Labor Series: Pt 2 ~ How to Survive Labor Audits & Avoid Big Fines ~ Tips from Paul Underhill & Veronica Guinto


A farm worker picks through sweet potatoes near Turlock, CA. Photo credit: The Sacramento Bee/Brian Baer

Today, our Labor & Worker Safety series continues with tips from Paul Underhill, of Terra Firma Farm, and Veronica Guinto, an immigration lawyer based in the Bay Area. We recently heard them both speak at the CA Small Farm Conference, where Paul described his personal experience with a labor audit that cost him nearly $100,000, and Veronica offered the legal perspective of how to classify your employees and avoid extremely costly audits.

Many small farmers have been operating the same labor systems for many years, and don’t know they are doing anything wrong! Read these tips, many gleaned from the very comprehensive CA Guide to Labor Laws for Small Farmers, to evaluate the legality of your own systems, and ask yourself, are they up to date? Are you keeping proper records? Are your employees happy?

Paul Underhill, owner of Terra Firma Farm in Yolo and Solano Counties, farms 220 acres of mixed fruit and vegetable with a full-time staff of 45 employees. His certified organic farm has a 1,200-member CSA and wholesale accounts around the Bay Area and Sacramento.

In July 2011, Paul was expecting a visit from the California State Department of Industrial Relations (DIR), as they were in the area inspecting farms for heat safety issues. When the DIR arrived at his farm and began interviewing his employees, they didn’t find heat issues, but instead found violations of unaccounted overtime – unexpected by DIR as well as Paul.


Terra Firma Farm

One thing Paul learned that day was that where and when employees work throughout the day, and most importantly, where they end their day – in the field or in the packing shed – determines how they’re classified and, in turn, how their pay structure is set up.

Not aware of this rule, Paul was not tracking when his employees were in the field (typically in the morning) and when they were in the packing shed (later in the afternoon). Instead, he was paying everyone in good faith under the standard agricultural overtime law: when an employee has worked more than 10 hours a day, six days a week, or more than 60 hours a week, they got paid overtime.

However, packing shed workers are governed under a different set of rules. Most small farms follow the rule that if you grow your own produce and pack it yourself, you are required to pay workers overtime if they work more than eight hours a day, five days a week. Packing workers may work an additional 9th and 10th hour at regular pay if the additional work is performed in the field.

But, if they start in the field, and end their day in the packing shed, you have to pay overtime for the last two hours. Paul didn’t know this, and also wasn’t making the distinction on their time cards of when they were in the field or shed.

The inspection ended with Paul getting audited. However, since it was his first violation, DIR didn’t fine him. Instead, he had to back-pay all his employees overtime for the last two hours of each day for the previous three years – 45 employees, 26 pay periods, three times over. By the end of it all, the total amount came in at a little less than $100,000. If a violation occurs a second time, they warned that he would have to pay the back pay in addition to fines, which is often calculated by doubling the back pay. After a tedious, six-month auditing process, Paul learned a great deal.

Here are some tips from Paul on how to avoid an audit.

Tip 1. Instruct employees to designate where they are working on their time cards. Employers are allowed to correct incorrect designations in case there are discrepancies. (Not that in the session, we were told employers cannot correct computerized timecards, however.)

Tip 2. Use the CA Labor Department’s form for entering payroll. If they come for an inspection, you can easily provide the necessary information.

Tip 3. Allow managers to be on salary. Salaried employees are exempt from overtime because they are responsible for their own time. This could be a way to reduce overtime hours.

Tip 4. Create two shifts during the day. By rearranging working hours for your employees that overlap in the middle, you can prevent overtime and discrepancies.


Veronica Guinto

Veronica Guinto, a native of the Bay Area, is an attorney who works with small business owners on labor and immigration law issues. She understands the complexities and harshness of labor laws in CA, and sees how confusing the rules and regulations are for most small business owners. Read on as Veronica gives important tips to help business owners come into compliance and minimize the risk of being audited or fined.

The Department of Industrial Relations (DIR), Division of Occupational Safety and Health (CAL-OSHA), and the Division of Labor Standards Enforcement (DLSE) are the three main government agencies that handle audits and inspections. By law, in the state of California, by owning a business, you agree to be open to inspection. This includes inspections of all company records, employment information and physical inspections of the farm.

