California’s Piece Work Employers Urgently Face Multiple Actions to Comply Fully with New Law

A court order on the eve of a July 1 deadline threw into doubt whether California would be able to immediately enforce its new piece work compensation law, Labor Code 226.2.  See, Storm Brewing Over Piece Work Safe Harbor (July, 2016).   However, that judge has now further ordered the state may proceed to administer that law in full and without delay. Nisei Farmers League v. California Labor and Workforce Development Agency, July 25, 2016 order.

Section 226.2 directed that a California piece work employer give a formal “safe harbor” notice to the state by July 1, 2016 if that business was going to opt to avoid potentially greater liability.  A business then could do so by paying all affected workers by December 15, 2016 additional back pay to mid-2012 under one of two calculation methods.  See, Safe Harbor in Sight, Piece Work Compensation in California (May, 2016) (Safe Harbor).

The state’s Department of Industrial Relations (DIR) currently lists at least 2,500 companies that have submitted formal safe harbor notices.  The only change the above July 25 Order effected was to confirm extension on that July 1 notice filing deadline through July 28, 2016.  The DIR will not accept any notices received after that date. Piece work employers may submit this notice online.

Timely filing of its safe harbor notice is only the beginning of a piece work employer’s required actions, all to be taken as soon as feasible.  For such a business to meet its safe harbor requirements by paying up to 4% of gross earnings to each piece work employee between July 1, 2012 and December 31, 2015 (Safe Harbor Period) (see, Safe Harbor), these actions include:

A. Safe Harbor Period Back Pay and Documentation:

1. Calculate: Calculations of gross compensation to each piece work employee, pay period-by-pay period, and, depending on any pay during that time for “non-productive time” (as defined in section 226.2(b)), calculation of between 3% and 4% of that gross number as that employee’s total “safe harbor” back pay amount;

2. Compensate: Begin payment to each such employee of his/her safe harbor back pay “as soon as reasonably feasible,” with completion no later than December 15, 2016; and

3. Document: Accompany each such payment with an accurate safe harbor statement containing four distinct categories of information, including the detailed disclosure of how the company calculated that gross back pay amount. Actual payment should be for the ensuing net amount, following standard withholding and employment tax deductions, as further shown on a compliant paystub.

The new law allows employers to correct any good faith error on such calculations within 30 days of discovering the mistake.

There is much more at stake.  Full “safe harbor” compliance will only protect a piece work employer from potential pre-2016 liability.  Section 226.2 also requires such employer’s compliance with specific piece work pay standards from January 1, 2016 onward.  For piece work companies that do not yet have such standards in place, further actions include:

B. Promptly Implement a Revised Piece Work Pay System:

As discussed in our Safe Harbor blog, section 226.2 now requires California employers to pay at least the applicable minimum wage to each piece work employee for every hour worked as well as a specially calculated premium for every rest or recovery period to which such employee is entitled for each day of labor. Thus, such a business can and should swiftly:

4. Develop and Issue New Pay Plan: Establish and issue company policies confirming a new hourly-plus-piece work compensation system that complies with Labor Code 226.2 payment rules and related protocols for all pay periods going forward.  Properly structured, the only actual change in compensation would be a slight increase in the total, due to the now-required rest and recovery period premiums;

5. Develop and Issue New Pay Plan Documentation: Establish and issue template employment agreements, time card procedures, and time attest forms consistent with the above policy changes;

6. Develop and Issue New Pay Stub Documentation:  Establish and issue custom company payroll summary form and paystub template that comply with all current rules on paystub for piece work compensation systems.  See, California’s Itemized Pay Stub Requirements (March, 2016).

C. Further Back Pay Compliance, from January, 2016 to Date of New System Implementation:

With section 226.2’s standards effective January 1, 2016, an affected company should also swiftly take actions that will catch-up on such compliance for any 2016 pay periods preceding the above implementation, including:

7. Calculate: Calculations of gross compensation to each piece work employee, pay period-by-pay period, for any underpayment of minimum wage for each hour worked and for rest/recovery compensation since January 1, 2016. The calculation should also include the 10% interest rate on wages to the date of late payment. (Together, 2016 Back Pay);

8. Compensate: Begin payment of the 2016 Back Pay to each such employee as soon as possible; and

9. Document: Accompany each such payment of 2016 Back Pay with: a) an accurate summary statement detailing how the company calculated that gross back pay amount; and b) a template release and waiver statement for such workers to sign on receipt of their respective back pay amounts. Actual payment should be for the ensuing net amount, following standard withholding and employment tax deductions, as shown on a compliant paystub.

Our lawyers Tim Bowles, Cindy Bamforth, and Helena Kobrin are assisting many such employers with these essential compliance steps, including help with the proper calculations and template and custom forms for the required documentation.  Please contact our office should you need further information.

Tim Bowles

July 27, 2016