RULES FOR ROUNDING PAYROLL PART 2

THIS IS A CONTINUATION FROM PART 1 OF THIS DISCUSSION. THIS NEW INFORMATION IS FROM LATE 2016.

Rounding times is allowed under California Law, but there has been a need for more information from the courts. The See’s Candy case is the rounding standard and has been bouncing around the courts for many years. An appellate court decision that further clarifies the ability of California employers to round employee timecard entries has been published.

By ordering its decision in Silva v. See’s Candy Shops, Inc. to be published, the 4th District Court of Appeal provides helpful guidance to employers on the factual circumstances that satisfy the standards for rounding of timecard entries.

The December 9, 2016, decision in Silva v. See’s Candy affirms that California employers may round employee timecard entries to the nearest tenth of an hour (6 minutes).

Background

See’s Candy uses a timekeeping software system to keep track of its employees’ working hours. The software system required employees to “punch” in at the beginning and end of their shift.

Timecard adjustments were made only in accordance with two See’s policies: 1) the nearest-tenth rounding policy; and 2) the grace period policy. Former employee Pamela Silva filed a class action lawsuit challenging these two policies.

Under the nearest-tenth rounding policy, in and out punches were rounded up or down to the nearest tenth of an hour. Under the separate grace period policy, employees whose schedule had been programmed into the timekeeping system could voluntarily punch in up to 10 minutes before their scheduled start time and 10 minutes after their scheduled end time. Employees, under See’s rules, were not permitted to work during that time, but could use it for personal activities.

In October 2012, the 4th District Court of Appeal issued an employer-friendly opinion by concluding that, under California law, employers may round employee timecard entries to the nearest tenth of an hour if the rounding policy is neutral, both as written and as applied. This ruling was particularly important because there was no statute or prior case law that explicitly authorized this common practice, which is permissible under federal law and followed by California’s labor agency.

The 2012 ruling did not explain how to determine whether a rounding policy had a neutral impact over a period of time and did not require any specific method of calculation for determining whether rounding resulted in under-compensating employees. Also not covered were the facts needed to support a summary judgment (issued without a trial) for an employer defending itself in claims alleging unlawful rounding on timecards.

Additional Guidance

The December 2016 ruling provides additional guidance regarding grace period policies, pointing favorably to See’s policy of prohibiting employees from working during the grace period and the “undisputed evidence” that employees engaged only in personal activities during the grace period and were neither working nor under the employer’s control during that time.

joined the U.S. Chamber of Commerce in asking the appeal court to publish its December 2016 ruling, pointing out that employers who use rounding are frequently the targets of litigation.

“Decisions addressing when California employers are entitled to summary judgment in such cases provide important benchmarks for the parties and for the courts charged with adjudicating rounding claims,” stated the joint letter asking that the decision be published.

For California employers facing class action lawsuits involving rounding claims, the letter CalChamber Involvement

CalChamber involvement in the case dates back to October 2011, when the CalChamber filed a letter urging the appeal court to review the trial court’s erroneous decision that the practice of rounding employee time entries to the nearest 6 minutes violated California law.

In a letter submitted by John A. Taylor Jr. of Horvitz Levy LLP, the CalChamber stated, “whether a rounding defense forecloses liability or merely creates a triable issue of fact to be resolved after class certification can literally be a multimillion-dollar question,” the letter said.

RULES FOR ROUNDING TIME FOR PAYROLL PART 1

THIS POSTING BEGINS THE STORY IN 2012.

Overturning a trial court determination that California law does not permit “rounding” of time entries for payroll purposes, the California Court of Appeal in See’s Candy Shops, Inc. v. Superior Court holds that an employer may round employees’ clock-in and -out times to the nearest tenth of an hour, provided that the rounding is “fair and neutral” and does not result in a failure to pay employees over a period of time.