In case an inspection occurs, what are the things you need to be aware of and what are the common pitfalls to avoid?

1. Paystubs: If you use a payroll service, you will be in compliance with the paystub requirements, but if you choose to do the bookkeeping yourself, take note of the specific information required on the pay stub given to the employee with each pay check.

Screen Shot 2014-04-04 at 10.58.35 AM

2. Timesheets: Use this easy self-reporting time sheet template, and have the employee sign the bottom for acknowledgement that the time sheet is correct.

Screen Shot 2014-04-04 at 11.21.31 AM

 3. Overtime (OT): Wage Orders for Farm Workers

  • Field Workers Only (Wage Order 14): Employees that are working the field must be paid overtime after working over 10 hours in one day, or more than 6 days in one week. Double time must be paid for all hours worked over 8 hours on the 7th day of work in a workweek.
  • Packing Shed Workers: Employees that work in packing sheds are subject to different overtime rules depending on whether they are packing crops the employer grew themselves, or crops that other farmers grew.
    • Operations that Pack the Crops they Grow Themselves (Wage Order 13): Workers must be paid overtime after working 8 hours in one day or 40 hours in a workweek. Packing workers may work an additional 9th and 10th hour at regular pay if the additional work is performed in the field. Packing workers may also work an additional 6th day of the week at regular pay if it is in the field. Workers are considered “packers” if the last work they do in a day is packing. Double time must be paid for all hours worked in excess of 12 in any workday and for all hours worked in excess of the first 8 on the 7th consecutive day of work in a workweek.
    • Operations that Pack Crops Grown by Other Farmers (Wage Order 8): Workers must be paid overtime after working 8 hours in one day, or if working more than 40 hours in a workweek. There are no exemptions for packers to do field work in this case. Double time must be paid for all hours worked in excess of 12 in any workday and for all hours worked in excess of the first 8 on the 7th consecutive day of work in a workweek.

4. Paying Minimum Wage: The CA minimum wage is currently $8.00 per hour and will increase to $9.00 per hour beginning July 1, 2014.

5. Misclassifying Independent Contractors: There are substantial penalties associated with misclassifying an employee as an independent contractor. If the IRS or the CA Franchise Tax Board determines you have misclassified an employee as an independent contractor and thus have not been paying the employer’s share of payroll taxes, you will owe back payroll taxes with interest (compounded daily) and penalties – with interest charged on the penalties. California Labor Code section 226.8, which went into effect on January 1, 2012, provides for fines of up to $10,000 per employee for each pay period the employee was misclassified and paid as an independent contractor rather than an employee. In the typical internship or apprenticeship situation, you will not likely prevail in an argument that a worker was an independent contractor.

6. Misclassifying Interns, Volunteers & Apprenticeships: In order to be considered a NON-EMPLOYEE (i.e. an intern, trainee, or apprentice) and exempt from the Fair Labor Standards Act (FLSA), all six of FLSA standards must be met.

7. Postings: In California, all employers no matter the number of employees must meet workplace posting obligations. Workplace postings are usually available at no cost from the requiring agency. The Department of Industrial Relations requires employers to post information related to wages, hours and working conditions in an area frequented by employees where it may be easily read during the workday. Additional posting requirements apply to some workplaces, and not others. You can order posters from the California Chamber of Commerce.

Thank you Paul and Veronica for sharing your story and very useful tips!

If you happened to miss it, check out our first installment in the Labor & Worker Safety series:

If you’ve had to deal with labor or worker safety issues, wages, interns or apprentices, let us know! We’d love to share your tips about what’s worked well for you in upcoming articles. Or, visit FarmsReach Conversations and post a question or comment.

 Check out our Labor & Worker Safety ToolkitIf you have other great resources to share, get in touch!

One Thought on “Labor Series: Pt 2 ~ How to Survive Labor Audits & Avoid Big Fines ~ Tips from Paul Underhill & Veronica Guinto

  1. Pingback: Legal Farm Apprenticeship Programs? - Veteran-to-Farmer Documentary GROUND OPERATIONS

Leave a Reply

Your email address will not be published. Required fields are marked *

Post Navigation