When compensating employees under a piece-rate structure, employers must be aware of its nuances.

1. Nonproductive Time

One of the first compensation requirements for piece-rate, is there must be a separate payment for nonproductive time unless the employee is paid a base minimum wage for all hours worked. If you are asking yourself, “What is nonproductive time?” you are not alone. Nonproductive time is all time the employee spends doing activities other than performing the piece-rate activities while under the employer’s control. In other words, this could be time spent at meetings, speaking to customers, or training. Any such nonproductive time is compensable.

Labor Code section 226.2, subdivision (a)(1) and (a)(4) provide that: “Employees must be compensated for other nonproductive time separate from any piece-rate compensation, and Employees must be compensated for other nonproductive time at an hourly rate that is no less than the applicable minimum wage. This means that the employer must pay the employee for this time separately from piece-rate work.

How does this affect the employee’s wage statement?

• Nonproductive time must be tracked and listed on the wage statement, and this time is compensated separately at an hourly rate of at least minimum wage.

However, Labor Code § 226.2, subdivision (a)(7) provides an alternative way of paying nonproductive time. Subdivisions (a)(7) provides, “[a]n employer, who in addition to paying any piece-rate compensation pays an hourly rate of at least the applicable minimum wage for all hours worked, shall be deemed in compliance with paragraph (4).” This means that if the employer pays a base hourly rate of at least the applicable minimum wage for all hours the employee works, in addition to any piece-rate compensation, the employer will be deemed in compliance with the compensation requirements for nonproductive time.

How does this affect the wage statement?

• If an employer pays an hourly rate of at least the applicable minimum wage for all hours worked in addition to the piece rate, then the employer is not required to determine, record, or list the nonproductive hours separately on the wage statement.

2. Rest and Recovery Periods

The second compensation requirement is that employee must be compensated for rest and recovery periods. Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1029, determined that employees are entitled to 10 minutes rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.

Labor Code § 226.2, subdivision (a), paragraphs (1) and (3) provide that: “Employees must be compensated for rest and recovery periods separate from any piece-rate compensation, and the rate of compensation for rest and recovery periods shall be the higher of: An average hourly 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 or the applicable minimum wage.

This means that piece-rate employees must be paid compensation for rest and recovery periods that is separate from their piece-rate compensation. An employer cannot structure the piece-rate to include compensation, it must be separate.

Furthermore, the hourly rate of compensation for rest and recovery periods must be the same as the hourly rate (averaged over the workweek) that an employee earned during the workweek for performing piece-rate work. While not typically the case, if the average hourly rate comes out to less than minimum wage, then the employee must be paid at minimum wage for the rest and recovery periods. Regardless if the workweek is piece-rate only, piece-rate and base minimum wage, piece rate and hourly, piece rate and overtime, the employer must still determine the average hourly rate to determine the amount of compensation for the rest and recovery period.

Often employers will say to us, “My employee never takes a rest break, so does that mean I don’t have to compensated them for those periods?” Wrong! The “compensable” rest and recovery periods are those that the employee should take, regardless of whether the employee actually took a 1 minute rest period (less than the amount of time that was “compensable”), or took a 15 minute rest period (more than the amount of time that was “compensable”).

As noted on the California Department of Industrial Relations’ website, it is not enough to pay minimum wage and piece rate to account for an employee’s rest breaks. The employer must pay the employee separately for rest breaks.

How does this affect the wage statement?

• The employer has to track compensable rest and recovery periods and the rate of compensation for the recovery period separately on the wage statement.

If you would like more information on this or need assistance in reviewing your piece-rate polices and corresponding wages statements, please call us as 925-468-0400 today to schedule a consultation.

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