Employers Must Give Close Attention To the Required Special Pay Calculation

California’s New Piece Rate Requirements: For many industries in California, paying employees on a piece rate system has been a long-time win-win for management and workers. Truckers earning by the miles driven, mechanics paid by a percentage of amounts charged to customers, and field workers compensated by the pounds of apples picked are of course paid more the more they produce. Such piece rate systems thus tend to generate wages well in excess of minimum wage when averaged per hour.

As we have relayed in several previous articles (see below), in the last three years the California courts and Legislature have implemented standards greatly complicating piece rate pay systems, including through new Labor Code 226.2, effective January 1, 2016. While these changes have motivated some employers to drop piece pay altogether, many other businesses must continue piece systems or risk losing the vast number of employees who want to work for such production-based incentives. Continuation requires managers to understand and comply with the new complexities.

This New Law Requires Special Pay for Rest and Recovery Breaks: Perhaps the most perplexing element of new Labor Code 226.2 is the special calculation now required to pay piece workers a premium each week for their entitled paid rest and recovery periods.

California employers must provide each employee with certain numbers of ten-minute paid rest breaks depending on how many hours that employee works in a given day. See: Employee Meal Periods and Rest Breaks; California’s Basic Requirements for Daily R&R.

California employers must also provide employees paid “recovery periods” to cool down and prevent heat illness posed by working conditions. See: Labor Code 226.7; Required Heat Illness Prevention for Outdoor Worksites; and Heat Illness Prevention Amendments Likely to Take Effect.

The California Division of Labor Standards Enforcement (DLSE) directs that employers calculate such premiums for all rest periods to which an employee is entitled in a given workweek, not just those the employee actually takes during that week. See, DLSE’s Frequently Asked Questions, Piece-Rate Compensation – New Labor Code 226.2.

Special Math Formula for the Rest-Recovery Premium: When a California employer includes a piece rate in its pay system, Labor Code 226.2 requires a special per hour premium rate for rest-recovery time :

(a) all non-rest and non-recovery compensation in a week;
                              DIVIDED BY
(b) the total non-rest and non-recovery working time for that week.

(c) Then, the resulting gross rest-recovery rate per hour
                              MINUS
(d) any hourly minimum wage already payable for all working hours that week;

                              EQUALS
(e) the premium rest-recovery rate.

For example: Joe Driver just put in a 40 hour week for Galactic Trucking (eight hours/day for five days), paid a base of $10.00 for all hours worked ($400 in hourly wages), plus $500 piece rate pay for his miles driven that week. Under California standards, Joe was entitled to ten 10-minute rest periods (two per day for five days), or a total of 100 minutes or 1.66 hours of rest time for that week. See chart contained in Employee Meal Periods and Rest Breaks; California’s Basic Requirements for Daily R&R.

Joe’s rest-recovery time premium rate is thus calculated as:

(a) All non-rest compensation for the week. This is $900 (the $400 hourly wages and $500 piece pay); minus $16.66 [1.66 rest hours x $10.00/hour]) =                    $883.34

                             DIVIDED BY
(b) Non-rest time (total time 40 hours minus rest time 1.66 hours):           38.34 hrs.

(c) Then, the resulting gross rest rate [$883.34 ÷ 38.34 hours]                  $23.03
                             MINUS
(d) minus the $10.00/hour already paid Joe for all hours worked
                             EQUALS
(e) the premium rest-recovery rate:                                                          $13.03/hour

Galactic Trucking thus must pay Joe an additional $21.63 in rest-recovery premium pay, for a total of $921.63 compensation for that week ($400 hourly, $500 piece, plus $21.63 in rest-recovery premium pay).

Our lawyers Tim Bowles, Cindy Bamforth, and Helena Kobrin are assisting many businesses on the implementation of California’s piece rate standards specified in Labor Code 226.2.  Our help also includes addressing the back pay calculations and statements section 226.2 requires for those businesses that have elected the “safe harbor” for pay periods from July 1, 2012 through 2015. Please contact our office should you need further information.

See also:

•  California’s Itemized Pay Stub Requirements (March, 2016);
•  Safe Harbor in Sight, Piece Work Compensation in California (May, 2016); and
•  No Chance of Rescue from Safe Harbor; California’s Piece Work Employers Urgently Face Multiple Actions to Comply Fully with New Law (July, 2016)
•  Navigating Piece Work in California (August, 2016)

Tim Bowles
September 30, 2016