California’s New Piece-Rate System
California recently made a significant change with its labor laws, specifically about piece-rate compensation. If you are an employer that pays your employees by a piece-rate system, then you should know about this recent change. Otherwise, you could be unknowingly underpaying your employees, which can easily lead to an expensive lawsuit for you.
On the other hand, if you are an employee, then knowing about this recent change entitles you to proper compensation set by California’s labor code.
What Is It?
In some industries, it’s common for employers to pay their employees by “piece-rate” system. If an employee is on a piece-rate system, he/she gets paid for every completed task or per the number of produced units.
Common Examples:
* Carpenters that are paid by the yard
* Technicians that are compensated based on the number of units installed
* Nurses that are paid based on the number of procedures done
* Factory workers that are paid on the basis of the number of widgets he/she can produce
When practiced correctly, the piece-rate system encourages increased productivity, which is good for the employer. Employees also get the benefit of having the opportunity to earn more compared to a fixed hourly rate system.
The New Piece-Rate Compensation
California’s new piece-rate compensation is also known as the AB 1513. It went to effect last January 1, 2016. Under this recent change, California piece-rate employees must be compensated for non-productive time on top of what they are getting from the piece-rate compensation.
The additional compensation is determined by dividing the worker’s total compensation for the workweek by the number of hours worked during the same workweek. Calculations can easily get confusing, and that’s why it’s best that you consult with a professional to avoid costly problems.
Are There Any Exceptions?
Some employees may be exempt from this new change. One good example is when the employee is being paid on a commission basis. Before a compensation can be considered as a “commission basis,” the pay must be on a percentage basis in relation to the sale price.
While the employers have control on the design of the piece-rate compensation, it is not possible for the employer to opt-out from paying compensation for non-productive time. The compensation for non-productive time is based on the average hourly rate. Also, piece-rate employees must be paid for overtime. The technical details of the new change can easily get confusing, and it’s best that you consult with the appropriate professional as soon as possible.
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