What Is “Piece-Rate” Compensation?

“Piece-rate” compensation means an employee is paid based on the amount of “pieces” they complete rather than the hours worked. For example, suppose an employee is paid by the number of pipes they install, and how long each job takes is not accounted for.

Issues with Piece-Rate Compensation

Although California Labor Code allows employers to pay piece-rate compensation, it can result in employees being paid below minimum wage. As a result, employers are required to divide their total piece-rate compensation for the workweek by the number of hours worked to ensure that piece-rate employees are earning at least the minimum wage. If an employee’s piece-rate compensation divided by the hours worked results in a figure less than the state’s minimum wage requirement, the employer must make up the difference. Therefore, employees’ work hours must be tracked closely and accurately to ensure compliance with the law.

Non Productive Time

Another potential issue is if an employer does not take into account nonproductive time, such as rest breaks, meetings, work-related travel, and training. Under California law, rest and recovery periods and compensation for other nonproductive time must be compensated at no less than minimum wage.

Overtime

Lastly, employers must pay piece-rate employees an overtime rate for any hours worked in excess of 40 hours per week. There are two methods an employer can use to determine overtime pay:

• Commonly Used Method: Divide the total earnings for the week by the total hours worked during the week to get the regular rate. For each overtime hour worked, the employee is entitled to an additional one-half the regular rate for hours requiring time and one-half and an additional full rate for hours requiring double time.

• Less Common Method: The piece rate is used as the regular rate, and employees are paid one and one-half times this rate for production during overtime hours.

Advantages of Piece-Rate Compensation

• Incentivize employees to work more efficiently and be more productive during work hours.

• Employees feel they have a better sense of control over compensation, being able to earn more money in less time.

• Employees often have flexibility in their schedules.

• Lower turnover rate if an employer can offer competitive rates to attract higher-quality workers.

• Manufacturing costs per piece are easier to calculate.

Piece-Rate Employee Rights

The requirements for fair piece-rate compensation are complicated. Therefore, failing to provide proper piece-rate compensation to employees is a common wage and hour violation. If you have any doubt as to your employer’s compliance with federal and state wage laws, speak to an Orange County wage & hour attorney as soon as possible. They can evaluate your situation and determine if you have a case. If your employer is violating the law, you may be entitled to recover compensation for your unpaid wages and overtime, as well as interest payments on the amount you are owed and legal fees.

Common Professions with Piece-Rate Compensation

Some of the most common industries to pay through a piece-rate system are as follows:

• Auto mechanics
• Truck drivers
• Plumbers
• Electricians
• Solar installers
• Furniture builders
• Pet stylists and groomers
• HVAC techs
• Construction framers
• Drywall installers
• Electric or other cable installers
• Tile workers
• Sales workers who work on commission

If you are a piece-rate employee and believe you are not receiving fair compensation, speak to an Orange County employment attorney today.