While it isn't very common, piece-rate pay can be a valuable compensation method for certain types of employers. Assume that Anne had assembled 270 devices in her first 40 hours worked in the workweek and another 30 devices in her next five hours worked in that workweek. Last year, California Gov. Piece-rate compensation is a fundamental element of agricultural employment in California. Under California law, piece-rate workers are required to receive compensation for non-productive time that is separate from their piece-rate compensation. Hi Bob! it’s not really something you hear a lot about. – Examples: … The resultant amount is the regular rate and represents straight-time pay for each hour worked. Piece Rate compensation or pay as opposed to the other payment system is rather fair and is also rather uncomplicated. Piece-rate compensation plans are very popular in some industries. A piece rate is where an employee gets paid by the piece. After all, the entire concept behind piece‑rate compensation is that the time it takes an employee to complete a task is not relevant. (NBER Working Paper No. Kevin, that’s for sharing your experience. Gregorio Billikopf ... the often have concerns that members of the management team or an outside compensation consultant may not have thought about. First, similar to the minimum wage determination discussed above, the employer must determine the employee's effective hourly rate for the workweek based on the number of hours worked. As of this calendar year, piece rate compensation has become a hot topic in California. 73 Templates. Thankfully our government effectively made hourly wages the norm, so employees have 0 motivation to actually work beyond the bare minimum to not get fired because they get paid the same low amount of money every hour regardless of how much work they do. Piece rate means an employer pays a fixed pay rate to an employee for each unit produced or action performed, regardless of time. The average hourly rate must be determined by dividing the total compensation for the workweek, exclusive of any compensation that was paid for rest and recovery periods and overtime, by the total number of hours worked during the workweek, exclusive of the time that was taken for rest and recovery periods. In calculating an appropriate piece work rate, employers must keep track of average productivity rates for specific activities and set a piece work rate that ensures that all workers are able to earn minimum wage. For example, an employee might make $480 over the course of a 40 hour workweek. For example, the worker who could build 10 pieces of a furniture part in a given day would make more … According to the Division of Labor Standards Enforcement (DLSE), this is defined as “Work paid for according to the number of units turned out.” In essence, this means that a person (or team of people) is paid … Workers will naturally work as fast as they can, so output may vary drastically from day to day. Piece-rate compensation, especially in San Diego, is a unique form that’s definitely more common in certain industries over others. For the employee the advantage, in theory at least, is that piece-rate pay allows the employee to earn more money in less time than an employee who is being paid a regular hourly rate for the same work. There are downsides, of course, one being that employees can be overly "incentivized" to work too quickly, which could jeopardize the quality of the job performed. Again, however, the minimum wage requirements are still present, meaning the employee must receive at least one and one‑half times the minimum wage ($7.25 + 50% ($3.63) = $10.88), or $10.88 per hour for each hour of overtime. Hi Andrew. AB 1513 adds section 226.2 to the California Labor Code, which applies “for employees who are compensated on a piece-rate basis for any work performed during a pay period.” In general terms, Labor Code section … If a worker earns less than the minimum wage, the employer has to pay the difference. The method used for correctly calculating overtime compensation for those employees who are paid on a piece rate basis can be even more complicated. CONSTRUCTION ZONE: A Piece-Rate…, various requirements of the Fair Labor Standards Act. Otherwise, without such records, the employer has no way to prove that the minimum wage and overtime pay requirements have been properly satisfied if a complaint is filed or government investigators come looking. Thanks Cassandra. These employees are employees who are compensated on a commission basis. This law is codified in Labor Code section 226.2 in effect since January 1, 2016. Some employees are compensated on a “piece rate” basis. This rate is your "regular rate of pay" on which overtime is computed. As of this calendar year, piece rate compensation has become a hot topic in California. A piece rate is where an employee gets paid by the piece. We are glad you found this information helpful. If you are a piece-rate employee and you have not been paid for non-productive time, you should know your legal rights and speak to a. right away. This undesired scrutiny has caused many employers to revisit how to properly and legally implement a piece‑rate payment program. In our example, the employee worked 45 hours and, thus, had five hours of overtime. In addition, all piece-rate employees must be compensated according to their average hourly rates and must