¶ Intro / Opening
To comply with federal, state, and local minimum wage and overtime laws, employers must calculate the number of hours worked by non-exempt employees accurately. This can be especially tricky when the employee is paid on a piece rate basis or has waiting time or on-call time during the work week to help employers. This podcast episode will provide guidelines for paying employees in these special situations. Welcome to HRPreneur. I'm Jim Duffy.
From Main Street to Your Street, the HRPreneur Podcast is centered around helping small businesses like yours gain the knowledge you seek from hr, payroll, and hiring to time, taxes, benefits, and insurance. Today we'll talk with our guest, Meryl Gutterman, about three special pay situations. Meryl is Senior Counsel with ADP's HCM Group, and once again, Meryl, as always, it's great to have you back on the show.
Hi, Jim. Thanks for having me back. It's great to be here today with you.
So we are here today to talk about three special pay situations. One of those is paying piece rate employees.
¶ Defining a piece-rate employee
Could you please start off by describing what a piece rate employee is?
Sure employees paid on a piece rate or a piece work basis are compensated by tasks performed or by number of units that are produced. Uh, some examples of piece rate arrangements could include nurses who are paid on the basis of the number of procedures that they perform. Um. Carpet layers paid by the yard of carpet that they lay, or technicians that are paid by the number of cable units that they install.
Uh, factory workers that may be paid by the widget that they complete, or carpenters that are paid by linear foot on framing jobs are also considered piece rate workers. But it's important to know that state law may prohibit some employers from using a piece rate to pay certain employees. For example, in California, typically California prohibits employers from paying garment workers on a piece rate basis.
So you wanna make sure that you're checking with your state law to help with your compliance.
Excellent point. So Meryl, how does an employer ensure that they are complying with minimum wage requirements when they pay on a piece rate basis?
Well, to ensure that piece rate employees are earning at least the minimum wage, employers need to divide the total piece rate compensation for the work week by the number of hours that are worked. And since an employee's productivity and work hours can fluctuate, this calculation has to be done for each work week. If the result is less than the applicable minimum wage, then the employer has to make up the difference.
So it sounds like tracking these employees hours is still very important.
That's right. It's still really important. Even though these employees aren't being paid by the hour, their hours of work still have to be tracked closely and accurately to ensure compliance with any minimum wage and overtime requirement.
So Meryl, can you shed some light on the issues around pay for rest
¶ Minimum wage rules for piece-rate employees
breaks since non-exempt employees rest breaks must be paid as hours worked. How does an employer factor this in when determining whether they have met minimum wage requirements with piece rate employees?
That's a great question, Jim. One common way that piece rate agreements violate the law is when they don't take into account non-productive time that has to be compensated with at least the minimum wage, such as rest breaks or time spent in training meetings, or even time spent in work-related travel.
So employers should make sure that they require piece rate and other non-exempt employees to record and report both productive work time as well as non-productive work time that how it's defined under federal and state law.
And to clarify something, there must the employer pay non-productive work time
¶ Tracking hours for piece-rate employees
at the same rate as productive work time.
Well under federal law, employers and employees can agree to compensate non-productive work hours at a rate that's lower than the rate for productive work, as long as it's at least the minimum wage. But keep in mind too, that states may have their own rules. So for example, in California, California has enacted a law that among other things, requires employers to compensate employees for rest and recovery periods separate from any piece rate compensation.
Meryl. That's good to know.
¶ Calculating overtime for piece-rate employees
Uh, can you tell us about overtime? How is overtime pay calculated for piece rate employees?
Well under federal law, the regular rate of pay for an employee paid on a piece work basis is obtained by dividing their total weekly earnings by the total number of hours worked in that week. The employees entitled to an additional 0.5 times this regular rate for each hour over 40. Plus the full piece work earnings.
And then another way to compensate piece workers for overtime under federal law if agreed to before the work is performed, is to pay one and a half times the piece rate for each piece produced during the overtime hours. The piece rate must be the one actually paid during non overtime hours and must be enough to yield at least the minimum wage per hour.
Thank you for clarifying that, Meryl. So let's move on to waiting time.
¶ Waiting time
When does waiting time need to be considered? Hours worked and therefore paid under federal law?
Whether the time an employee spends waiting is considered hours worked under federal law, depends on the circumstances. And keep in mind again, that states may have their own rules about when waiting time is compensable. When federal and state rules conflict, then the rule that's most beneficial to the employee typically applies. And under federal law, if the facts show that the employee was engaged to wait. The time should be considered hours worked according to the US Department of Labor.
This means the employee is waiting for work to do or for repairs to be made while they're on duty.
