Industry News

Piecework Pay: Frequently Asked Questions

January 28, 2020

Under federal and state laws, employers must pay employees no less than the federal or state minimum wage — whichever is higher. Another option is to pay by the piece, also called the piecework pay system.

Under federal and state laws, employers must pay employees no less than the federal or state minimum wage — whichever is higher. Another option is to pay by the piece, also called the piecework pay system.

 

What is piecework pay?

Piecework pay is compensation on a per-unit basis. Employees are paid according to the number of units/items produced instead of how much time they spend working.

For example, an employer can choose to pay mechanics a fixed rate for each vehicle they repair instead of paying an hourly rate.

Some piece-rate employees earn different rates for different jobs. For instance, mechanics may get paid one rate for brake jobs and another rate for tune-ups.

 

Which types of businesses typically offer piecework?

Piecework is most commonly found in production-heavy environments, such as:

  • Manufacturing.
  • Automotive repair.
  • Plumbing.
  • Carpentry.
  • Jewelry-making.
  • Painting.
  • Construction.

 

What does the law say about piecework pay?

Employers must comply with federal and state minimum wage, overtime and recordkeeping requirements when paying employees on a piece-rate basis.

Let’s assume an employee earns $20/unit and completes 20 units during a 40-hour workweek:

  • $20/unit x 20 units = piecework pay of $400 for the week
    $400/40 hours = hourly rate of $10

Although $10/hour satisfies the federal minimum wage requirement of $7.25/hour, depending on your location, it may or may not meet the state’s minimum wage threshold. For example, the minimum wage in Washington is $12/hour and in Colorado it’s $11.10/hour. Also, some cities have their own minimum wage.

If the employee’s piece-rate pay is less than the required minimum wage, the employer must pay the difference — and this difference will vary based on how many units the employee produces each week.

In addition, piece-rate employees who work more than 40 hours in a week must receive overtime. For this reason, it’s vital that employers keep accurate records of piece-rate employees’ work hours.

Employers should also stay abreast of state laws impacting piece-rate employees. For instance, employers in California must pay piece-rate employees for rest, recovery and other nonproductive periods even if their take-home pay exceeds the minimum wage.

 

What are the advantages and disadvantages of piecework pay?

A piece-rate pay system may incentivize employees to work more efficiently — as their compensation is driven by output. Depending on the situation, employees may earn more in less time on a piece-rate basis than if they are paid by the hour.

On the downside, piece-rate employees may put quantity over quality to increase their take-home pay. Further, it can be challenging for employers to design, implement and maintain a piecework pay model that is fair, consistent and legal. So, although a piecework system can benefit both employers and workers, it’s best to get professional advice on any system.

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