What type of pay plan is being used when workers are paid a sum for each unit they produce?

Piece rate pay occurs when workers are paid by the unit performed (e.g. the number of tee shirts or bricks produced) instead of being paid on the basis of time spent on the job.1

Piece rates are frequently used in certain industries or occupations where the work is repetitive in nature, and where employees have a high level of control over the results. Examples include such tasks as plucking tea, pruning fruit trees, sorting second-hand books, producing garments, or kilometers driven. Home based workers and other out-workers (who work in premises other than that of the employer) are also frequently paid piece rates.

In developing countries, workers relying on piece rate wages often constitute a vulnerable section of workers, with many working in the informal economy. Large numbers are women. Piece rate pay is also frequent in the textile, garment, footwear and leather industries, and in global supply chains.  

The regulation of piece rates

Under some conditions, piece rates may be beneficial to both employers and employees. For this to be the case, however, the manner in which remuneration is calculated for each piece produced or task completed needs to be fair to both parties: if the salary is set too low, discouragement will set in and the workers concerned will work long hours and may ultimately feel burnt out by the system. Occupational health and safety issues also arise when taxi drivers, for example, need to work excessive hours to make a decent living. If the rate is not fair to the employer, the enterprise might fail.

To be fair and effective, piece rate systems should be transparent, reward employees according to the difficulty and quality of their work, and ensure that motivated workers can earn substantially more than the minimum wage.

Many countries regulate piece rates and piece rate work:

• In various countries, the legislation stipulates that pieceworkers’ wages may not be lower than the applicable minimum wage. In these countries, at the very minimum, workers under a piece rate system should earn the minimum wage. When they do not, the difference between what they have earned and the minimum wage needs to be paid by the employer.
• In other countries, the legislation provides for the possibility of fixing specific minimum wage rates for pieceworkers based on a “standard output”. In the State of Madhya Pradesh in India, for example, the minimum wage notification for piece rate beedi rollers (hand rolled cigarettes) indicates a guaranteed minimum wage per week provided they roll 5600 beedis per week. Workers are entitled to this if the raw materials supplied are inadequate to roll this number. However, the guaranteed minimum wage will not be payable where the failure to roll 5600 beedis is attributable to the worker.
• In some countries, piece rate workers must be paid a "fair wage". In the U.K. piece rate can only be used in limited situations when the employer does not know how many hours the worker does work (e.g. as with some home workers). If an employer sets the working hours and the workers have to “clock” in and out, this counts as time work not as output work (see box).

Box 1.
A fair wage for piece rate workers in the United Kingdom

Employers are obliged to implement the following method:

• Find out the average number of tasks or pieces completed per hour; for example workers may produce on average 12 shirts per hour.
• Divide this number by 1.2 so that new workers won’t be disadvantaged if they’re not as fast as the others yet;  in our example we divide 12 shirts by 1.2 which is equal to 10 shirts produced.
• Divide the hourly minimum wage rate by that number to work out the fair rate for each piece of work completed. If the minimum wage rate is £6.70, workers must be paid at least 67p per shirt they make (£6.70 divided by 10).2

There are various methods to compensate employees, including hourly, salary, and commission pay. But, are you familiar with piecework pay? Learn more about what is piecework, piecework laws to follow, and how to calculate piecework pay.

Piecework, or piece work pay, is paying an employee a fixed pay rate for each unit they produce. Piece rate pay is most common for a contractor employee. However, employees who are not contractors can be paid piecework pay, too. Piecework rates typically depend on the job and product produced.

Types of businesses that may offer piecework pay include:

• Manufacturing
• Construction
• Painting
• Carpet or house cleaning
• Jewelry making

A piecework system may encourage workers to be more productive and time efficient. Paying per piece can motivate employees to produce more and work harder.

Reduced quality can be a drawback of offering piece rate pay. Workers may focus on quantity over quality. Hire employees who put the quality of your product first.

Decide if piecework pay will increase productivity in your business by evaluating its advantages and disadvantages. Determine what your piece rate will be depending on your type of business and product.

How to calculate piecework pay

Employers offering piece rate pay to employees must know how to calculate piecework. Follow the easy-to-use formula below to calculate piecework pay:

Piecework Pay = piece rate per unit x number of units produced

Examples of calculating piecework

Let’s say an employee makes jewelry. They are paid $10 per necklace and produce 40 necklaces during the week. The employee would earn $400 that week.

Piecework Pay = $10 per unit x 40 units
Piecework Pay = $400

Another employee earns different piece rates for various jobs. They paint rooms and also build cabinets. They are paid $20 per room and $30 per cabinet. During the week they paint 25 rooms and build 15 cabinets.

$20 per room x 25 rooms = $500

$30 per cabinet x 15 cabinets = $450

Add the totals together to get the piecework pay amount.

$500 + $450 = $950

Piecework laws

Employees paid on a piece rate basis are typically not exempt from FLSA requirements, including minimum wage, overtime, and record-keeping obligations. Employers must comply with minimum wage and overtime laws when offering piece rate pay. Keep state and federal minimum wage requirements in mind when deciding your piece rate per unit.

Piecework employees can accrue overtime after working more than eight hours per day or 40 hours per week. Track hours to stay compliant with overtime laws.

Wait … what’s the FLSA?

Most business owners aren’t experts on the FLSA, or Fair Labor Standards Act. But, you still need to know FLSA rules to keep your business compliant. Download our free FLSA cheat sheet for the scoop.

Some states have additional piecework laws employers need to follow.

For example, California state law requires rest and recovery periods for piecework employees. California employers must allow ten minutes of rest time for every four hours of work. AB 1513 also requires California employers to pay for other non-productive hours. Employers in California must compensate non-productive time at minimum wage or higher.

Before you start a piece rate pay system, check with your state about piecework laws. Consider consulting an accountant to verify piecework pay is legal for your business type.

Create a piecework contract for employees. Include your business name, employee name, the date, terms and conditions, and piece rate pay per unit. Give to employees to sign, and keep a copy for your records.

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This article has been updated from its original publication date of December 3, 2018.

This is not intended as legal advice; for more information, please click here.

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