Piece Rate Compensation
Piece Rate employees are paid by the specific tasks they complete rather than on an hourly or salary basis, although mixed hourly and production bonus plans are legally permissible. A “piece rate” is where the employee is paid a fixed amount of money for a given piece of work. This compensation method is designed to incentivize workers to be more productive.
The construction industry is one of the many industries where employees are commonly paid by a piece rate or production bonus plan including framers, plumbers, roofers, electricians, tile installers, drywallers, painters, etc. Other trades that commonly pay their employees by a piece rate or production bonus plan include: auto mechanics, truck drivers, warehouse workers, agricultural workers, solar installers, etc.
Employers that pay piece rate face unique challenges in complying with ever changing California and Federal wage and hour laws. The construction industry typically involves long hours and a lack of extensive record keeping. Historically, piece rate compensation plans were generally accepted, provided employees earned minimum wage for all hours worked (averaging hours). That all changed in 2013 when two California court cases created new requirements for employers using piece rate compensation plans regardless of whether the plans guaranteed compensation of at least the minimum wage for each hour worked.
Legal requirements of a piece rate compensation plan:
- Over-time pay at the regular rate of pay;
- Separate compensation for rest breaks and recovery periods;
- Separate compensation for non-productive time; and
- Proper Notice to Employee and pay stub information consistent with your actual piece rate compensation plan.
Assembly Bill 1513
The California legislature recently passed AB 1513 that will significantly add to the concern over whether a specific piece rate compensation plan complies with state and federal wage and hour law. The new law, to be codified in Labor Code section 226.2, will take effect on January 1, 2016.
The new bill provides that effective January 1, 2016 and going forward, employers must pay piece rate employees separately for rest break and recovery period time at the regular rate of pay, arguably a departure from the Bluford v. Safeway Stores case.
The new law also provides an affirmative defense for employers in California who pay employees on a piece rate basis to resolve issues of failing to pay separately employees for rest breaks, recovery periods and non-productive time. The affirmative defense allows employers to avoid statutory penalties and fines on top of wages for prior pay periods. Employers are still subject to lawsuits and investigations, and having to prove you paid the appropriate amounts. To qualify for the affirmative defense, an employer would need to pay all prior piece rate employees either: (1) the actual sums due for non-payment of rest breaks and recovery periods and non-productive time, or (2) 4% of gross wages with certain deductions up to 1%. Both require payment for the last three and one-half years.
Contact our Employment Law Department to Review Your Piece Rate Payment Plan
Getting your piece rate compensation plan consistent with the law has never been so critical. Every employer who uses a piece rate compensation plan should immediately review its existing plan and documentation to ensure the plan is legally compliant and to determine whether or not to take advantage of AB 1513’s affirmative defense option and to determine how to categorize and pay non-productive time going forward.