be paid overtime according to the existing California overtime statutes. DICTIONARY.COM piece rate compensation system (Schildkraut, 2003). If you would like someone to review your case today, send us an email or call Walker Law at (619) 839-9978 to schedule your free consultation. We are your established legal network with offices in Asheville, Greenville, New Bern, Raleigh, and Wilmington, NC. Standard time for each unit is ascertained first. By operation of law, AB 1513 went into effect on January 1, 2016. $2 per widget) rather than compensated for the actual time spent performing their duties (e.g. Without proper time records, an employer will be significantly handicapped in its efforts to defend itself against alleged violations of the Act. We personally see both sides of the equation. to install piece-rate compensation schemes at the turn of the century. Don't become the Department of Labor's next victim. Piece-rate compensation is a fundamental element of agricultural employment in California. Alternate names: Piece rate, piecework How a Per-Piece Pay Rate Works For overtime premiums, piece-rate workers must be compensated at one and a half times their average hourly rate for each hour worked over eight hours in a day or 40 hours in a workweek. | Disclaimer | Terms of Use | Privacy Notice, Law firm web design by New Media Campaigns, CAUTION! This system was initially designed to incentivize workers to be more productive, as they are rewarded for the number of pieces of a product produced, or services provided, in a given period. Your employer has not compensated you for non-productive time in which you are still under the employer’s control, exclusive of rest and recovery periods. As its name implies, piece-rate pay is compensation for a completed job or “piece,” as opposed to hourly pay. Cha ching! The disadvantages of piece rate pay is that the cost of producing higher quantities of a product could well be a drop in the quality of the items produced. When piece rates are paid, they apply instead of the hourly or weekly pay rate. A “piece rate” is where the employee is paid a fixed amount of money for a given piece of work. ©2020 Walker Law, PC. A per-piece pay rate is a payment structure that compensates a worker for each piece or unit they complete. There is of course the risk that they would work too fast when not in full health and injures themselves which in turn could open the company up to liability. Piece work is legal in California and there are laws that have been put into effect that protect those employees who are paid on a piece rate basis. A per-piece pay rate is a payment structure that compensates a worker for each piece or unit they complete. That’d be pretty cool. Where there are advantages to a piece rate pay plan, there will of course be some disadvantages. Piece work methods may include both a base rate and additional pay. I just can’t believe that jerk has been stiffing me on money I’m ENTITLED to… geez. Keeping up good quality production at a fast pace can be difficult over longer periods of time. . The employee does not work more than 40 hours in a workweek; and. Your employer prevents you from taking rest periods if you have worked more than 3.5 hours in a single day in order to avoid having to pay you for non-productive time. Base rates either compensate drivers by the mile or by the load. Piece rate is then calculated with reference to hourly rate of wage. Some types of employees are exempt from receiving additional compensation for non-productive periods under AB 1513. If you believe that you have a piece-rate case, you should contact a, right away. All Rights Reserved. Minimum Wage on Piece-Rate Even under a piece‑rate compensation scheme, employers must pay employees at least the applicable minimum wage for each hour of work (currently, $7.25 per hour). In that situation, the employer must make up the difference to ensure that the employee receives the minimum wage. It is important to understand that the piece‑rate is not the regular rate of pay; rather, for a piece‑rate employee, the regular rate of pay is calculated by taking the total compensation for the week (including piece‑rate compensation, as well as any bonuses or commissions) and dividing it by the total number of hours worked. Failing to do so can leave an employer wise open to issues in the event of a complaint being filed or government investigators coming to make a check on the business. As its name implies, piece-rate pay is compensation for a completed job or “piece,” as opposed to hourly pay. Employees who are dedicated to learning properly need to understand that in order to keep the quality their production levels will be lower until they have mastered what they are doing. Piece‑rate is not a new or novel compensation technique; however, in recent years, the U.S. Department of Labor has dedicated substantial resources to investigating, penalizing, and prosecuting employers who misuse the piece‑rate system. At best, this will slow production down because they are less able to work, although obviously output will still be higher than if they remain at home. This is as simple as dividing the employee’s piece rate compensation by the total number of hours worked. By operation of law, AB 1513 went into effect on January 1, 2016. This is great news! The average hourly rate must be determined by, , exclusive of any compensation that was