The court also cited with approval legal authority that authorizes rounding to the nearest five minutes or quarter of an hour. Although the California Labor Commissioner had a long-standing enforcement position approving of neutral time-rounding policies, this is the first decision of a California appellate court regarding the Labor Commissioner’s position under California law. This decision brings California in line with approved practices under the federal FLSA and the laws of other states.

Background

See’s Candy Shops, Inc. required hourly employees to record the start and end times of their shifts and meal periods using timekeeping software. The time records were then used to calculate employee pay, subject to two adjustments: (1) the company rounded clock-in and -out times up or down to the nearest tenth of an hour; and (2) the company applied a “grace period” at the start and end of shifts. Under the grace period policy,

employees could voluntarily clock in up to ten minutes before the start of their shift and clock out up to ten minutes after the end of their shift, but pay would be based upon scheduled start and end times.

In a highly controversial decision that attracted national attention, the trial court ruled that the time-rounding and grace period policies were impermissible. See’s Candy Shops appealed.

The Court of Appeal reverses and approves of rounding policies

The Court of Appeal stated that California employers should be permitted to use the same long-standing rounding practices that are permitted throughout the United States.

The Court of Appeal held that so long as the rounding policy is neutral over time, the net effect allows employers to calculate time efficiently, with no loss of wages to employees.

Applying this analysis to See’s Candy Shops’ policy, the court found evidence that the time-rounding policy was neutral on its face because it rounded both up and down to the nearest tenth of an hour, and did not result in a loss of wages to employees over time.

As a result, the Court of Appeal reversed the trial court’s ruling that the time-rounding policy was per se impermissible. The case now goes back to the trial court on the issue of whether the rounding policy is “fair and neutral” in practice, i.e., whether in practice the policy works to disadvantage the See’s Candy Shops employees.

Take-away messages from the decision

Many employers do not round time, and this decision does not establish any broader right than was previously permitted under the DOL regulations and DLSE Manual. If anything, this decision highlights that employers who use rounding may face legal challenges and the expense of defending the fairness of the practice in court. This decision also highlights that rounding cannot be used as a cost-saving measure, as

any discrepancy between rounded and actual time should work in employees’ favor or, at the very least, be neutral. While some employers may find that rounding time is convenient and saves on administrative costs, any savings should be weighed against the potential costs of auditing rounded payroll records and justifying their fairness in litigation.

With those cautions in mind, employers who do employ rounding can take comfort that time-rounding policies, when properly drafted and applied, are permissible in California that:

(1) any rounding must be “fair and neutral,” meaning that time must be rounded up as well as down; and

(2) as applied, the policy must not result in a failure to compensate employees fully over time.

Employers who utilize rounding should conduct periodic audits of time and pay records to ensure that the rounding does not produce a net loss to employees. Employers may wish to engage legal counsel to conduct the audit so that the analysis is protected by the attorney-client and attorney work product privileges.

The Court of Appeal did not rule on whether the “grace period” policy was permissible. At a minimum, any such policies should state that clocking in during the grace period is voluntary, that employees may not work during the grace period and are free even to leave the premises until the start of the shift or after the end of the shift, and that if an employee performs work during the grace period, he or she should notify a supervisor so that the time will be paid.

 

Employers should adopt written policies providing that off-the-clock work is not permitted, and that any employee who performs work while not clocked in should notify a supervisor so that he or she can be paid for the time. In addition, supervisors should be trained on these policies and directed to inform Human Resources if they become aware of off-the-clock work, so that payment can be made.

Continue on next blog (Part 2)

 

NEW PAYROLL \ W-2 SCAM MAKING THE ROUNDS….BEWARE!

Recently the Internal Revenue Service (IRS) issued an alert to payroll and human resources professionals to warn them about an email scam.  In our effort to keep our customers protected and informed we are passing along this information.  Also, please note that all W-2 forms should be distributed in California no later than January 31.  If your w-2 is returned by mail as undeliverable, do not open the envelope. The sealed envelope with its postmark serves as proof that you attempted to send the Form W2 on time. Make a copy of the envelope and keep the copy in your records for 4 years.

