THE PROBLEM WITH PIECE-RATE
Once upon a time in the Golden State, employers and employees agreed to a magical system called “piece-rate” compensation. The logic was straightforward: employers could assign a price to each task or service, and employees who were quick and efficient, would reap the benefits of earning more gold in less time. Everyone wins, right? Well, not so fast.
As it turns out, not all employees are efficient, and not all employers were particularly fair and just rulers. So, like many business fairy tales in California, the mighty scribes stepped in to rewrite the story.
First, California decided that “Thou shalt pay every worker at least minimum wage for every hour they toil!” In response, employers and employees who wanted to retain the piece-rate system, created a new method of assigning a time value to each task and then calculating an average hourly wage per pay period.
And then (let’s say it together), California made it harder.
Based on earlier appellate court decisions[1], additional regulations were introduced into the Labor Code requiring employers who utilize piece-rate to:
- Compensate employees for all nonproductive time (e.g., traveling between worksites, loading/maintaining vehicles, performing additional tasks not related to the piece-rate work, attending meetings, etc.) when they are under the control of the employer. Employers who pay at least the minimum wage for hours worked in addition to piece-rate will be in compliance with this section.
- Compensate employees for their legally mandated rest and recovery periods separate from any piece-rate compensation. The rate of compensation for rest and recovery periods must be the higher of 1) the applicable minimum wage, or 2) the employee’s average hourly rate. The average hourly rate is determined by dividing the total compensation for the workweek (minus compensation for rest periods, recovery periods, and overtime) by the total hours worked during the workweek (not including rest and recovery periods). This calculation becomes more onerous when the employee works both piece rate jobs and hourly jobs during the same workweek or when overtime hours are worked.
- Remain in compliance with California’s wage statement rules by including on every wage statement: 1) The total hours of compensable rest and recovery periods. 2) The employee’s rate of compensation for rest and recovery periods. 3) The employee’s gross wages paid for rest and recovery periods. 4) The total hours of nonproductive time worked. 5) The employee’s rate of compensation for nonproductive time. 6) The employee’s gross wages for the nonproductive time.
But wait, our tale is not over. For when it comes to rest period penalties, recovery period penalties, meal period penalties, overtime, and paid sick leave usage, you must calculate compensation at the mystical “regular rate of pay” (not the base rate of pay). Brave adventurers may consult this FAQ from the Department of Industrial Relations for more cautionary tales on calculating the regular rate of pay when also providing piece-rate compensation.
So where does that leave us? In a land where piece-rate is still technically legal – but notoriously difficult for California employers to administer in a lawful manner and generally a big red flag for the plaintiffs’ attorneys lurking in every shadow. We encourage employers who utilize piece-rate methods of compensation to carefully review them for compliance and to reach out if you would like us to support you with achieving a happy ending.
[1] Gonzales v. Downtown LA Motors and Bluford v. Safeway, Inc.