paid for rest and recovery periods and overtime, by. I’m surprised employers choose piece-rate over hourly compensation at all… seems like hourly wages would be so much simpler. For rest period pay, which must be paid separately from any piece-rate compensation, the hourly rate paid to the employee must be the same as the average hourly rate earned by the employee during the workweek. Piece rate is more suited to repetitive crew work (e.g., boysenberry picking, vineyard pruning) than to precision planting, fertilizing, or … However, it does have a number of distinct advantages and these apply not only to employers but also to employees. Thus, the employee is entitled to receive only an additional one‑half of the employee's regular rate of pay (not the full one and one‑half) for all hours worked in excess of 40. PIECE RATE COMPENSATION IS TRICKY by Jennifer Brown Shaw and Jennifer L. Hippo | Jun 14, 2013 Some organizations pay employees by the piece rate, that is, based on certain tasks completed rather than based on the number of hours worked. 16540 ), authors Susan Helper , Morris Kleiner , and Yingchun Wang show that this change has come about with the adoption of modern manufacturing systems, in which firms produce a greater variety of products to a more demanding quality and delivery standard. For decades, piece-rate systems, where employees are paid by the number of units produced, have benefitted employees by rewarding productivity and employers by driving down unit costs. At the same time, the employer creates a work atmosphere that promotes and rewards productivity. To make matters worse, the method for properly calculating overtime compensation for employees compensated on a piece‑rate basis can become a mathematical nightmare for some employers. This rate is your "regular rate of pay" on which overtime is computed. The piece rate is fixed with the help of work study. Piece rate employees are traditionally paid by the amount of work they accomplish, rather than on an hourly or salary basis. Jerry Brown signed Assembly Bill 1513 into law, and since the law went into effect on the first day of this year, employers who were paying employees on a piece-rate … This is sometimes referred to as the "straight time" pay. . Your employer has retaliated against you after you have filed a claim for unpaid non-productive time wages. See more. or call Walker Law at (619) 839-9978 to schedule your free consultation. Save my name, email, and website in this browser for the next time I comment. I think it makes infinitely more sense to pay me based on the amount of work I do, instead of paying me an arbitrary flat hourly rate. Alternate names: Piece rate, piecework How a Per-Piece Pay Rate Works That comes out to $12 per hour—well above the minimum wage requirements in most communities. 2 percent were paid by this method (Bureau of Labor Statistics, 1997)1. The Problems with a Piece‑Rate Compensation System. In shoe manufacturing, for example, 90 percent of workers were paid by piece rates in the 1940s, but by the late 1990s, less than 25 . Piece rates require legitimately keeping “two sets of books”: one set that records hours worked, the other set that records work completed. Reconciling those sets of records with actual compensation paid allows you to demonstrate to workers and government agencies that, while you paid by the task, the amount paid complied with minimum wage and overtime requirements. If got paid based on how many hamburgers I got out the window per hour (or whatever), heck, I might have actually enjoyed that job. Even more damaging, failing to create and retain accurate time and pay records will place an employer in the crosshairs of the U.S. Department of Labor. Every piece-rate claim is different. Wow, you’re right… I had no idea the law had changed! If an employer fails to keep accurate records, or worse, fails to keep records at all, then the above calculations would be impossible to perform. Using a piece rate pay plan it can be incredibly difficult to work out just how much product will in fact be created in a set time. The worst-case scenario in this instance is that a sick worker risks spreading their germs throughout your workforce making everyone ill and reducing output further. $10 per hour). This is generally a true statement so long as: However, even assuming the above standards are satisfied, it still is essential for employers to maintain accurate daily and weekly time records for employees paid on a piece‑rate basis. As you have probably gathered at this point, it is imperative for an employer to maintain an accurate record of the hours the employee actually works, regardless of how the employee is paid. And you don’t have to worry about people suing you for not paying them enough! As an example of the mathematics involved, suppose a piece‑rate employee was paid $10.00 for each faucet installed. For a workweek of piece-rate compensation only: A piece-rate employee works a 5-day, 40-hour workweek. In certain industries it is common for employers to pay workers on a “piece-rate” basis instead of by the hour. Here are a few things to know about California’s piece-rate compensation law to help you determine if you are owed wages by your employer. Therefore, the employer must pay the employee an extra $10.00 to bring the employee's total compensation for the week to $290.00, which represents 40 hours of work at