The IRS is urging company payroll officials to double check any executive-level or unusual requests for lists of Forms W-2 or Social Security numbers (SSNs).

In this scam, cybercriminals attempt to trick payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then use the stolen personal information and data to try to obtain money, including filing fraudulent tax returns for refunds.

The criminals send a fake or “spoofing” e-mail pretending to be from the actual CEO or CFO of the company. In the email, the “CEO” requests a list of employees and information about the employees, including their SSNs, from company payroll officers or human resource employees.

The following are some of the details that may be contained in the emails:

  • Kindly send me the individual 2016 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.
  • Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, and Salary).
  • I want you to send me the list of W-2 copy of employees wage and tax statement for 2016, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me ASAP.

The IRS warns that cybercriminals are using more sophisticated tactics to try to steal even more data that will allow them to impersonate taxpayers.

Concerned employers can visit the IRS website to get assistance with reporting phishing and other online scams.

For more information on protecting personal, financial and tax data, see IRS.gov/taxessecuritytogether for additional steps businesses and individuals can take. Businesses that retain sensitive financial data are also encouraged to review and update their security plan. Safeguarding Taxpayer Data, A Guide for Your Business, provides a starting point and recommendations from the IRS.

FAQ ON PIECE RATE PAY AND PAY CALCULATIONS (AB 1513 and Labor Code 226.2)

Due to the continued interest and volume of calls we have received concerning piece-rate pay and how to properly follow the new laws, we are posting this information from the California Website.  You can read the full FAQ at https://www.dir.ca.gov/pieceratebackpayelection/AB_1513_FAQs.htm

You must list on  your paycheck stubs the piece-rate pay, the time and averaged pay rate for rest\recovery periods, and a third line for non-productive time.  Pay careful attention to the overtime provisions as well.

Here is the important information that you need.  Pay special attention to the area about calculating average pay:

Piece-Rate Compensation – Labor Code §226.2 (AB 1513)

Topics covered in this section

General information
Piece-Rate compensation and wage statement requirements effective January 1, 2016 and later
The affirmative defense provisions of Labor Code Section 226.2 (Relating to time periods prior to January 1, 2016)
Calculating and making back payments to employees and former employees for purposes of the affirmative defense
Employee claims about Piece-Rate compensation

General Information

Q. When does the law go into effect?

A. By operation of law, AB 1513 went into effect on January 1, 2016.

Q. What does AB 1513 do?

A. AB 1513 adds section 226.2 to the California Labor Code, which applies “for employees who are compensated on a piece-rate basis for any work performed during a pay period.”

In general terms, Labor Code section 226.2 does two things:

  1. It establishes compensation and wage statement requirements for rest and recovery periods and “other nonproductive time” for piece-rate employees going forward from the effective date of the statute.
  2. It establishes, for certain employers and under certain circumstances, an “affirmative defense” to any claim or cause of action for damages or statutory penalties based on an employer’s alleged failure to pay compensation due for rest and recovery periods and other nonproductive time for time periods prior to the effective date of the statute.

Q. What is piece-rate compensation?

A. Labor Code section 226.2 does not change the existing definition of what constitutes “piece-rate” compensation.

The existing Division of Labor Standards Enforcement Manual contains the following explanation of piece-rate compensation:

2.5.1 Piece-Rate or “Piece Work”

The American Heritage Dictionary defines the term piece-rate as: “Work paid for according to the number of units turned out.” Consequently, a piece-rate must be based upon an ascertainable figure paid for completing a particular task or making a particular piece of goods.

2.5.2 Examples of piece-rate plans can be as diverse as the following:

  1. Automobile mechanics paid on a “book rate” (i.e., brake job, one hour and fifty minutes, tune-up, one hour, etc.), usually based on the Chilton Manual or similar;
  2. Nurses paid on the basis of the number of procedures performed;
  3. Carpet layers paid by the yard of carpet laid;
  4. Technicians paid by the number of telephones installed;
  5. Factory workers paid by the widget completed;
  6. Carpenters paid by the linear foot on framing jobs.

