Question: Does the 4% method allow the employer to credit breaks that are overpaid in one pay period against breaks that are underpaid in another pay period?
Answer: No. Yes. Not really. It depends on how you look at it?
The following is not legal advice, but an explanation of how the Safe Harbor Report works based on our best understanding of the law and the information we have received from the DIR. If you ask the same question of your labor attorney you may get a different answer. If you need the Safe Harbor Report to work differently based on the legal advice you have received, please let us know so we can make the needed modifications to the calculations (see the bottom line, below).
We posed this question to the DIR back in May:
“When using the 4% less breaks paid calculation method, how should situations be handled when the 4% amount is less than the amount already paid for breaks?
In a single pay period, an employee works 10 hours, earns $93.24, takes three 10-minute breaks, and was paid minimum wage ($4.50—.5 (30 minutes) x $9/00/hour) for those three breaks separate from the piecework earnings.
4% of the wages is $3.73, and $3.73 – $4.50 = -.77.
Should the 77 cents be deducted from payments made for other pay periods where the employee is owed break time, or should the employer show a zero dollar amount adjustment payable for this pay period?
(Just to be clear, I did not make these amounts up, they are from a real check issued to a real employee)”
And we got the following response from an attorney in the DIR legal unit:
“Under the 4% method in subdivision (b)(1)(B), the statute contemplates one overall calculation for the designated period, not a pay period by pay period calculation. In other words, an equation like this (assuming for purposes of this example that there were no payments for other nonproductive time):
[4% of gross earnings in the piece-rate pay periods for period of 7/1/2012 – 12/31/2015] – [total of amounts already paid to the employee, separate from piece-rate compensation, for rest and recovery periods during the same time] = [total of payment]
It may be that in some pay periods, the amounts already paid separate from piece-rate compensation are greater than 4% of the gross earnings for that pay period. Presumably, in other pay periods that would not be the case.
If you are asking how to show that on the statement that will accompany the payment, the statute is not specific about exactly how the calculations must be shown. The overall intent reflected in the statute is simply that the employee be provided a statement from which he or she can reasonably determine how the payment was calculated. Here is one possible example:
|Pay Periods In Which Work Was Performed On A Piece-Rate Basis||Gross Earnings for Pay Period||Amounts Paid in Pay Period, Separate From Piece-Rate Compensation, for Rest and Recovery Periods||Amounts Paid in Pay Period, Separate From Piece-Rate Compensation, for Other Nonproductive Time|
|7/1/2012 – 7/7/2012||$435.25||—||—|
|7/8/2012 – 7/14/2012||$500.00||$13.00||$50.00|
|TOTALS FOR ALL PAY PERIODS||$ Total gross earnings||$Total of separate payments for rest and recovery periods||$Total of separate payments for other nonproductive time|
|CALCULATION OF PAYMENT MADE (4% OPTION)||$Total gross earnings x .04 =
|(less $ Total of separate payments for rest and recovery periods)||(less $Total of separate payments for other nonproductive time [capped at 1% of gross earnings]|
= $___TOTAL PAYMENT MADE_______” (emphasis added)
(The employee statement that we ended up designing for the 4% method is very close to the example provided by the DIR. The main difference is the addition of a piecework wages column and a subject wages column so that it is clear what pay periods are included in the payment calculation (pay periods that have only hourly wages must still be listed on the statement) and what the total wages are used for the 4% calculation.)
Backing up a little, how does an employer end up overpaying an employee for breaks?
Backing up a little more, “overpaying” isn’t really the right word to use in this context. If you are using the “actual sums due” method, then it is more appropriate. That is because you are determining how much the employee was actually due for breaks, and you know exactly how much you paid the employee. Thus, the employee was either paid correctly, overpaid, or underpaid. If you are using the “actual sums due” method, then we believe it could be problematic to apply over-payments in one pay period to underpayments in another pay period.
In fact, if you run the Safe Harbor Report using one of the “actual sums due” methods and the amount due for a pay period is negative (indicating the employee was overpaid for breaks), the report zeroes this out so that it is not credited against other pay periods. Using “actual sums due” method, the report is in fact designed to look at break wages on a pay period by pay period basis. When a pay period is found to be underpaid, then that amount is added to the total due to the employee. But over-payments are not treated as “credits”.
But the 4% method not the same. Per the text of the law (and the DIR’s answer), a single calculation is performed after adding up all of the gross wages, breaks previously paid, and non-productive time paid over the entire Safe Harbor Period. The 4% method is simply describing a formula to determine a payment amount that will provide the employer with the safe harbor protection. Employees are not actually “due”4% of their gross wages for pay periods with piecework, there is not actually a pay period by pay period calculation involved in determining the final payment amount (again, as noted in the DIR’s answer), and the law does not specify a cap on the amount of break wages that you can deduct either for the entire Safe Harbor period or for individual pay periods.
