SUN SETTING ON SAFE HARBOR ON DECEMBER 15, 2016
California Piece Pay Employers’ Final Step Is Payment and Documentation Submitted to the State
Several California industries - trucking and agriculture in particular -have utilized "piece-rate" pay for many years, commonly to the benefit of management and employees alike. Drivers have earned by the miles traveled or loads delivered, field workers have made their wages by the bushel or basket, and mechanics have received their pay based on repair jobs completed. At its best, the arrangement has encouraged higher production for higher wages well above hourly norms while generating greater company profits.
California's Rude Awakening for Piece-Rate Employers:However, beginning with two 2013 California appeals court decisions, since expanded by new Labor Code 226.2, this state has applied a unique approach. While federal law permits employers to average total piece pay to ensure each employee is receiving at least the applicable minimum wage over all hours worked in a given pay period, California directs businesses to pay its piece workers separately for state-directed rest and recovery breaks and for payable "non-production" time. See, Piece Work Compensation is a Wreck Waiting to Happen; The Perils of New Labor Code Section 226.2 for Trucking, Auto Repair and Other Industries (December, 2015).
This new take on piece pay exposedthousands of companies statewide to huge liabilities through class action suits for not having specifically paid up to that point for rest-recovery periods and/or for so-called compensable "non-production" time, e.g., a driver's work time when not actually on the road, a field worker's tailgate meetings with foremen and co-workers.
California Legislature Offers "Safe Harbor" Rescue for Past Piece-Rate Underpayments:No doubt the product of industry lobbying in Sacramento, Labor Code 226.2, effective January 1, 2016, among other things offered such employers a "safe harbor" option for avoiding such potentially devastating back pay liabilities: a payment of up to 4% of gross wages to affected piece-rate workers earned between July 1, 2012 and December 31, 2015 (Safe Harbor Period), as long as the employer submitted a public notice by July 1, 2016. Some 2,500 businesses statewide gave such notice.
Last Step of Safe Harbor Compliance is a Payment to the State with Proper Documentation:Those employers who submitted public notice must complete by December 15, 2016 a series of detailed and potentially time-consuming steps to achieve this safe harbor protection. Among these, a business must apply "due diligence" to locate each affected individual to provide him/her the required back pay payment. See, Employer Due Diligence Required To Locate Former Workers Under California's Piece Work Safe Harbor; All Steps Must Be Taken by December 15, 2016 (November 8, 2016)
Section 226.2 anticipates that employers will not be ableto locate every affected former employee despite such conscientious efforts. In this event, a company must by specific procedures pay the aggregate amount of the "3%-4%" safe harbor wages for all "un-locatable" employees to the "Industrial Relations Unpaid Wage Fund," administered by the California Department of Industrial Relations (DIR). The employer must also pay the state an administrative fee equal to one-half of one percent of the "aggregate payments made" or $2,500, whichever is less. Section 226.2(d)(1). With the documentation, an employer is to submit along with the payment, any of those previously "lost" former workers may make application to the DIR to recover his/her safe harbor amount.
The DIR's Frequently Answered Questions on Section 226.2 (226.2 FAQs)offer details for an employer's submission of that remaining aggregate amount and accompanying documentation to the state:
"1. A statement in both printed and electronic formatthat lists the following information for each employee covered by the payment:
o Net amount payable to the employee after withholding*
o If available, employee's last known address and social security number
"2. One check for the total of all amounts being paid into the Fundat that time for employees who could not be located.
"Make this check payable to:
INDUSTRIAL RELATIONS UNPAID WAGE FUND
"3. A second check equal to 1/2 of 1% (.005) of the amount in item 2 or $2500.00, whichever is les"Make this check payable to:
LABOR ENFORCEMENT AND COMPLIANCE FUND
"Please send all of these items by no later than December 15, 2016, to the following address.Department of Industrial Relations
Division of Labor Standards Enforcement
2031 Howe Avenue, Suite 100
Sacramento, CA 95825
"We recommendsending everything by certified mail, return receipt requested, in order to confirm timely delivery and receipt."
The 226.2 FAQs also remind employersthat all safe harbor back pay to affected workers are net checks, after deduction of payroll taxes and tax withholding, and subject to tax payment. This also applies to an employer's payment to the Unpaid Wage Fund: for those former employees who could not be located: "[i]f an employer is making a payment into the Unpaid Wage Fund for a former employee who could not be located, the employer should perform all tax withholding, tax payment and tax reporting for that payment, and pay only the net amount due to the employee into the Unpaid Wage Fund."
The 226.2 FAQs also direct employerswith questions on payroll taxes, withholding and reporting on any safe harbor payments to the California Employment Development Department (EDD) Taxpayer Assistance Center at 1-888-745-3886.
Safe Harbor Employers Must Retain Pertinent Records Until December 16, 2020:As the 226.2 FAQs also point out, affected employers must "preserve all records of hours worked, calculations of hours worked, and records of payments made to employees and the Labor Commissioner . . . until December 16, 2020, and furnish the records related to an employee on request by the employee." Labor Code 226.2(d)(3).
The Time is Now to Complete All Remaining Safe Harbor Steps:With just a few weeks remaining in front of the immovable December 15, 2016 deadline, any employer opting to comply with the "safe harbor" requirements should have a clear plan and "critical path" to complete all steps.
Please contact any of our lawyersTim Bowles, Cindy Bamforth, and Helena Kobrin should you need further information.
See also:o California's Itemized Pay Stub Requirements (March, 2016);
o Safe Harbor in Sight, Piece Work Compensation in California (May, 2016);
o No Chance of Rescue from Safe Harbor; California's Piece Work Employers Urgently Face Multiple Actions to Comply Fully with New Law (July, 2016);
o Navigating Piece Work in California (August, 2016);
o California Piece Rate Law: No Time to Relax on Rest-Recovery Premium Pay (September, 2016)
Tim BowlesNovember 14, 2016
Additional resources provided by the author
- Labor Code 226.2
- Piece Work Compensation is a Wreck Waiting to Happen
- Employer Due Diligence Required To Locate Former Workers
- Frequently Answered Questions on Section 226.2
- California’s Itemized Pay Stub Requirements
- Safe Harbor in Sight, Piece Work Compensation in California
- No Chance of Rescue from Safe Harbor
- Navigating Piece Work in California
- California Piece Rate Law: No Time to Relax on Rest-Recovery Premium Pay
- Tim Bowles
- Cindy Bamforth
- Helena Kobrin