2.5.3 A piece-rate plan of compensation may include a group of employees who share in the wage earned for completing the task or making the product.

2.5.5.1 Piece-rate and commission plans may be in addition to an hourly rate or a salary rate of pay. Such plans may also be in the alternative to a salary or hourly rate. As an example, compensation plans may include salary plus commission or piece-rate; or a base or guaranteed salary or commission or piece-rate whichever is greater.

(Reference: DLSE , pages 2-2 to 2-3.)

Q. Does the law apply to employees who work on a commission basis?

A. No, the law does not apply to employees who are compensated on a commission basis.

By its terms, Labor Code section 226.2 applies to “employees who are compensated on a piece-rate basis for any work performed during a pay period.” Note, however, that it is the nature of the compensation that is determinative, not the label.

Existing Labor Code section 204.1 defines “commission wages” as: “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”

(See also the Ramirez v. Yosemite Water Co. (1999) 20 Cal. 4th 785, 803 [“Although section 204.1 applies specifically to employees of vehicle dealers, both parties contend, and we agree, that the statute’s definition of ‘commission’ is more generally applicable.”].)

As the Supreme Court explained in the Ramirez case, quoting Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557, 563,

“. . . Labor Code section 204.1 sets up two requirements, both of which must be met before a compensation scheme is deemed to constitute “commission wages.” First, the employees must be involved principally in selling a product or service, not making the product or rendering the service. Second, the amount of their compensation must be a percent of the price of the product or service.’” (Ramirez, supra, 20 Cal. 4th at 803-04.)

The Division of Labor Standards Enforcement Manual contains the following language concerning the difference between piece-rate compensation and commission compensation:

2.5.4 Commission

Labor Code § 204.1 defines commissions as: “Compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Keyes Motors v. DLSE (1987) 197 Cal.App.3d 557.If the compensation is based on a percentage of a sale, the compensation plan is a commission. On the other hand, a compensation plan which pays employees for the number of pieces of goods finished, the number of appointments made or the number of procedures completed, is based on a piece-rate, not a commission rate; though such compensation plans often refer to the payment as “commission”.

2.5.4.1 Shared commissions

Again, as with a piece-rate plan, a commission plan may include a group of employees who share in the commissions earned. (For a detailed discussion of commissions refer to the DLSE Enforcement Manual, Section 34.)

Q. Does this statute change overtime compensation requirements?

A. Labor Code section 226.2 expressly states in the opening paragraph that it “shall not be construed to limit or alter minimum wage or overtime compensation requirements, or the obligation to compensate employees for all hours worked under any other statute or local ordinance.”

This means that in any workweek in which a piece-rate employee worked overtime hours, overtime compensation must be calculated and paid according to existing law.

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Piece-Rate compensation and wage statement requirements effective January 1, 2016 and later

Q. What are the compensation requirements for rest and recovery periods for piece-rate employees?

A. Labor Code section 226.2, subdivision (a), paragraphs (1) and (3) provide that:

  • Employees must be compensated for rest and recovery periods separate from any piece-rate compensation, and
  • The rate of compensation for rest and recovery periods shall be the higher of:
    • 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 applicable minimum wage.

This means that piece-rate employees must be paid compensation for rest and recovery periods that is separatefrom their piece-rate compensation. An employer may not treat the piece-rate compensation as including compensation for rest and recovery periods, no matter how the piece-rate was determined.

The hourly rate of compensation for rest and recovery periods must be the same as the hourly rate (averaged over the workweek) that an employee earned during the workweek for time during which he or she was performing work. If, for some reason, this average hourly rate comes out to less than minimum wage, then the employee must be paid at minimum wage.

Q. How does an employer determine the average hourly rate to be paid for rest and recovery periods?

A. The formula for determining the average hourly rate to be paid for rest and recovery periods is set forth in the statute, as follows:

Divide 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.”

(Labor Code §226.2(a)(3)(i).)

The following are some examples of application of this formula.

