A number of customers have questions about AB 1513 compliance. We have questions too. We are hoping that the California DIR will provide some answers before the end of the year.
Consider the following detail from a check on the Daily Payroll Batch Report:
This example uses the average piecework hourly rate calculation to determine the pay rate for the Rest and Recovery wage type (which is “NP”). There are two lines of piecework with a total of 19 hours, the employee earned $234 working piecework, so the average piecework hourly pay rate is $12.32. This is the rate that is used on the “NP” lines.
This is the calculation that the California Labor Commissioner came up with after the court cases were decided that brought up the whole issue of paying for breaks separately. And, to the best of our knowledge, this is the calculation to use for paying breaks in Washington state.
Now consider the following detail for the same check, using the calculation specified in AB 1513:
Notice the difference in the rate paid for the breaks: $17.20 vs. $12.32. Why is the employee suddenly getting paid $5/hour more for break times? AB 1513 specifies that the Rest and Recovery periods be paid at “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.”
The “total compensation for the workweek” (except R&R, $17.20, and overtime premium, $9.75) is $498.86. The total hours worked (exclusive of R&R time) is 29. $498.86/29 = $17.20/hour.
If you haven’t seen the problem, here it is: the sick pay is included in the “total compensation for the workweek” but the hours paid for sick pay are not included in “hours worked” (because obviously, the employee is not working).
(The sick pay rate, by the way, is being determined using the 90 day look-back method, as indicated by the “(P)” next to the rate. If the regular rate of pay method was being used, an “(R)” would appear.)
Is this calculation correct? We don’t know. We have submitted questions to the DLSE and haven’t received any response.
Here is how we think the rate is meant to be calculated (at least, this makes the most sense):
In this example, the program does a “regular rate of pay exclusive of rest and recovery period” calculation. The total wages for purposes of the calculation are $333.50 (excluding the overtime portion of the OT line, the break wages, and the sick pay wages). This is then divided by 29 (the number of hours worked exclusive of breaks) to get $11.50.
You may have noticed that this rate is less than the first example (average hourly piecework rate). This is because the calculation includes hourly wages (following the calculation in AB1513) which are being paid at a rate that is less than what the employee earned at the piecework wages. This brings the average hourly rate down to $11.50/hour.
Of course, not every check will include sick pay. But the issue affects other pay types where the total pay may increase but the hours worked do not. This includes holiday, vacation, discretionary bonuses and potentially any of the statutory exclusions normally used for regular rate of pay calculations.
All three calculations will be available on the Daily Payroll Batch Report in the next release of the program. Until guidance is provided by the labor commissioner, we can’t recommend which calculation method to use.
Quesitons? Post a comment below!
Update 12/17/15: Guidance posted this week from the DIR has clarified that the calculation to determine rest and recovery period pay rates is the regular rate of pay (excluding the rest and recovery time), even though the legislation does not use that term. The next release will have just two calculations methods, Regular Rate of Pay (for California) and Average Hourly Piecework Rate (for Washington).