How Does Piece Rate Or Piece-rate Compensation Work?

California Labor Code 226.2 regulates piece rate compensation or piece-rate pay and allows employers to pay employees on a piece rate basis as long the pay meets or exceeds the applicable minimum wage and overtime requirements for hourly pay.  Piece rate means an employer pays a fixed pay rate to an employee for each unit produced or action performed, regardless of time. 

For example, if a fruit grower pays its harvester employees $1 per box of avocados picked on a farm, the grower pays its harvesters a piece rate of $1.  However, employers must nevertheless also pay piece rate employees at least the applicable minimum wage for all additional “nonproductive” time that employees work for employers because piece rate only pays for “productive” time.  “Nonproductive” time means time under the employer’s control, excluding rest and recovery periods, that is not directly related to the activity that the employer compensates the employee for on a piece rate basis.

In the example of an avocado harvester, picking fruit and putting it in the box, and probably even putting the boxes of fruit on a truck or tractor would be considered “productive” time covered by the piece rate.  However, the time an employer directs avocado harvesters to spend on activities such as attending employee meetings, cleaning tools and equipment, and donning and doffing specialized protective gear would fall under the category of “nonproductive” time because it does not relate directly to picking fruit. 

Also, employers must additionally compensate piece rate employees for paid rest periods and recovery periods based on an average hourly rate, calculated by dividing the total compensation for the workweek, excluding rest and recovery period compensation and overtime premium compensation, divided by the total hours worked during the workweek, excluding rest and recovery periods.  Note that the wage statement requirements for piece rate employees have some additional items that are not required for regular employees paid on an hourly rate basis, and not addressed here.

(See Link: Labor Code Section 226.2)