On October 10th, Governor Jerry Brown signed into law Assembly Bill No. 1513, which creates new burdensome rules for employers that utilize piece-rate employees in California. Effective January 1, 2016, the new law (which will be added to California Labor Code § 226.2) will require employers to compensate piece-rate employees—who are generally paid based on the number of units, or pieces, they complete, rather than on the number of hours they work—for rest and recovery periods and “other nonproductive time.” The following are some of the new requirements the law imposes on employers:

• Pay piece-rate employees for rest and recovery periods at an hourly rate that is the higher of the employee’s average hourly rate or minimum wage. The employee’s average hourly rate is determined by dividing the employee’s total compensation for the workweek (excluding compensation for rest and recovery periods and overtime premiums), by the total hours worked during the workweek, exclusive of rest and recovery periods.
• Pay piece-rate employees for “other nonproductive time,” defined as time under the employer’s control that is not directly related to the activity being compensated on a piece-rate basis, at a rate of at least minimum wage.
• Include on the piece-rate employee’s itemized wage statement 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, and the total hours of other nonproductive time.

The law applies retroactively, but provides a limited safe harbor defense for employers against claims for unpaid wages and other damages. To assert the safe harbor defense, the employer must compensate its previously uncompensated or undercompensated piece-rate employees for rest and recovery periods and other nonproductive time, plus interest, for the period from July 1, 2012, to December 31, 2015. The back payments must be paid on or before December 15, 2016, and the employer must give written notice of its intent to make the back pay to the Department of Industrial Relations by no later than July 1, 2016.

Now is the time for employers who utilize piece-rate employees to implement the changes needed to comply with the law, including updating their payroll systems and wage statements. In addition, employers should analyze the safe harbor provision and whether to utilize that option.