Examples:

1. For a workweek of piece-rate compensation only:

  • A piece-rate employee works a 5-day, 40-hour workweek.
  • The employee has two 10-minute rest periods authorized and permitted per day, for a total of 100 minutes (1.67 hours) of rest periods for the workweek.
  • The employee earns $500 in piece-rate compensation for the workweek.
The average hourly rate to be paid for the rest periods for this employee is calculated as follows:
$500 total compensation not including compensation for the rest periods
÷ 38.33 total hours less rest periods
= $13.04/hr
x 1.67 hrs
rest periods for the workweek
= $21.78 compensation for rest periods for the workweek
Total compensation for the workweek:
$500 piece-rate compensation
+ $21.78 compensation for rest periods
= $521.78

2. For a workweek of piece-rate compensation and a base rate of minimum wage for all hours worked:

  • An employee works a 5-day, 40-hour workweek.
  • The employee has two 10-minute rest periods authorized and permitted per day, for a total of 100 minutes (1.67 hours) of rest periods for the workweek.
  • The employee is paid minimum wage ($10/hour) for all hours worked, including the two 10-minute rest periods, for a total of $400.
  • The employee also earns a total of $300 in piece-rate compensation for the workweek.
The average hourly rate to be paid for the rest periods for this employee is calculated as follows:
$683.30 Total compensation for the workweek, not including compensation for rest and recovery periods, which is the $300 in piece-rate compensation, plus the minimum wage paid for all hours worked except the 1.67 hours of rest period time
÷ 38.33 Total hours less rest periods
= $17.83/hour Note: $10/hour of this time is already calculated into and paid in the employee’s minimum wage of $10/hour for all hours worked, including the rest period time.

Therefore, the additional amount owed for rest periods under this example is $7.83/hour.

Total compensation for the workweek:
$400 Minimum wages for all hours worked, including the rest period time
+ Piece = rate compensation
+ $7.83 x 1.67 hours = Additional amount over minimum wage required to pay correct average hourly rate for rest periods

3. For a workweek with both piece-rate work and hourly work:

  • An employee works a 5-day, 40-hour workweek.
  • On two 8-hour days of this workweek (for a total of 16 hours), the employee works at an hourly rate of $10/hour, and does no piece-rate work.
  • On the other three days of the week (for a total of 24 hours), the employee does piece-rate work only and earns a total of $300 in piece-rate compensation.
  • On each day of the workweek, the employee has two 10-minute rest periods authorized and permitted, for a total of 100 minutes (1.67 hours) of rest periods for the workweek.
  • On the two hourly-work days, these rest periods are compensated at the $10 hourly wage.
The average hourly rate to be paid for the rest periods for this employee is calculated as follows:
$453.30 Total compensation for the workweek, not including compensation for rest and recovery periods, which is the $300 in piece-rate compensation, plus the $160 for hourly work, less $6.70, which is the compensation for the 40 minutes of rest and recovery periods on the two hourly-rate days.
÷ 38.33 Total hours, which is 40 hours less the 1.67 hours of rest period time
= $11.83/hour Note: For the days on which the employee worked at an hourly rate, $10/hour of this time is already been paid as part of the hourly rate. For those two days, the employee is owed only an additional $1.83/hour for the rest periods. For the days on which the employee did piece-rate work, the rate to be paid for the rest periods is $11.83.
Total compensation for the workweek:
$160 For the hourly rate worked on two days
+ $300 Piece-rate compensation
+ $1.83 x .67 hours = $1.23 The additional amount owed for the rest periods on the hourly rate days to bring them to the average hourly rate for the workweek.
= $473.06

