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California’s Piece Work Employers Must Convey All Back Payments and Statements by December 15, 2016
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There is No Provision for Extensions
For thousands of California employers who have compensated workers on a piece rate basis over the years, December 15, 2016 is a critical deadline for delivering the required back payments and accompanying accurate statements under the “safe harbor” provisions of new Labor Code 226.2. The state has made it very clear there are no extensions available under that law. See also, No Chance of Rescue from Safe Harbor; California’s Piece Work Employers Urgently Face Multiple Actions to Comply Fully with New Law.
By their submitting written notice to the Department of Industrial Relations (DIR) by July of this year, some 2,500 California businesses have signaled their intent to fulfill any pre-2016 piece work back pay liability by calculating and paying each affected worker up to 4% of his or her gross earnings for “piece work” pay periods between July 1, 2012 and December 31, 2015 (Safe Harbor Period).
However, waiting until the last minute to issue checks on or near that December 15, 2016 cut-off date will likely not afford the protection the law provides. As full safe harbor compliance includes three critical steps that may take weeks to complete, best practice was to have started as soon as a company gave that safe harbor notice to the DIR. If a business has not yet begun the following actions, best practice is to start immediately.
1. Calculate: The employer must pay each employee an amount equal to 4% of that employee’s gross earnings “in pay periods [within the Safe Harbor Period] in which any work was performed on a piece-rate basis.” An employer may deduct up to 1% of that gross from the calculation for amounts already separately paid for rest and recovery periods and for “other nonproductive time” (as defined in section 226.2);
2. Compensate: Section 226(b)(4) requires the employer to begin payments of that back pay “as soon as reasonably feasible,” with completion no later than December 15, 2016. It is not just the statute’s “ASAP” language that dictates starting payments right away if a business has not already begun. The law requires employers to use “due diligence, including the use of people locator, to locate and pay former employees” in the event those individuals have relocated. For all those the employer cannot find despite such efforts, that employer must submit a lump sum payment to Labor Commissioner by December 15, along with detailed description of the ex-workers included, in both hard copy and electronic form. Section 226.2(b)(4),(d)(1),(d)(2). Obviously, an employer is unlikely to be able to start and complete these tasks in the closing hours before midnight, December 15.
3. Document: The employer must accompany each such payment with an accurate safe harbor statement with four distinct disclosures: (i) a statement that the payment has been made under section 226.2; (ii) statement on the calculation method for the payment, e.g., the 3%-4% method above; (iii) “a statement, spreadsheet, listing or similar document that shows for each pay period” during which the employee had piece work earnings the gross wages earned and any separate amounts paid for rest, recovery and other nonproductive time; and (iv) the calculations made to determine the total payment. Section 226.2(b)(5). Itemizing “each pay period” on this statement as required may not be a few hours’ work, particularly when a large number workers are involved. The check issued should be for the ensuing net amount, following standard withholding and employment tax deductions, as further shown on a compliant paystub.
For those companies affected that have not begun this process, there is no time like the present. Please contact any of our lawyers Tim Bowles, Cindy Bamforth, and Helena Kobrin should you need further information.
See also:
• Piece Work Compensation is a Wreck Waiting to Happen; The Perils of New Labor Code Section 226.2 for Trucking, Auto Repair and Other Industries (December, 2015)
• California’s Itemized Pay Stub Requirements (March, 2016);
• Safe Harbor in Sight, Piece Work Compensation in California (May, 2016); and
• Navigating Piece Work in California (August, 2016)
• California Piece Rate Law: No Time to Relax on Rest-Recovery Premium Pay (September, 2016)
Tim Bowles
October 31, 2016