Industry News, Compliance, Payroll, Administrative

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.


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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