Piece-Rate "Fix" Effective Jan. 1
Legislation (AB 1513, Williams, D-Carpinteria) setting rules for payment of piece-rate employees’ non-productive work time will take effect on Jan. 1.
Are you ready?
AB 1513 was precipitated by two California appellate court decisions issued in 2013 that have caused confusion and fostered numerous wage-and-hour lawsuits against California farmers, farm labor contractors, and employers in other industries using piece-rate compensation plans. Those decisions held that in addition to their piece earnings, employees must be paid hourly wages for their non-piece-producing work time.
Since the Bluford and Gonzalez decisions were handed down in 2013, numerous lawsuits have asserted claims for unpaid wages, as well as for damages and penalties that add up to several times the amount of unpaid wages.
AB 1513 requires that piece-rate employees be compensated for rest periods taken under an Industrial Welfare Commission wage order, cool-down recovery periods taken under Cal/OSHA’s Heat Illness Prevention standard, and other nonproductive time separate from any piece-rate compensation.
Other nonproductive time means 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.
A piece-rate employee must be paid for rest and recovery periods at no less than the higher of the applicable minimum wage or the employee's average hourly rate. That rate is determined by dividing the employee’s total compensation for the workweek, minus compensation for rest and recovery periods and any overtime premium compensation, by the total hours worked in the workweek minus rest and recovery periods.
AB 1513 also requires that a piece-rate employee be separately paid for other nonproductive time at a rate of at least the applicable minimum wage. By paying an hourly rate of at least the minimum wage for all hours worked in addition to piece earnings, an employer complies with this requirement – but probably not with the average hourly pay requirement for rest and recovery periods.
AB 1513 allows employers to determine other nonproductive time by using either time records or reasonable estimates. An employer who in good faith underestimated and underpaid other nonproductive time is liable for the full amount remaining due, but is not liable for penalties or damages as long as (1) the employer provided wage-statement information required by AB 1513 and paid the amount due under the employer’s erroneous calculation, and (2) the total paid for any day in the pay period is at least the applicable minimum wage plus any overtime due. Employers may use this means of determining how much they owe in wages for non-productive time in both the past and the future.
Paystubs will have to separately state “other nonproductive time” and “rest and recovery periods.” The paystubs must state for each category the total time, rate of compensation, and the gross wages paid for that time during the applicable payroll period. Exception: This information need not be shown for the other nonproductive time of employees who, in addition to their piece-rate compensation, are paid an hourly rate of at least the applicable minimum wage for all hours worked.
In addition to specifying minimum hourly rates for piece-rate employees’ non-piece-producing work time, AB 1513 enables an employer to “buy” an affirmative defense against claims for wages, damages and penalties for the employer's failure to compensate for rest and recovery periods and other nonproductive time for pay periods before and including Dec. 31, 2015. To qualify for the affirmative defense, an employer must pay employees who were uncompensated or undercompensated for their non-piece-producing work time from July 1, 2012, to Dec. 31, 2015, under one of two formulas.
Under the first formula, the employer determines and pays the actual amounts due, together with 10 percent annual interest.
Under the second formula, the employer pays each employee four percent of the employee's gross earnings in pay periods in which any piece work was done from July 1, 2012, to Dec. 31, 2015, minus amounts already paid to the employee, separate from piece-rate compensation, for rest and recovery periods and other nonproductive time during the same time. The credit for wages already paid for other nonproductive time is capped at one percent of the employee's gross earnings.
Using the 4% Formula
Here’s a simple example of the calculation under the second formula discussed in the accompanying article; it’s for 50 weekly pay periods from July 1, 2012, to Dec. 31, 2015, in which the affected employee had piece earnings:
Gross Pay: $50,000
Rest and recovery time already paid by a separate hourly wage: $950
Nonproductive time already paid by a separate hourly wage: $570, capped at 1% of gross pay: $500
$50,000 x 4% = $2,000
$2,000 - $950 - $500 = $550 owed to employee
An employer choosing to buy this safe-harbor affirmative defense under either formula must notify the Department of Industrial Relations of that selection by July 1, 2016. These payments must be completed by Dec. 15, 2016.
An employer must use due diligence to locate former employees. An employer that can’t locate former employees owed wages must pay the amounts due them to the Labor Commissioner, along with an administrative fee.
The fee is the lesser of 0.5% of the amounts paid or $2,500.
DIR is expected to release guidance for complying with AB 1513’s wage-payment requirements, and it is preparing to facilitate employers’ use of AB 1513’s safe harbor.