California’s Piece-Rate System Overhaul

A bill, Assembly Bill 1513 (“AB 1513”), passed by the California Legislature and signed into law by Governor Brown in October 2015 changes the piece-rate pay system significantly. It is effective January 1, 2016. The new law is Labor Code section 226.2, and does not change the law, but codifies existing law with an interpretive memo by Labor Commissioner Julie Su. The new law may be applied retroactively all the way back to July 1, 2012.

Figuring Compensation for Rest and Recovery

The new law requires employers paying with a piece-rate system to separately compensate employees for rest and recovery periods, and at the higher of an average hourly rate or the local, state, or federal minimum wage. Employers must use an “average hourly rate formula” dividing total compensation for the workweek, not including compensation for rest and recovery periods or overtime, by the total hours worked during the workweek, excluding time for rest and recovery.  The employer must then pay the employee the higher of the two rates. This calculation must be done each pay period to determine which rate is higher and therefore, which rate to use for compensating the employee.

Additionally, piece-rate employees paid on a semimonthly basis must be compensated at least the applicable minimum wage rate for rest and recovery periods. Then, if the average hourly rate (using the formula just described) is higher than the applicable minimum wage, the employer must pay the difference between the two amounts in the next pay period.

Other Non-Productive Time

Labor Code section 226.2 also requires employers to pay employees separately for “other non-productive time,” defined as  “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”  This may include time spent waiting for work, attending meetings, standby time, and drivers’ time spent performing pre-and post-drive inspections. Pay for “other non-productive” work must be paid at an hourly rate equal to the applicable minimum wage, and if minimum wage is already paid, that will be considered in compliance. Non-productive work hours can be determined by actual records or employer’s reasonable estimates, and good faith errors in accounting for non-productive time don’t incur penalties.

This new law requires wage statements issued to piece-rate employees separately list total hours of compensable rest and recovery periods, rate of compensation, gross wages paid for rest and recovery periods, as well as hours of other non-productive time, rate of compensation, and gross wages for other non-productive time. This is in addition to the nine wage statement items already required by Labor Code section 226(a).

Safe Harbor to Correct

The new law provides “safe harbor” to employers who correct errors to payment for rest and recovery periods or other non-productive time, although there are complicated rules and calculations to do so. The safe harbor period covers July 1, 2012 to December 31, 2015. The complex nature of AB 1513 seriously detracts from its effectiveness. Employers who paid on a piece-rate basis from July 1, 2012 to December 21, 2015 should consult a lawyer to figure out if they have been in compliance, and the best way to approach safe harbor if necessary.

                                      

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About the Author:

As Director of Operations, Jessica oversees the day-to-day operations for payroll, human resources, tax, finance and client affairs. She also plays an active role in formulating corporate strategy and developing client programs. Jessica believes a company’s success begins with its people. She strives to build a team encompassing excellence and professionalism, and to play a large role in developing the staff on an ongoing basis. Her passion for strong client relationships drives her in ensuring that clients receive the highest level of personal service and the best products in the industry. Jessica joined PAYDAY in 2004, and quickly advanced to Development Coordinator in 2006, when she took charge of Human Resources. She was promoted to Director of Operations in September, 2011.

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