Some California builders and service companies are grappling with the impact of a new law that changes how they pay their employees. And at least one lobbying group is pushing back.

The law, AB 1513, went into effect in January and will affect firms that pay their employees a piece rate, which compensates them per completed task, in contrast to an hourly wage. For example, some service companies pay their maintenance technicians a certain amount for each pool serviced. Likewise, some builders pay employees based on a performance measure. Coping and tile installers, for instance, might be paid per perimeter foot.

It’s a payment structure intended to motivate employees to be productive: The more they accomplish, the more they get paid. As a benefit to construction firms,  this method provides ways to more accurately price out projects. Paying by the unit of work — say, several dollars per foot of rebar installed — helps establish a labor allowance.

Piece rates, however, don’t take into account state-mandated rest breaks or other periods of down time, such as company meetings and travel to job sites. AB 1513 addresses that.
To comply, employers must pay for nonproductive work time on top of piece rates. This time and pay must be listed separately on the employee’s wage stub.

Here’s the kicker: The law is retroactive, so piece-rate employees are owed back pay for uncompensated rest breaks between July 1, 2012 and Dec. 31, 2015.

The state Department of Industrial Relations offers a couple ways to calculate this. The employer can either tabulate the actual amount due plus interest in accordance with labor code section 98.1, or pay 4 percent of gross earnings for each pay period going back to July 1, 2012. Employers have until mid-December 2016 to make these payments. This part of the law is intended to shield employers from potential lawsuits filed against them for unpaid nonproductive time and for any penalties if a business is inspected.

But figuring out a dollar amount for back payments is no easy task. And devising a new payment system going forward is proving difficult for some business owners. Some are flummoxed and seeking legal advice. Santa Monica attorney Nick Spiritos, who represents pool contractors, is working with state officials to clarify the law for his clients.

“It’s so complicated, I haven’t been able to make heads or tails of it 100 percent,” Spiritos said.

The law sprang from labor struggles in the agriculture and textiles industries, where there was a concern that low-wage earners were pushing through without breaks because they didn’t want to lose money.

Some do not think it’s fair to apply the same standard to higher-wage industries such as construction. One California pool builder, who wished to remain anonymous, said some of his employees are pulling in $60,000 to $90,000 a year earning piece rates. That more than compensates for any lunch or rest breaks his crew may take at any time, he believes.

“By and large, the worker is very happy with that arrangement,” he said.

But he introduced a new payment structure that will comply. It pays hourly, but employees can still achieve higher pay if they meet certain quotas. That way they remain motivated to produce.

Still, the issue of making back payments is a sticky one for many contractors who priced their projects by factoring in the cost of labor only, and not rest periods.

“We can’t go back and re-bid these jobs,” said Bruce Wick, risk management director at the California Professional Association of Specialty Contractors.

That’s why the organization is introducing legislation to make compliance going forward easier and to extend the deadline to make those retroactive payments.