On October 10th, 2015, Governor Brown signed into law legislation that re-writes the definition and rules governing payment of hourly wages for break/rest periods and “non-productive” time. This post will cover how these changes will be handled within our software. Pay attention to the terminology used in this article since we are trying to use terminology to match the law. This may be different than what we have used in the past.
Rest and Recovery vs. Non-Productive
There is a distinction in the verbiage of the law between rest and recovery periods and non-productive time. In the past we may have generally referred to all of this time as non-productive. We will no longer refer to rest and recovery periods as non-productive. Non-productive pay is separate from non-activity during piece-rate work. Examples of non-productive time would be meetings, exercise, travel time, etc.
Separate wage types or jobs need to be defined to distinguish between rest and recovery pay versus other types of non-productive pay. If you have already been using a wage type set up as “NP”, you may want to keep that to have all prior history and future rest and recovery wages show up together. You can change the description on the wage type to indicate rest and recovery wages.
Since non-productive time is paid at an hourly rate, it is not necessary to set up a separate wage type for those types of work. However, many of our customers are doing this to track time separately. For example, you could set up a wage type “EX” for exercise, “TT” for travel-time, etc.
Changes to the Average Rate of Pay Calculation for Rest and Recovery
One of the biggest changes is the calculation of the average pay rate applied to rest and recovery periods.
Current Method: The Average Piece Rate Report currently calculates the average hourly rate on only piecework wages. This is based on the guidance provided by the DLSE.
New Method: The legislation states that the average hourly rate used for rest and recovery pay should be computed by dividing the total wages for the week, (exclusive of the rest and recovery wages and any premium overtime wages) divided by the total number of hours worked (exclusive of the rest and recovery time).
This change will take place on January 1st, 2016 and will actually be a benefit toward the employer if they pay regular wages and piecework in the same period. This change will benefit employers if the average hourly regular pay rate is less than the average hourly piecework rate. We will have the change to the Average Piece Rate Report (may be re-named since it’s not average piece rate any longer) prior to this time and have separate calculation methods available due to other States not using the same method as California. Be sure to read all direction when the update is released with this new option.
We are expecting guidance to be issued by the DLSE on this law and programming changes may be delayed, depending on when this information is received.
“Safe Harbor” From Lawsuits for Non-Payment of Rest and Recovery Periods
The new legislation also provides some relief from lawsuits filed on or after March 1, 2014 until January 1, 2021 for employers that comply with the requirements of the law no later than December 31, 2016. This includes restitution made to employees for rest and recovery periods during piece-rate activity starting from July 1, 2012 through December 31, 2015. Here are the two methods available for computing these payments as stated in the AB1513 legislation:
(1) The employer makes payments to each of its employees, except as specified in paragraph (2), for previously uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012, to December 31, 2015, inclusive, using one of the formulas specified in subparagraph (A) or (B):
(A) The employer determines and pays the actual sums due together with accrued interest calculated in accordance with subdivision (c) of Section 98.1.
(B) The employer pays each employee an amount equal to 4 percent of that employee’s gross earnings in pay periods in which any work was performed on a piece-rate basis from July 1, 2012, to December 31, 2015, inclusive, less amounts already paid to that employee, separate from piece-rate compensation, for rest and recovery periods and other nonproductive time during the same time, provided that the amount by which the payment to each employee may be reduced for amounts already paid for other nonproductive time shall not exceed 1 percent of the employee’s gross earnings during the same time.
We would like to get feedback from our customers as to which method they will be using. Please feel free to comment below to let us know what you are planning. We have not yet decided if we will be programming options for both of these methods. Option “A” seems most problematic because rules would need to be defined for how many breaks per block of hours. If data is not entered by day and perfectly, there could be some data that cannot be analyzed perfectly. Option “B” seems the most straightforward because you are paying a percentage of wages during periods the employees worked in piece-rate activity. This amount can be reduced up to 1% if you have other activity during those periods where they were paid by the hour and included breaks. With this method there is no calculation of the average pay rate, number of breaks, etc. Four percent would constitute two breaks a day, so you are probably not going to be paying out much more through this method unless you have a higher mix of hourly and piecework within each pay period. However, in that case you have the option of reducing the percentage, up to one percent.
Whatever programming we do, it will be offered after the beginning of 2016. Also, since this is a specialized option that will only be used once, there will most likely be a small fee involved. Any data analysis requests for our assistance for purposes of determining rest and recovery payments is also billable time. We can give guidance on what reports can be run to help, but any extended time analyzing data would go beyond the software contract support agreement.
If you plan to make these restitutions this year and have not done so already, please keep in mind the extra employee count you will have when ordering your W2’s.
We encourage each customer to review the new law and seek counsel on how to implement new procedures and pay past break time restitution. Nothing in the article should be interpreted as or relied on as legal advice. Consult a qualified attorney about any matter of legal significance to you.