minimum wage. I like the idea of getting paid based on the amount that I produce or sell or whatever. For example, if hourly rate of wage is Rs. The additional compensation is calculated as as the greater of the average hourly rate for the week (calculated as the total compensation for a week, exclusive of rest and recovery period compensation and overtime premiums, divided by the total hours worked in the week, exclusive of rest and recovery periods) or the minimum wage. Why Have a Piece‑Rate Compensation System? If the average hourly rate is less than the minimum wage, rest periods must be paid at the minimum wage. After all, the entire concept behind piece‑rate compensation is that the time it takes an employee to complete a task is not relevant. That comes out to $12 per hour—well above the minimum wage requirements in most communities. Different Types of Discrimination In The Workplace, Justin Walker of Walker Law, PC Named “Outstanding Trial Lawyer” by Consumer Attorneys of San Diego, Bad Faith Insurance Claim: Simple Guide and Typical Cases in California, 5 Signs Your Insurer May Be Acting in Bad Faith, The Basics of California Insurance Bad Faith Law: Everything You Need to Know. So what must an employer do if it wants to pay its employees by the piece rather than by the hour? Piece-rates always carried the allure of payment for actual labor done (rather than labor power), thus promising an automatic solution to the problem of translating labor power into labor. This is as simple as dividing the employee’s piece rate compensation by the total number of hours worked. Standard time for each unit is ascertained first. Under the piece rate model, employees are paid per completed task (e.g. An automotive company that pays a fixed rate for an oil change or a brake job pays on a piece rate basis. Even under a piece rate commission scheme, legally the employer must ensure that they are paying at least the minimum wage for each hour of work. This calculation form templates include a variety of different forms that involve mathematical calculations. “If I’m paying by the piece, let’s say it’s minimum wage, we’re paying $11 an hour, but on a good day of blueberries they can make $17 an hour. Do the standard employment protection laws apply to piece-rate workers? If you are paying your employees on a piece‑rate basis, make sure you continue to fulfill your obligations under the Act. Hi Jason! They can incentivize employee productivity, while giving an employer greater control over labor costs. Piece rate compensation is particularly common in the automotive repair industry. California Labor Code section 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. However, determining who is considered as a piece-rate employee can be tricky because piece-rate compensation can apply to many diverse situations. Piece-rate compensation is based on paying a specified sum for completing a particular task or making a particular item. A “piece rate” is where the employee is paid a fixed amount of money for a given piece of work. And, when it comes to calculating the cost per unit, it is far easier to calculate the time spent per unit and therefore produce much more transparent manufacturing costs. All Rights Reserved. If you would like someone to review your case today, send us an. Probably the best known individual or small group incentive pay plan is piece rate. In a workweek, the employee installed 38 faucets and, thus, received $380.00. One of these is “piece-rate” compensation. In Analyzing Compensation Methods in Manufacturing: Piece Rates, Time Rates, or Gain-Sharing? --© 2021 Ward and Smith, P.A. Piece rate employees must also be paid at least the minimum wage for all time spent on tasks not specifically included in the piece rate. It’s not like I get paid more for working faster. Since straight time is already figured into the piece rate earnings, including any overtime hours, each overtime hour would need to have additional compensation at half of the regular rate … This undesired scrutiny has caused many employers to revisit how to properly and legally implement a piece‑rate payment program. For example, a plumbing subcontractor may pay employees based on the number of sink faucets installed in an office building, rather than on the number of hours it took to install the faucets during a particular workweek. Piece rate is then calculated with reference to hourly rate of wage. I remember working my first job at Burger King, and having the manager yelling at us all the time to go faster. Piece-Rate Compensation • Piece Rate or “Piece Work”. Although keeping records may be time‑consuming and tedious (and, in many instances, difficult, as a practical matter), the penalties for violating the Act are far too serious to ignore these responsibilities. If you are a piece-rate employee and you have not been paid for non-productive time, you should know your legal rights and speak to a San Diego employment attorney right away. Again, these will apply to both the employer and the employee in varying degrees. The employee has two 10-minute rest periods authorized and permitted per day, for a total of 100 minutes (1.67 hours) of rest periods for the workweek. In our above example, if the employee worked 45 hours during a workweek, installed 45 faucets, and earned $450.00, then the employee's effective regular rate of pay for that workweek was $10.00 per hour.