4 Tips for California Employers on Piece-Rate Pay

A piece-rate plan is a wage payment system where an employee is paid a fixed amount for each unit produced or action completed. Piece rate is used in many different industries, including automobile repair, trucking, manufacturing and call centers. An example of a piece-rate plan is an automobile mechanic who is paid a certain amount per tune-up or a factory worker who is paid a certain amount per number of widgets produced.

Piece-rate law under the California Labor Code is not the same as piece-rate law under the Federal Labor Standards Act (FLSA), so it is important for California employers to make sure they comply with California law.

The following four tips can help employers comply with California piece-rate law.

1. Ensure employees are paid minimum wage for all hours worked, including nonproductive time.

All employers are obligated to ensure that employees receive at least minimum wage for all hours worked. California requires minimum wage compensation for each hour worked. While piece-rate workers typically earn more than minimum wage, employers need to make sure employees are paid separately for nonproductive time, which includes time spent performing tasks other than those that earn piece-rate pay, such as traveling to and from job sites, loading or maintaining vehicles, attending meetings, time spent training, etc. If the employer directs a piece-rate worker to do something such as attend a meeting in which they would not be able to earn piece-rate, the employer must pay the employee at least minimum wage for that period.

Here is an example: 

An employee is an automobile mechanic. On Monday, the employee spends six hours repairing three automobiles (i.e., each automobile takes two hours to repair). The employee earns a piece rate of $100 per automobile repair or $300 for the three repairs done on Monday ($100 x 3).

Also, on Monday, the employee spent one hour in a meeting and another hour waiting for customers to drop off their automobiles, or two hours of nonproductive time (i.e., time not compensated by the piece-rate system of $100 per repair). In that case, the employee worked a total of eight hours, six hours of productive time (i.e., automobile repairs earning a piece-rate payment), and two hours of nonproductive time (i.e., meeting and waiting time not earning a piece-rate payment).

The employee is paid $300 gross wages for his work on Monday. Under the FLSA, the employer could average the employee's pay to ensure the employee was paid the applicable minimum wage. For example, the employee was paid $300 for eight hours of work (or an average of $37.50/hour).  If $37.50 is greater than the applicable minimum wage, the employer did not violate the minimum wage law under the FLSA.

However, in this case, the employer did violate the California Labor Code. Even though the employee earned an average of $37.50 per hour worked, which is higher than any current minimum wage rate in California, the employee did not earn at least minimum wage for each hour worked because the employee was not paid separately for the two hours of nonproductive time.

Instead, under the California Labor Code, the employee earned $50/hour for the productive time (i.e., time spent repairing automobiles), and $0/hour for the nonproductive time (i.e., time spent in meetings and waiting for vehicles to repair). The $0/hour payment violates California minimum wage law.

Assuming the applicable minimum wage rate was $15/hour, the employer should have paid the employee at least $330 for Monday (i.e., $300 for the productive time and $30 [or $15/hour] for the nonproductive time).

Employers must make sure they make a separate payment equal to at least minimum wage for all nonproductive time.

2. Ensure employees are properly compensated for rest and recovery periods.

Under California law, nonexempt employees must be provided paid rest periods equal to at least 10 minutes for every four hours worked, or major fraction thereof.

Pursuant to the California Labor Code, piece-rate workers must be compensated separately for rest and recovery periods at a regular rate that is no less than the higher of:

"An average rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods, and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods."

The applicable minimum wage rate (defined as "the highest of the federal, state, or local minimum wage that is applicable to the employment").

The California Department of Industrial Relations provides more detailed information on the calculation on their FAQ Page for Piece Rate Compensation.

3. Ensure employees are paid overtime at the proper rate.

The California Labor Code provides overtime wages at a rate of 1.5x or 2x an employee's "regular rate" of pay, depending on the number of consecutive days and hours worked.  For piece-rate workers, the California Labor Commissioner has approved the following two methods to determine an employee's regular rate of pay:

• Commonly used method: Compute the regular rate by dividing the total earnings for the week, including earnings during overtime hours, by the total hours worked during the week, including the overtime hours. For each overtime hour worked, the employee is entitled to an additional one-half the regular rate for hours requiring time and one-half and an additional full rate for hours requiring double time.
• Less common method: Using the piece rate as the regular rate and paying one and one-half times this rate for production during overtime hours.

The California Department of Industrial Relations provides more detailed information on the calculation on their FAQ Page for Piece Rate Compensation.

4. Ensure employees are provided accurate wage statements.

There are specific requirements under the California Labor Code for what must be included on a wage statement. However, for piece-rate workers, employers must include the following additional items on every wage statement:

• The total hours of compensable rest and recover periods.
• The employee's rate of compensation for rest and recovery periods.
• The employee's gross wages paid for rest and recovery periods.
• The total hours of nonproductive time worked.
• The employee's rate of compensation for nonproductive time.
• The employee's gross wages for the nonproductive time.

Stacey M. Cooper and Abbey M. Jahnke are attorneys with Jackson Lewis in San Diego. © 2021 Jackson Lewis. Al rights reserved. Reposted with permission. 

[Want to learn more about California employment law? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]