The new Sick Pay Leave Act for California adds a new overhead cost that farm labor contractors will need to pass on to growers. In general, there are three approaches that we have talked to our customers about using:
- Estimate sick pay that will be paid out and increase your commission percentage rate to cover these costs.
- Bill growers for sick pay accrued by employees when the sick pay is earned.
- Bill growers for sick pay paid to employees when the sick pay is taken.
All of these approaches have their pros and cons. If at all possible, it is best to settle on one method for billing for sick pay for all of your growers. This article will discuss the various methods and planned features to support them.
The advantage to this method is that it is simple and already supported by the software. If you need to itemize a separate percentage charge for sick pay, you can do this by entering an additional description and percentage rate on the grower file, as opposed to simply increasing your standard commission rate.
However it may be difficult to accurately determine how much sick pay you will end up paying out. (And don’t forget to add in your overhead–you’ll still need to pay federal and state taxes along with worker’s comp on all sick pay.) Also, growers may not like the idea that you’re billing for sick pay that may never actually get paid out.
Bill for Sick Pay Accrued
The reasoning behind this approach is that the grower that an employee is working for at the time sick pay is accrued is responsible for paying for the sick pay benefit regardless of when it is taken. Therefore the sick pay hours accrued can be billed to the grower just like any other taxes that make up the total payroll overhead amount.
This method eliminates the need to estimate how much sick pay you will have to pay out as with the first method. Any sick pay time that is accrued will get billed out, and this eliminates the possibility that you will underbill your growers for sick pay. However, it is still possible that sick pay will be accrued, billed to growers, and then never used by employees. Growers may not prefer this method of billing for this reason.
One thing to keep in mind is that sick pay might be paid at a different rate than what it was accrued at. For instance, if an employee is working for hourly pay and is being paid $10/hour when sick pay time is accrued, the grower would be billed for the sick pay at that rate (plus commission of course to cover payroll overhead). If the employee takes the sick pay later in the season when he is being paid on a piece rate basis, the sick pay may be paid based on the employees “regular rate of pay” (i.e. average hourly rate for that pay period) and could be paid sick pay wages at a higher rate (depending of course on the employee’s productivity).
When paying employees, we would recommend that you set up a dedicated Crop ID/Grower account for entering sick pay. Because you are billing the growers when sick pay is accrued, you will never want to bill growers when the sick pay is paid. Having a separate Crop ID and grower account that are used only for sick pay will insure that this doesn’t happen.
Datatech is currently developing a report that will create invoices for growers based on the sick pay accrued by the employees that performed work for them to support this method. Employees that work for multiple growers will have their accrued sick pay time billed to each grower proportionally based on hours worked. This report will generate a separate invoice for the accrued sick pay only. Accrued sick pay will not be billed out as an additional overhead item on the regular grower labor invoice.
A preliminary version of this report is available in the current release of the software. Right now, the report will only be available to customers using a SQL database. We will have an update soon for customers that are using the DataFlex database. The report will provide a total amount to bill each grower and includes a separate commission calculation. It does not generate the invoice in Accounts Receivable yet. This will also be available in a future update.
At some point, we may also support crediting growers for accrued sick pay that was billed but never used by employees. Because sick pay must be retained for an employee for up to a year if they return to work for you, we do not recommend trying to credit growers for unused sick pay until you know that the employee will not return to work and be entitled to previously earned sick pay time.
Bill for Sick Pay Paid
The final method defers billing for sick pay time until it is actually paid out to employees. At that point, you have two options:
- Bill the grower that the employee is currently working for.
- Bill the grower that the employee was working for when the sick pay time was accrued.
(Of course, if the employee is only working for one grower, there is only one grower that can be billed which simplifies the situation.)
The first option makes data entry straightforward. However, your growers may object to having to cover this cost if they look at it from the standpoint that the sick pay is a benefit that was earned when the employee may have been working for other grower, and that grower should be responsible for covering the sick pay cost.
The second option has the advantage of putting off billing for sick pay until it is actually paid out to employees, and of billing the grower that the employee was working for when he earned the benefit. It is also the most complicated, primarily when employees are working for multiple growers. This is because it requires that all sick pay that is accrued be tracked to determine when or if it has been used. Each time an employee requests sick pay, it is necessary to determine the hours that have been accrued and paid so that the next available “block” of sick pay time can be checked to see which grower(s) need to be billed.
It also opens up the possibility that a grower that an employee worked for some time ago will be billed for sick pay time. You may not even currently be providing labor for that grower. However as current employees that worked for that grower request sick pay, you would need to generate an invoice for that time.
We are looking into providing a report that would analyze sick pay time accrued and paid on a first in, first out basis to determine what growers should be billed for the sick pay. This is intended to provide you with the information needed to enter the grower account(s) that should be billed when employees request sick pay. The sick pay would then flow through to the grower labor report with the rest of the labor that is being billed to the grower. We will provide more details on this option when it is available.
We will have additional posts soon that will cover data entry issues and questions for sick pay, as well as more details on how new program options will support billing growers for sick pay.
Do you have other ideas or methods about how sick pay should be billed? Feedback or requests from your growers about how they want it handled? Questions about the methods we have covered in this article? Please leave a comment below!