California Enacts an Increase in Piece-Rate Worker Compensation, with Retroactive Repercussions for Resolving Back Wage Claims Without Litigation

APPLIES TO

All California Employers who Employ Piece-Rate Employees

EFFECTIVE

January 1, 2016

QUESTIONS?

Contact HR On-Call

(888) 378-2456

On October 10, 2015, Gov. Brown signed AB 1513 into law, adding Section 226.2 to the California Labor Code.  This legislation is a response to prior court rulings related to required compensation for mandated breaks and other nonproductive time. Specifically, the bill sets forth minimum compensation requirements for rest and recovery periods and other nonproductive time for piece-rate workers, in addition to and separate from their established piece rates.  Each type of compensation must also be documented on an employee’s paystub.  Additionally, employers who have not been paying piece-workers for this additional time have the opportunity to resolve back claims without litigation.  This statute will become effective on January 1, 2016, but will have retroactive repercussions for wages earned as of July 1, 2012.

This information applies to all companies who employ piece-rate workers in California.  Examples of employees who are compensated as piece-rate workers include, but are not limited to, those who may do installation work, closing financial transactions when paid a flat rate, agricultural work, manufacturing work, logistics work when a piece rate applies to drivers’ deliveries, etc.

Minimum Wages for Rest and Recovery Periods and “Other Nonproductive Time”

Piece-rate workers must be paid separately for rest and recovery periods and “other nonproductive time” at the following minimum rates:

  • Rest and Recovery Periods – an hourly rate that is the higher of (1) the “applicable minimum wage” (i.e., the highest of the federal, state, or local minimum wage that is applicable to the employment), or (2) an average hourly rate determined by dividing the total compensation for the workweek (excluding rest and recovery periods and overtime premiums) by the total hours worked during the workweek (excluding rest and recovery periods).
  • Other Nonproductive Time (i.e., time under the employer’s control but not directly engaged in piece-rate activity, excluding rest and recovery periods) – an hourly rate no less than (1) the applicable minimum wage for other nonproductive time worked (calculated based on actual records or the employer’s reasonable estimates), or (2) the applicable minimum wage for all hours worked (regardless of categorization) when paid in addition to the piece-rate compensation.

For employers paying on a semimonthly basis and using the average hourly rate for rest and recovery periods, employers can use a one-pay-period lag to calculate and pay the average hourly rate as long as employees are timely paid using the applicable minimum wage rate.  There is also a grace period ending April 30, 2016 for newly acquired, large, publicly held companies to comply with the requirements for calculating the average hourly rate and pay stub itemization, provided that the applicable minimum wage rate is timely paid plus interest.

 Itemized Wage Statement Changes

In addition to the existing piece-rate documentation requirements, wage statements for piece-rate employees must now include the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for such periods during the specified pay period. Additionally, if the employer does not pay at least the applicable minimum wage for all hours worked in addition to piece-rate wages, the wage statement must also list the total hours of other nonproductive time, the rate of compensation, and the gross wages paid for such time.

Safe Harbor for Back Wage Claims

The legislature created a safe harbor for employers to cure uncompensated rest and recovery periods and other nonproductive time worked from July 1, 2012 to December 31, 2015. However, to use the safe harbor as an affirmative defense to any claim or cause of action, the employer must (1) make the outstanding payments to employees, plus interest or a statutory percent amount, by December 15, 2016; (2) provide notice to the Department of Industrial Relations before July 1, 2016; and (3) provide detailed statements to employees. Note that the safe harbor provision will only exist until January 1, 2021.

Action Items:

  1. Review current payroll system and itemized wage statements to assess implementation of new requirements by January 1, 2016.
  2. Arrange for training of managers and payroll staff to ensure understanding of new regulations.
  3. Contact an attorney to review potential unpaid wages and proper safe harbor compliance.
  4. For assistance, subscribers can call our HR On-Call Hotline at (888) 378-2456.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2015 ManagEase, Incorporated.

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