California: Structure of Piece Rate Compensation Determines Compliance
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APPLIES TO All Employers with Employees in CA |
EFFECTIVE August 12, 2025 |
QUESTIONS? Contact HR On-Call |
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Discussion
In Williams v. J.B. Hunt Transport, Inc., the Ninth Circuit Court of Appeals said that where base pay meets minimum wage requirements, additional piece-rate pay does not make the pay structure unlawful. California Labor Code § 226.2 says that employees receiving piece-rate pay must also be paid at least minimum wage for all nonproductive hours worked (e.g., rest periods, meetings, training, etc.). Where an employee is paid at least the minimum wage for all hours worked, this standard is met.
Here, employees receive the minimum wage for all hours worked. They are eligible for a piece-rate bonus pursuant to a production formula if the formula calculation exceeds their minimum wage pay. When the piece-rate bonus is greater than the minimum wage, employees receive the minimum wage pay plus the piece-rate bonus to total the full amount of the production formula.
The plaintiffs challenged the formula as violating Section 226.2 for operating as unlawful piece-rate pay in disguise. Specifically, if the employee is paid the full amount of the production formula regardless of the number of hours worked, for example if they worked 30 hours or 40 hours the formula pay could be the same, the minimum wage base was irrelevant and only the formula applied. However, because Section 226.2 only requires that the employee be paid at least minimum wage for all hours worked, plus any additional piece-rate compensation, the pay structure met the statutory requirement.
Additionally, the plaintiffs claimed that the pay structure only pays hourly pay when hourly pay is higher than the total production formula, making it an unlawful “minimum wage floor” (i.e., “borrowing” compensation from one set of hours or tasks to rectify compensation below the minimum wage for a different set of tasks). However, the court said that because employees are guaranteed the minimum wage for all hours worked regardless of the production formula, and the production formula only applies when it exceeds the minimum wage, it does not operate as a minimum wage floor.
Action Items
- Review pay structures for compliance with Section 226.2.
- Update payroll processes for compliance.
- Have appropriate personnel trained on compliance.
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