4. For a workweek of piece-rate compensation and overtime hours:

  • An employee works a 6-day, 47-hour workweek, for which 7 hours constitute overtime.
  • The employee has two 10-minute rest periods authorized and permitted per day, for a total of 120 minutes (2.0 hours) of rest periods for the workweek.
  • The employee earns a total of $800 in piece-rate compensation for the workweek.
The average hourly rate to be paid for the rest periods for this employee is calculated as follows:
$800 Total compensation for the workweek, not including compensation for the rest and recovery periods or premium pay for overtime.
÷ 45 hours Total hours, not including the rest and recovery periods.
= $17.78/hour

x 2.0 hours

= $35.56

Compensation for rest and recovery periods for this workweek.
The overtime premium compensation for this employee is:
$800 Piece-rate compensation
+ $35.56 Compensation for rest and recovery periods
= $835.56
÷ 47 hours
= 17.78/hour Regular rate of pay
x .5
= $8.89 Premium pay due for overtime hours
x 7 hours Overtime hours
= $62.23
Total compensation for the workweek:
$800 Piece-rate compensation
+ $35.56 Compensation for rest and recovery periods
+ $62.23 Premium pay for overtime hours
= $897.79

Q. If an employer pays a base hourly rate for all hours worked (for example, minimum wage), but also pays additional piece-rate compensation, is it sufficient for the employer to just pay minimum wage for the employee’s rest breaks?

A. No. Going forward, the statute requires compensation at an average hourly rate determined by dividing total compensation by the total hours worked in the workweek, as explained above. This encourages employees to take their authorized rest breaks, without feeling that doing so will decrease their compensation.

Q. What types of compensation must be included in determining the average hourly rate to be paid for rest and recovery periods?

A. The statute says that the average hourly rate shall be “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.”

As indicated above, the statute refers to “total compensation” for the workweek. This type of formula is similar to the manner in which employers are currently required to calculate a regular rate of pay for overtime compensation purposes. The Division of Labor Standards Enforcement Manual contains information on the types of compensation within a workweek that generally must be included for this purpose and those that are not. (See DLSE Manual, §49.1 to 49.1.2.3 (items to be included) and §49.1.2.4 (types of compensation not included.)

Q. What are “rest and recovery periods”, as referred to in the statute?

A. Labor Code section 226.2 does not change the definition for rest and recovery periods. Those terms have the same meaning as they do under existing law.

“Rest” periods are defined and required under a number of existing wage orders. For example, existing Wage Order 1 (Manufacturing Industry) contains the following provision regarding rest periods:

12. Rest Periods

A. Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 1/2) hours. Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.

B. If an employer fails to provide an employee a rest period in accordance with the applicable provisions of this order, the employer shall pay the employee one (1) hour of pay at the employee’s regular rate of compensation for each work day that the rest period is not provided.

(Wage Order 1, ¶12, 8 CCR section 11010.)

Most of the existing wage orders contain similar, or identical, provisions on rest periods.

Existing Labor Code section 226.7 defines a “recovery period” as “a cooldown period afforded an employee to prevent heat illness.”

Labor Code section 226.7 also provides that:

(b)   An employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or applicable regulation, standard, or order of the Industrial Welfare Commission, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health.

In Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1029, the California Supreme Court said the following concerning rest periods (applying Wage Order 5):

Employees are entitled to 10 minutes rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.

(Id. at 1029.) See also Brinker, supra, 53 Cal.4th at 1033 (“An employer is required to authorize and permit the amount of rest break time called for under the wage order for its industry.”)

Q. Does Labor Code section 226.2 mean that employers will need to track the number of minutes that employees actually take for their rest and recovery periods?

A. No. Section 226.2, subdivision (a)(2) requires that an employee’s itemized wage statement state “[t]he total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period.” (Emphasis added.)

If an employer has authorized and permitted two 10-minute rest periods during an employee’s work shift (see quote from Brinker above), the “compensable” rest and recovery periods are those that have been authorized and permitted according to existing law. That is the amount of time for which an employee must be compensated (i.e., the “compensable” period), and which must be itemized on the wage statement, regardless of whether the employee actually took only 8 minutes on one rest period (less than the amount of time that was “compensable”), or took 13 minutes on another rest period (more than the amount of time that was “compensable”).

