references part 531 of the FLSA regulations, which
interprets the FLSA provision that defines a wage to include the “reasonable cost” of “board,
lodging, or other facilities” if the “facilities are customarily furnished by such employer” to its
employees. (29 U.S.C. § 203(m).) Section 531.3, subdivision (d)(1) instructs that the cost of
furnishing facilities that are “primarily for the benefit or convenience of the employer” will not
be recognized as reasonable, “and may not therefore be included in computing wages.” Where a
facility is required by law to be provided to an employee free of charge, it primarily benefits the
employer to provide it because the employer is not permitted to operate its business in violation
of the law. Thus, these expenses may not be credited against the employer’s wage obligation.
(See, e.g., Ramos-Barrientos v. Bland (11th Cir. 2011) 661 F.3d 587, 596-598 [denying wage
credits for housing required under the H-2A program 3]; Beltran v. InterExchange, Inc. (D.Colo.
2016) 176 F.Supp.3d 1066, 1082-1083 [refusing to allow wage credits for room and board for au
pairs as employers were required to provide room and board under State Department
regulations]; U.S. Dep’t of Labor, Wage and Hour Division, Opn. Letter (Aug. 19, 1997), 1997
WL 998029, at *1 [concluding that an au pair employer could not take wage credits for facilities
it was required by law to provide].)

3 The Eleventh Circuit permitted wage credits for meal expenses incurred during the workers’ inbound travel to the
employer’s worksite because federal regulations deem meals to always be “regarded as primarily for the benefit and
convenience of the employee.” Bland, supra, 661 F.3d at p. 599. However, Wage Order 14 does not permit wage
offsets for meals or lodging. (See Cal. Code Regs., tit. 8, § 11140, subd. 4(E)(3).)

Letter to Mr. Soares
July 26, 2019
Page 5

Where an employer cannot take a wage credit for housing, meals, or other facilities that
primarily benefit the employer, these amounts are therefore not used in computing wages –
including computing the regular rate for overtime wages. (See 29 C.F.R. §§ 531.3(d) [facilities
that are primarily for the benefit of the employer may not be included in computing wages] and
531.27(b) [“wages” refers to both minimum wages and overtime wages]; see also §§ 531.30 [the
reasonable cost of board, lodging, and other facilities may be considered part of the wage paid to
an employee only where the employee receives the benefit] and 531.32(c) [the cost of furnishing
facilities that are primarily for the benefit or convenience of the employer will not be recognized
as reasonable and may not therefore be included in computing wages].) For example, a federal
district court interpreting California law held that because a meal program operated for the
benefit or convenience of the employer, the value of the meals was properly excluded from the
regular rate of pay. (See Batres v. HMS Host USA, Inc. (C.D.Cal. Sept. 25, 2012, No. SACV 10-
1458) 2012 WL 13049884, at 3-5.) Another district court held that where housing was
furnished primarily for the benefit of the employer, the value of that lodging should not be
included in the regular rate. (See Schneider v. Landvest Corp. (D.Colo. Feb. 9, 2006, No. 03 CV
02474) 2006 WL 322590, at 28.) The U.S. Department of Labor recently stated in its Notice of
Proposed Rulemaking regarding the federal regular rate regulations: “Facilities furnished for the
employer’s benefit do not qualify as wages or remuneration for employment and thus need not
be included in the regular rate.” (U.S. Dep’t of Labor, Wage and Hour Division, Notice of
Proposed Rulemaking, Regular Rate Under the Fair Labor Standards Act (Mar. 29, 2019) 84
Fed.Reg. 11888, 11895 fn.101.) In sum, because the housing, meals, and other facilities are
required under the H-2A sheepherder regulations, they are primarily for the benefit of the
employer and may not be included in the regular rate.

We note that the computation and analysis above apply only where the alternative monthly
minimum wage is applicable for sheepherding work performed on a 24-hour, seven-day-a-week
on-call basis. As such, this does not apply when a sheepherder performs any non-sheepherding
agricultural or other work on any workday in a workweek, in which case the sheepherder is fully
covered for that workweek by the provisions of the applicable wage and hour laws that apply to
that work. (See Lab. Code, § 2695.2, subd. (a)(1); Wage Order 14, subd. 1(F).)

Thank you for your inquiry.

Sincerely,

Laura Moskowitz
Attorney for the Labor Commissioner