Employers Urgently Must Revise Wage Systems in 2016, Including Possible Hourly-Plus-Piece Hybrid Plan

The one constant feature of California employment law is change. There is perhaps no better recent example than this state’s “piece work” compensation rules. Starting January, 2016, employers must fundamentally re-structure such pay systems or face increasing risk of legal claims, including potential business-busting class action lawsuits.

The Core Change in the Law:

Trucking, agriculture, and many other California industries have utilized “by the piece” pay for many years. Haulers have paid drivers by the mile traveled, growers have paid field workers by the bushel or basket, and vehicle repair shops have paid mechanics by the repair job completed. At its best, a wage “by the piece” acts as a win-win for labor and management, when pay rates are fairly set proportional to the enterprise’s overall income generated and workers, now encouraged to produce more to earn more, can be fairly rewarded for their efforts well above “by the hour” norms.

However, starting with two court decisions in 2013, it has not been that simple in this state. Effective January 1, 2016, the California Legislature added more complexity.  See, Piece Work Compensation is a Wreck Waiting to Happen, The Perils of New Labor Code Section 226.2 (December, 2015).

California now takes the unique view that an employer must compensate a piece work employee at least at the applicable minimum wage level for “every hour worked,” meaning, unlike the federal system, a company can no longer average all piece pay over the hours worked in a payroll period to confirm an average of minimum wage per hour. Instead, California businesses must pay its piece workers separately for state-directed rest periods and for payable “non-production” time.

A Solution for Compliance with New Standards:

This unique reading of piece work requirements is a potential formula for confusion and conflict.  How does one define payable “non-production time” exactly? It is only labeled in Labor Code 226.2 as “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.” What “not directly related” means here is anyone’s guess at this point. Is a trucker’s time spent fueling not directly related to his or her driving? Is a mechanic’s time in a coordination meeting not directly related to the repair jobs thus assigned to him or her that day?

However, section 226.2(a)(4) and 226.2(a)(7) provide a possible simple solution. As long as the employer pays an hourly rate of at least the applicable minimum wage for every hour worked in addition to any piece work compensation, the worker will be considered fully paid for his or her payable “non-productive” time.

This solution would thus require the employer to re-define its pay system and modify accompanying practices as needed. Instead of a “pure” or “exclusive” piece work wage (for example, only paying drivers by the mile), a company could change to a hybrid plan that includes: (1) an applicable minimum wage payment for each hour worked in a day; plus (2) a “net” piece work pay calculated by subtracting whatever hourly minimum wage the employee has earned in (1) from the total piece pay he or she previously earned on the “pure” piece work system.

This would not be the only change required to comply with new Labor Code 226.2. If a company has not been doing so for its piece workers, it will now have to require each such employee to accurately record and report his or her daily and weekly hours worked. As we will explain in future articles, that employer must also separately calculate and pay “rest and recovery periods” compensation and may also be obligated to calculate and pay premiums for daily or weekly overtime depending on the industry the business is in. That employer must also accurately document the new system with a revised and expanded paystub in compliance with all California standards.

Yet, this “hourly-plus-net-piece-pay” arrangement has the advantage of complying with the new section 226.2 while retaining the production incentives created by a piece work arrangement. In essence, a piece worker will not earn any less than he or she was earning before the change.  With the additional “rest and recovery periods” compensation as above, that employee will actually be earning a little more each week than previously.

The Way Forward:

The new requirements began on January 1, 2016.  If a piece work-paying company has yet to implement such a system, it is not too late. However, sooner is better by far. Each week that passes without these improvements is another week where that employer is potentially in violation of California standards and thus at risk of ever-increasing liability.

Our lawyers Tim Bowles, Cindy Bamforth, and Helena Kobrin are assisting many businesses with such urgently needed transitions.  Our help also includes addressing any back pay issues arising for periods between January, 2016 and the new system’s implementation.  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)

Tim Bowles

August 12, 2016