Similarly, for recovery periods (“a cooldown period afforded an employee to prevent heat illness,” see Labor Code section 226.7), the employer will need to determine the amount of time that was “afforded” (i.e., authorized and permitted), which may depend on the circumstances. The amount of time that was afforded is the amount of time for which employees must be compensated (i.e., the “compensable” period) and which must be itemized on the wage statement.

Q. Why are there different rules for employers who pay on a semi-monthly basis?

A. Actually, the compensation requirements for rest and recovery periods are the same for all employers, including those that pay on a semi-monthly basis. For employers who pay on a semi-monthly basis, however, there is a provision that allows the employer to pay for rest and recovery periods at a rate of at least the minimum wage for the pay period in which the rest and recovery periods occurred, and then to “true up” the compensation owed (to pay “the additional compensation required”) applying the average hourly rate formula that is required and explained above, in the following pay period. This is because when a semi-monthly pay period ends in the middle of a workweek, it may not be possible to determine the “average hourly rate” for that workweek at the time the paycheck is issued for that payroll period.

This is consistent with existing rules in Labor Code section 204 that apply to employers who pay wages on a semi-monthly basis. That section provides, for example, that “all wages earned for labor in excess of the normal work period [e.g., overtime] shall be paid no later than the payday for the next regular payroll period.” (Labor Code §204(b)(1) (language in italics added).)

Q. What is “other nonproductive time”?

A. Labor Code section 226.2 defines “other nonproductive time” as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”

What constitutes “other nonproductive time” under this definition will obviously vary depending upon the nature of the work and the “activity being compensated on a piece-rate basis.”

Q. What are the compensation requirements for other nonproductive time?

A. Labor Code section 226.2, subdivision (a)(1) and (a)(4) provide that:

  • Employees must be compensated for other nonproductive time separate from any piece-rate compensation, and
  • Employees must be compensated for other nonproductive time “at an hourly rate that is no less than the applicable minimum wage.

This means that piece-rate employees must be paid compensation for “other nonproductive time” that is separate from their piece-rate compensation. An employer may not treat the piece-rate compensation as including compensation for other nonproductive time, no matter how the piece-rate was determined.

The compensation requirement for other nonproductive time is simply that it be paid at an hourly rate of no less than the applicable minimum wage.

The statute also contains a kind of “safe harbor” provision in subdivision (a)(7), which states:

An employer, who in addition to paying any piece-rate compensation pays an hourly rate of at least the applicable minimum wage for all hours worked, shall be deemed in compliance with paragraph (4).

This means that if an employer pays a base hourly rate of at least the applicable minimum wage for all hours an employee works, in addition to any piece-rate compensation, the employer will be deemed in compliance with the compensation requirements for other nonproductive time.

Q. Does an employer need to track the amount of other nonproductive time worked by an employee who is compensated on a piece-rate basis?

A. It depends. If the employer utilizes the “safe harbor” option of subdivision (a)(7) (i.e., “in addition to paying any piece-rate compensation, pays an hourly rate of at least the applicable minimum wage for all hours worked”), then the compensation and wage statement requirements for other nonproductive time are satisfied, and the employer is not required to determine or to record the actual amount of hours worked in other nonproductive time. (See §226.2(a)(2)(B); (a)(4); (a)(7).)

If the employer does not use this “safe harbor” option of paying an hourly rate of at least minimum wage for all hours worked, then the amount of hours worked in other nonproductive time must be determined (§226.2(a)(5)), listed on the wage statement, (§226,2(a)(2)(B)), and compensated separately at an hourly rate of at least minimum wage (§226.2(a)(4)).

Subdivision (a)(5), however, provides that “[t]he amount of other nonproductive time may be determined either through actual records or the employer’s reasonable estimates, whether for a group of employees or for a particular employee, of other nonproductive time worked during the pay period.” (Labor Code §226.2(a)(5).) This allows employers the option of determining the amount of other nonproductive time worked based on a reasonable estimate, rather than actual tracking of time.

