If you manage an hourly workforce, there is a chance your business operates with a piece-rate compensation model. More specifically, you offer employees pay at a fixed rate based on the number of individual units produced or actions completed in a given work period. Though this type of business model may be a benefit to your profit margins, it can be a detriment to your operation if you fail to fulfill your compliance obligations.
Regardless of whether your operation makes a product or sells a service, payroll compliance can get complicated when overseeing a piece-rate model. Add in conflicting state and federal laws, and there is plenty to keep track of. The state of California, in particular, is as a leader amongst states with their own distinctive piece-rate requirements.
Piece-rate law under the California Labor Code does not follow the same piece-rate guidelines as those dictated by the Federal Labor Standards Act (FLSA), so it is important you regularly revisit your policies to ensure compliance. Here are some tips for mastering piece rates in California.
Tips for Complying with California’s Unique Piece-Rate Regulations
According to SHRM’s latest insights, there are four critical elements to be aware of when seeking to calculate accurate and fair piece rates in the state of California:
Ensure employees are paid minimum wage for all hours worked, including nonproductive time. As a baseline, you have an obligation to pay your employees minimum wage for all hours worked. In California, that includes time spent on tasks that do not contribute directly to production or task-fulfillment. Even though piece-rate work typically pays more than the minimum wage, you will want to double-check that your workers are being paid separately for nonproductive time to ensure compliance. Examples of nonproductive employee time could mean anything- from traveling to and from job sites to attending mandatory meetings, participating in trainings, loading up or maintaining vehicles, and fulfilling extra pandemic processes.
Provide nonexempt employees with paid rest periods. In California, nonexempt employees must be provided paid rest periods equal to at least 10 minutes for every four hours worked, or an equivalent fraction. Under 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 average determined by: dividing total weekly pay (excludes rest and recovery periods) and any premium overtime compensation, by the total hours worked during the workweek (excluding of rest and recovery periods). The applicable minimum wage rate to be used is the highest of the federal, state, or local minimum wage rates that apply to your business.
Calculate overtime correctly. The California Labor Code provides overtime wages at a rate of 1.5x or 2x an employee's standard rate of pay (depending on the number of consecutive days or hours worked). For piece rates, the California Labor Commissioner has approved the following two methods for determining an employee's standard pay rate:
- Divide the total earnings for the week, including OT earnings, by the total number of hours worked during the week, including OT 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.
- Using the piece rate as the regular rate and paying one and one-half times this rate for production during overtime hours.
Give your employees the correct wage and hour information each pay period. There are specific requirements under the California Labor Code for what to include on your employees’ wage statements. For piece-rate workers, specifically, you need to include the following items on each paystub:
- 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.
Solutions for Simplifying Complex Pay
Paying by piece rate does not have to be more complicated or difficult than other payroll process – at least, not if you have a workforce management solution that’s built to handle it. At EPAY, we offer a Human Capital Management platform with customizable pay engines to help keep complex pay rule configurations (like the piece-rate calculations mentioned above) accurate and easy!
Paying employees based on the total product they produce may come with some extra compliance steps, but it is often better for monitoring the human capital ROI of your business. Ready to improve your bottom line while eliminating wage and hour risks? Check out a demo today!