So how does the employer pay an employee an amount for breaks that is more than 4% of their wages? There are several ways:
Suppose an employee works 6.6667 hours at piecework and earns the minimum wage of $10 hour, for a total of $66.67 The employee is also paid separately for two breaks, .3333 @ $10/hour, or $3.33. Under the 4% method, the employee is due $2.80 (4% of $70) for this time. However the employee was actually paid $3.33, .53 more than what the 4% method determines is due.
The rate of 4% was probably determined as a approximation of the amount of time that an employee would be due for breaks (e.g. 20 minutes of break time on an eight hour day is 4.167% of the total time worked). Another way that employers may have paid more than the 4% due is when employees are allowed and paid for 15 minute breaks instead of 10 minute breaks. This changes the percentage of time paid for breaks; 30 minutes of break time on an eight hour day is 6.25% of the total time.
Another possibility is that employees are paid for more breaks than required by law. In the question that we posed to the DIR, the employee took three breaks on a 10 hour day, when only two breaks are required. In this case, the third break might have been a heat recovery period, or it could have simply been an extra break period allowed by the employer. In any case, the law does not set any limit on how much break wages can be counted against the 4% (unlike non-productive wages, which are capped at 1% of gross wages for the Safe Harbor period).
Sometimes the 4% method works to the employer’s disadvantage, even when breaks were paid correctly. For instance, suppose an employee earns $91.80 at piecework wages working 4.75 hours, and is paid $2.25 for one 15 minute break for that time at minimum wage (per the case law in effect at the time), .25 @ $9.00/hour. The total wages on this day are $94.05. The gross due (4% of $94.05) is $3.76, meaning that the employee is due $1.51 after subtracting the break paid at $2.25.
Another example of when the law works to the employer’s disadvantage: the 4% calculation is performed on all types of wages in pay periods with piecework wages, including those wages where employees are not due breaks. This include bonuses, sick pay, vacation pay, and holiday pay. (The 4% calculation does not exempt any type of wages; this was also confirmed by the DIR).
These are all reasons to not think in terms of the 4% method as paying the employee what is “actually due”. In some cases where the employer did everything correctly, the employee actually ends up getting paid more than what they would actually be due under the “actual sums method”. In other cases it could be less.
The legislators that wrote AB 1513 surely must have known that there would be some cases where employers would have paid more than 4% in break wages (it is simple math, after all). The fact is that they did not include a cap on the break wages while including a cap specifically for non-productive wages. This very well could indicate that they did not intend to cap the amount of break wages that employers may credit for the breaks paid.
The 4% method might be better thought of as being more like a calculation that determines how damages are awarded in a class action lawsuit. The actual damages awarded to class members can depend on a number of factors and may or may not equal their individual loss. (Keep in mind, I am not a lawyer, so this analogy may not be 100% accurate.)
Why does the Safe Harbor Report list a net due calculation for each day and pay period if the actual payment amount is going to be based on the total subject wages for the Safe Harbor period?
There are a couple of reasons for this. First, it helps in determining how the breaks previously paid amount is determined when the amount is broken down by day. It is much easier to compare the break wages paid on the report on a daily basis to the breaks actually paid or the hourly wages on the check to double check the report’s calculations.
Second, internally the report has to keep track of the grower (for FLCs) and cost center to charge the safe harbor payments to. To do this, the report must look at each individual payroll check detail line anyway. Who or what gets charged for the safe harbor payment and the amounts that get charged have to maintained at a more detailed level. It is also easier to see how these amounts get divided up between growers and cost centers when the detail by day is included on the report.
For internal cost accounting purposes, or for billing purposes for an FLC, the program does apply negative amounts due on a grower/cost center basis. For instance, we have seen cases where employees that worked for a particular grower were consistently overpaid for breaks, and in that case the grower’s liability for safe harbor payments is zero, while other growers end up with amounts due to cover the total share of the safe harbor liability.
These internal calculations that allocate the total safe harbor wages cost do not have anything to do with the calculations that are made to determine each employee’s amount due, just as the individual calculations per day or per pay period are not used to determine the amounts due to each employee.
The Bottom Line (tl;dr)
Because the 4% method calculation (as described in the law and explained by the DIR) is based on the total wages for the entire Safe Harbor period and there are no limits on the amount of break time that you can deduct, it is in fact possible for break wages paid in excess of the 4% amount on any given pay period to reduce the overall payment to the employee.
Based on comments we heard at AB 1513 seminars, some employers are in fact limiting the deduction for breaks to 4% of the gross wages in each pay period so that break wages over 4% do not reduce the payment to the employee. If you want to do this, we can modify the Safe Harbor Report to calculate the higher amounts owed. This would likely also require a modification to the employee statement, as you may still need to show the total breaks paid as required by the law (and so the employee can match that amount up to their checks stubs) but also show the lower amount that you are taking as a credit for each pay period. Please contact Brian as soon as possible if you want this change made.
Note that the default employee statement does not show a pay period by pay period calculation–since it is not required by the law–it simply shows the wage amounts, and performs the calculations on the totals for these amounts. Whether you show the net amount due per pay period would also be left up to your discretion. The AB 1513 Employee Statement is customizable, so you can add this column if you want to.