As 2015 drew to a close, the DLSE issued several publications regarding California’s new piece-rate legislation, AB 1513, reminding California employers that it is now even more difficult to pay employees on a piece-rate basis.

As we previously blogged here, AB 1513 added Section 226.2 to the Labor Code, effective January 1, 2016. This new law imposes significant new burdens on employers that pay employees on a piece-rate basis. Those employers now must:

  • Pay piece-rate employees for rest and recovery breaks (and all periods of “other nonproductive time”) separately from, and in addition to, their piece-rate pay. The new law specifies a formula for calculating the required pay rate for rest breaks.
  • Provide piece-rate employees with wage statements that include the employee’s total hours of compensable rest and recovery breaks, the rate of pay for those breaks, and the gross wages paid for those breaks during the pay period.
  • List the total hours of other non-productive time, the rate of compensation for that time, and the gross wages paid for that time during the pay period, if the employer does not pay a base hourly rate for all hours worked (in addition to piece-rate wages).

The DLSE’s new Fact Sheet and Frequently Asked Questions are here and here. While the DLSE’s guidance is likely not the last word, it offers some further direction (and creates new questions) for employers seeking to comply. Here are some highlights:

  • Employers may not realize they have “piece rate” employees. The DLSE seems to think the new law applies to employers that pay employees only partly on a piece-rate basis. For example, an employer may pay piece rates on certain days of the work week, and pay an hourly wage on the remaining days. The DLSE’s wage-rate calculation examples indicate that during a week where an employee performs piece-rate work on some days but not others, the employer must (1) include earnings from days in which no piece-rate work was performed in calculating the average hourly wage for the week, and (2) pay the average hourly wage for all rest breaks during the week, even if the employee performed no piece work on a given day. This guidance arguably deviates from the intent of the statute, because on days where the employee performs no piece-rate work, there should be no need to have rest breaks paid at a higher hourly rate.
  • Commissions are (mostly) not “piece rates.” The DLSE offered some comfort to employers by clarifying that the new law does not apply to commissioned employees. Employers with commission plans should still consult counsel, however, as the DLSE warns that some payments labelled as “commissions” may actually constitute piece-rate pay, such as where the employee receiving “commissions” is not principally involved in selling the product or service or where the payment is not a percentage of the product or service sold.
  • Another “regular rate” trap for the unwary. The DLSE’s guidance on how to calculate the “total compensation” for the work week both creates a potential pitfall for piece-rate employers. The DLSE advises that all “remuneration” that is included in calculating the regular rate of pay for purposes of overtime premium pay (e.g., the value of meals, lodging, and other non-monetary remuneration) should also be included in determining the total compensation and average hourly rest-break rate for piece-rate employees. This DLSE advisory adds a further layer of complication to employers that were hoping to look only to the total hourly and piece rate pay in determining the average hourly rest break rate. Employers may, however, exclude payments that are not included in the regular rate of pay, such as vacation payments, gifts, and travel expenses.
  • Rest period time need not be separately tracked. Providing some relief to employers from the potential burdens of the new law, the DLSE advises that employers need not separately track actual rest break time taken by piece-rate employees. Instead, employers must pay for all compensable (legally required) rest breaks at the specified rate, and record these minutes on the wage statement. The employer need not record the actual number of minutes taken as rest break time by the employee or report the actual minutes on the employee’s wage statement.
  • New “safe harbor” election form. The DLSE issued a new form for employers to submit to the DLSE by July 1, 2016, if they wish to qualify for the “safe harbor” affirmative defense. This “safe harbor” would protect employers against claims for wages, damages, and penalties for a failure to pay for rest and recovery breaks and other nonproductive time. To come within this safe harbor, the employer would have to use one of the specified formulas for compensating piece-rate employees for all previously uncompensated rest and recovery breaks and other nonproductive time for the period from July 1, 2012 through December 31, 2015. This payment would have to be made to current and former employees by December 31, 2016.

The DLSE’s focus on the statute’s “safe harbor” provisions highlights the compliance challenges for piece-rate plans and underscores the point that employers should carefully consider this option for avoiding potential back-pay liability.