Uh, for example, if you have a receptionist who reads a book while waiting for customers or telephone calls, or a messenger who's doing a crossword puzzle while waiting for assignments, or if you have a firefighter who's playing checkers while waiting for emergency calls, or a factory worker who talks to fellow employees while waiting for machinery to be repaired, or if you have a wait person in a restaurant waiting for customers to arrive.
So all of those are examples of inactivity and the inactive time is hours worked. Even if the employee is allowed to leave the premises or the job site during such periods of inactivity, that's because the period during which the inactivity occurs is unpredictable, and it's usually of short duration. So the employee is unable to use the time effectively for their own purposes.
So Meryl, when isn't waiting time, considered hours worked under federal law.
The Department of Labor says that waiting time isn't considered hours worked under federal law. If the employee is completely relieved of duty. The time period is long enough to allow the employee to use the time effectively for their own purposes. And if you're not sure, you should be consulting legal counsel to help make that determination. The employee is definitively told in advance that they may leave the job and the employee is advised of the time that they're required to return to work.
Thank you for that, Meryl. So let's turn to our third and final topic for today, which is
¶ On-call time
paying employees for on-call time. Could you briefly define what on-call time is? And then if you wouldn't mind, please tell our listeners when it must be paid.
No problem. On-call time generally means that the employee is available to be contacted to work if necessary, but they're not formally on duty. So under federal law, an employee who is required to remain on call on the employer's premises or so close to the workplace that they can't use the time effectively for their own purposes is considered a worker on call and all of the time is considered hours worked and therefore has to be paid.
So what about an employee who is on call but at home? Does their inactive on-call time need to be considered hours worked under federal law?
That depends. An employee who is required to remain on call at home isn't necessarily working while on call. The inactive of time might not be considered hours worked if the employee is still able to use that on-call time effectively for their own purposes, according to guidance from the Department of Labor. The employer may require the employee who is on call at home to be accessible by phone without the inactive time being considered hours worked.
But employers need to be careful about any restrictions that they put on such employees because additional restrictions on the employee's freedom could require that the inactive time be considered hours worked.
That makes sense. Uh, so can you give us some examples of when pay may be required for inactive on-call time.
Sure. Let's say the employee is interrupted with work calls to such an extent, or is required to report to work so quickly that they can't conduct their regular personal activities so they can't cut the grass or go to the movies or go to a ball game or engage in another activity of their choosing. That inactive time may need to be considered hours worked, and again, if you're not sure, you should be consulting legal counsel to help you make that determination.
Thank you Meryl. That was great. We covered a lot of ground, as I normally do. I, uh, take notes, uh, for our listeners so that I can recap, uh, in summary here, so I'll run through the list. First piece here is to ensure that piece rate employees are earning at least a minimum wage. Employers must divide their total piece rate compensation for the work week by the number of hours worked.
The second note here is, um, employers should make sure they require piece rate employees to record and report both productive work time and non-productive work time as defined by federal and state law. The. A third point I noted here is to calculate overtime pay. The regular rate of pay for an employee paid on a piecework basis is obtained by dividing their total weekly earnings by the total number of hours worked in that week.
The employee is entitled to an additional 0.5 times this regular rate for each hour over 40 hours. Plus the full piece work earnings. Another way to compensate piece workers for overtime under federal law if agreed to before the work is performed, is to pay 1.5 times the piece rate for each piece produced during the overtime hours. The piece rate must be the one actually paid during the non overtime hours and must be enough to yield at least the minimum wage per hour.
Three more points I covered. As I said, we covered a lot of ground here for waiting time. If the facts show that an employee was engaged to wait, the time must be considered hours worked. This means the employee is waiting for work to do or for repairs to be made while on duty. For example, as you pointed out, the wait person in a restaurant waiting for customers to arrive.
Another point was for on-call time an employee who is required to remain on call on the employer's premises or so close to the workplace, that they cannot use the time effectively for their own purposes, is working while on call and all of the time is considered hours worked and therefore must be paid.
And the last point I, uh, I took from your notes was that, uh, for an employee who is required to remain on call at home, the inactive time might not be considered hours worked if the employee is still able to use the on-call time effectively for their own purposes. I. So again, Meryl, how'd I do there?
You did great. You captured it all really well. Thanks, Jim. Great.
Thank you again for your time and for stopping in today. Presented by ADP HRpreneur focuses on the entrepreneurs and business drivers who are shaping the growth of their companies and positively impacting the lives of their employees. With each episode, we'll bring the experts to you. We'll answer your questions. And help you think beyond today so you can discover more success tomorrow. Thanks also to our listeners for joining us for today's episode.
Be well, and we hope you'll join us again soon.