Top 3 Things to Know About Piece Rate Compensation

Our customized payroll solutions for the construction industry afford us plenty of opportunity to handle some of the most unusual aspects of payroll. One of them is paying by the piece. Believe it or not, piecework is actually quite common in the construction industry.

Piecework refers to the practice of paying an employee based on the volume of tasks performed. In a manufacturing setting, an employee might be paid for every piece processed at his/her station. In a construction setting, pay might be based on the number of kitchen cabinets installed or rooms painted.

Paying per piece is legal in all 50 states. However, compensating employees this way can be somewhat complicated. You really have to know what you are doing to make sure you don't run afoul of the law. That is one of the reasons we recommend construction companies contract with a payroll solution provider like BenefitMall.

Here are the top three things to know about piece-rate compensation:

 

1. FLSA Rules Still Apply

Establishing a piecework model does not exempt an employer from any of the provisions of the Fair Labor Standards Act (FLSA). Employers are still required to follow all the rules pertaining to overtime and minimum wage. Record keeping rules also apply.

The record keeping provision is especially important in the construction industry. Why? Because paying by the piece is not a license to pay construction workers under the table. All compensation must be reported one way or another. Accurate records must be kept of all pay and hours worked.

 

2. Piece Rate and Minimum Wage

The amount of money an employee is paid per piece is known as the piece rate. For purposes of illustration, let us say an employee paints 10 rooms in a typical work week and earns a total of $500. He has earned $50 per room. His piece rate is $50 per room.

Based on a 40-hour work week, that employee is earning $12.50 per hour. That is enough to cover minimum wage in many states. In states with a higher minimum wage, the employer has to kick in extra pay to make up the difference. This can be accomplished by increasing the piece rate or just adding the extra cash at the end of each pay cycle.

 

3. Piece Rate and Overtime

The piece rate is an important part of calculating overtime as well. However, the calculation is not as straightforward as it is for standard hourly pay.

Using the same example, let's say it took the employee 45 hours to paint those same 10 rooms. Calculating overtime would begin by dividing 500 by 45 to arrive at an hourly rate of $11.11.

The employee would be eligible to receive one-and-half-times his normal hourly rate for the five hours of overtime, or $16.67 per hour – in addition to the full amount of piece-rate earnings. His total pay for that week would be $583.35.

 

We Can Help You Maintain Compliance

We threw a lot of facts and figures at you in this post. Unfortunately, that is the nature of the beast. Paying piece rate may benefit your company if you're involved in construction or manufacturing, but it's still challenging to calculate when it comes to overtime and minimum wage.

We urge you not to continue handling payroll in-house if piecework is giving you trouble. Being that we specialize in payroll and benefits administration, piece rate compensation is something we fully understand. We can help you maintain compliance by completely taking over payroll processing.

If you're in the construction industry, remember the BenefitMall offers a specialized solution designed for your unique needs.