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April 2014, Volume 20, Number 2

California: FLCs, Minimum Wages, Grapes

California's 1,200 farm labor contractors range from those that employ thousands of workers to those that employ 10 or 20 workers. All have some of the same costs, including mandatory payroll taxes for social security and Medicare, 7.65 percent of wages, unemployment insurance (UI), 6.3 percent, and workers compensation insurance, which ranges from six to 15 percent of wages paid. In some cases, payroll taxes are paid only on the some of a worker's earnings, as with UI taxes paid on the first $7,000 a year.

In addition to payroll taxes that add 20 to 35 percent to worker wages, FLCs have overhead costs that reflect the cost of verifying employee legal status (completing I-9 forms) and maintaining payroll records, providing field sanitation facilities, and other business operating costs that add another 12 to 15 percent to their costs. This makes the minimum commission that contractors should charge to their grower clients 32 to 50 percent, with the higher rates usually reflecting higher workers compensation insurance premiums in crops where worker injuries lead to higher costs.

Contractors often compete with each other to win the right to bring workers to particular farms. One competitive element is the commission or overhead that they charge. FLCs that offer a very low overhead may be turning what appears to be a money-losing proposition into a profitable transaction by cheating the government and not paying all required taxes or imposing charges on workers, from housing and transportation to check-cashing charges.

California encourages written contracts between farm employers and labor contractors by making employers liable for any unpaid FLC obligations if there is no written contract. Some employer organizations conduct surveys of typical FLC overheads by commodity, but there is no public database of FLC commissions.

Wages. California's minimum wage, currently $8 an hour, is scheduled to increase to $9 an hour July 1, 2014 and $10 an hour January 1, 2016. Supervisors and others who earn at least twice the minimum wage based on a 40 hour week, or $360 a week after July 1, 2014, can be exempt from overtime pay.

The city of Los Angeles requires LAX-area employers at hotels with more than 100 rooms to pay their employees at least $15.37 an hour, and the Los Angeles City Council in March 2014 considered a proposal to require all Los Angeles hotels with more than 100 rooms to pay employees at least $15.37 an hour, or 87 of the 360 hotels in the city. Hotel operators countered that a near doubling of the minimum wage would force them to raise prices or reduce staff, especially for restaurant employees.

SB 168, effective in 2014, makes successor farm labor contractors liable for wages owed to workers if their first firm went out of business. The California FLC renewal form asks if "you or any member of your family was ever denied an FLC license" in order to collect information on FLCs who go out of business under one name and return under another.

Grapes of Wrath. John Steinbeck's classic novel was published in 1939, and reportedly prompted President Franklin Roosevelt to say that something must be done for California farm workers. Steinbeck, who won the Pulitzer prize in 1940 and the Nobel prize for literature in 1962, visited Tulare county in winter 1938, when heavy rains led to floods that made conditions for farm workers especially difficult.

Over 500,000 Midwestern farm families, mostly Arkies and Oakies, moved to California between 1935 and 1940. Many expected to live and work alongside California farm families, learning how to grow fruits and vegetables rather than grains and then becoming farmers as they climbed the agricultural ladder from hired hand to farmer.

Tax Credits. Many farm workers claim the (Additional) Child Tax Credit (CTC) for their US-born children. The CTC provides up to $1,000 per child for low-earners with children under 17.

Unlike the Earned Income Tax Credit, which provides up to $6,000 to low earners if both the parent and the children have Social Security numbers, the CTC requires only the child to have a SSN. The CTC sends checks to low earner adults with SSNs or ITINS who have children under 17 who have lived with them at least half the year.

The US cost of the CTC was $23 billion in 2012; the cost of the EITC was $58 billion.

Wal-Mart. Wal-Mart often obtains warehouse workers from temp agencies. Workers in 2011 sued two of these agencies, Premier Warehousing Ventures and Impact Logistics, alleging that Wal-Mart and Schneider Logistics were joint employers with the agencies that hired and underpaid them. Wal-Mart in March 2014 lost a request to be removed as the potential co-employer of the warehouse workers.

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