Subdivision (a)(6) further provides that:

An employer who is found to have made a good faith error in determining the total or estimated amount of other nonproductive time worked during the pay period shall remain liable for the payment of compensation for all hours worked in other nonproductive time, but shall not be liable for statutory civil penalties, including, but not limited to, penalties under Section 226.3, or liquidated damages based solely on that error, provided that both of the following are true:

A. The employer has provided the wage statement information required by subparagraph (B) of paragraph (2) and paid the compensation due for the amount of other nonproductive time determined by the employer in accordance with the requirements of paragraphs (4) and (5).

B. The total compensation paid for any day in the pay period is no less than what is due under the applicable minimum wage and any required overtime compensation.

In general terms, this means that if an employer makes a good faith error in determining the amount of other nonproductive time for a worker, whether determined through records or based on an estimate, in that the employee actually worked more other nonproductive time than was in the estimate or as otherwise determined by the employer, the employer remains liable to compensate the employee for all of the other nonproductive time the employee actually worked (at an hourly rate of at least minimum wage), but will not be liable for any statutory penalties.

This provision is subject to the two qualifications in subparagraphs (A) and (B), quoted above, including that the employer must have paid the employee at least minimum wage and any required overtime compensation on that minimum wage.

Q. Are there any wage statement requirements under this law?

A. Yes. Labor Code section 226.2, subdivision (a)(2) provides that:

The itemized statement required by subdivision (a) of [Labor Code] Section 226 shall, in addition to the other items specified in that subdivision, separately state the following, to which the provisions of Section 226 shall also be applicable:

  1. The total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period.
  2. Except for employers paying compensation for other nonproductive time in accordance with paragraph (7), the total hours of other nonproductive time, as determined under paragraph (5), the rate of compensation, and the gross wages paid for that time during the pay period.

As indicated in the language in italics above, an employer is not required to state the total hours of other nonproductive time, the rate of compensation, or the gross wages paid for that time, if the employer “in addition to paying any piece-rate compensation, pays an hourly rate of at least the applicable minimum wage for all hours worked,” as authorized by the “safe harbor” language in subdivision (a)(7).

The wage statement requirements should be read in tandem with the current requirement under section 226, subdivision (a), that an itemized wage statement show “all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee…” (§226(a)(9)). To the extent there may be overlap between this provision and section 226.2(a)(2) going forward, the requirements will be harmonized. Employers will not be required to state the same information twice on the wage statement.

Cal\OSHA Changes Interpretation of Laws

For 2017, Cal\OSHA is aligning itself more completely with OSHA in the way it views repeat offenders.  You can read the whole report written by Littler Global at this site https://www.littler.com/publication-press/publication/calosha-amendment-significantly-expands-its-definition-%E2%80%9Crepeat%E2%80%9D

In Summary, Cal\OSHA can now go back 5 years and if you have a “substantially similar” citation at any of your locations in California, it will be considered a “repeat” violation and you could be subject to fines of over $70,000.  The five year look-back begins on the date that the citation is finalized, so if you appeal the citation, it could delay the finalizing date and mean the actual time from the original violation could be almost 6 years old and still be within the 5-year window for repeats.  This may affect strategies going forward.

Also, please take note of the fact that this is a repeat at any facility within your organization that is in the State.  So, if you have a citation for your eyewash station in one location, if you have a shower citations (substantially similar) problem in another location, they could be listed as repeat violations and the fines would grow about 4 fold.

Comparing first-quarter figures from the past six years, the number of Cal/OSHA investigations has risen steadily, from 2,608 in 2011 to 3,375 in 2016, nearly a 30% increase. Citations for alleged serious violations have increased even more significantly – by 330% in the same period. Alleged serious violations represented 21% of total cited alleged violations for the first quarter of 2016 versus only 10% in 2011.

So, be prepared.  Walk your property with an open eye.  Invite HR Mobile Services to come out and help you identify problems.  Check your paperwork!

The clear message here is that you should take these citations seriously and implement changes at all locations to address an issue so that it does not cost you again.