Under the federal Fair Labor Standards Act (FLSA), employers must pay non-exempt employees at least the minimum wage for each hour worked and overtime pay at a rate of one and a half times the employees' regular rate of pay for all hours worked in excess of 40 in a workweek (some states require overtime in additional circumstances).
However, certain employment arrangements may complicate what otherwise seem like straightforward requirements. Here are answers to frequently asked questions about paying employees on a piece-rate basis.
Q: What is a piece-rate? Am I allowed to pay my employees on a piece-rate basis?
A: Employees paid on a piece-rate or piecework basis are generally those that are compensated per task performed or number of units produced. Here are some examples of piece-rate arrangements:
- Nurses paid on the basis of the number of procedures performed;
- Carpet layers paid by the yard of carpet laid;
- Technicians paid by the number of cable units installed;
- Factory workers paid by the widget completed; and
- Carpenters paid by the linear foot on framing jobs.
Some employers may be prohibited by state law from using a piece-rate to pay employees. For instance, California generally prohibits employers from paying garment workers on a piece-rate basis. Check your state law for details.
Q: How would I calculate whether a piece-rate employee is earning at least the minimum wage?
A: To ensure that piece-rate employees are earning at least the minimum wage, employers must divide their total piece-rate compensation for the workweek by the number of hours worked. Since an employee's productivity and work hours can fluctuate, this calculation must be done for each workweek.
Q: What should an employer do if a piece-rate employee doesn’t produce enough to earn at least the applicable minimum wage?
A: The employer must make up the difference so that the employee receives at least the applicable minimum wage for each hour worked.
Q: Do I still have to track hours of work if I pay employees on a piece-rate basis?
A: Even though employees aren't being paid by the hour, their hours of work must still be tracked closely and accurately to ensure compliance with minimum wage and overtime requirements.
One common way piece-rate agreements violate the FLSA (and state law) is when they don't take into account nonproductive time that must be compensated, such as rest breaks, time spent in training, meetings, and time spent in work-related travel. These and certain other types of nonproductive time are considered hours worked and therefore must be counted and compensated (with at least the applicable minimum wage).
Make sure you require non-exempt employees to record and report both productive work time and nonproductive work time (as defined by federal and state law).
Q: What rate of pay do I use for nonproductive work time for piecework employees?
A: Under the FLSA, employers and employees may agree to compensate nonproductive work hours at a rate that is lower than the rate applicable to productive work, as long as it is at least the minimum wage. Keep in mind that states may have their own rules.
For example, California has enacted a law that, among other things, requires employers to compensate employees for rest and recovery periods separate from any piece-rate compensation. In the state, the rate of compensation for rest and recovery periods must be the higher of:
- An average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods.
- The applicable minimum wage.
For nonproductive work time other than rest and recovery periods, California employers must pay employees at least the applicable minimum wage.
Q: How do I calculate a piece-rate employee’s overtime pay?
A: Under the FLSA, the regular rate of pay for an employee paid on a piecework basis is obtained by dividing their total weekly earnings by the total number of hours worked in that week. The employee is entitled to an additional 0.5 times this regular rate for each hour over 40, plus the full piecework earnings.
Example: An employer pays an employee $480 on a piecework basis for 48 hours worked in a week. The regular rate of pay for that week is $480 divided by 48, or $10.00 per hour. Since straight-time earnings have already been included in the $480, the employee is entitled to an additional 8 hours of overtime pay calculated at one-half the employee's regular rate of pay. Half of this employee's regular rate of pay is $5.00, which results in an additional $40.00 ($5.00 x 8 overtime hours) and total pay of $520 for the week.
Under the FLSA, another way to compensate pieceworkers for overtime, if agreed to before the work is performed, is to pay 1.5 times the piece rate for each piece produced during the overtime hours. The piece rate must be the one actually paid during non-overtime hours and must be enough to yield at least the minimum wage per hour.
Q: How do I calculate the rate of pay for state-required paid leave?
A: If your state or local jurisdiction requires you to provide paid leave to employees, it may have specific rules for calculating the rate of pay for the leave of absence for piece-rate employees. For instance, under Nevada's all-purpose paid leave law, which applies to employers with 50 or more employees, the rate of pay for the leave is calculated by dividing the employee's total earnings (including nondiscretionary bonuses) for the immediately preceding 90 days by the number of hours worked during that period. If you are subject to a paid leave requirement, check the law for details.
Conclusion
Review your pay practices to ensure that you are calculating pay for piece-rate and other non-exempt employees in accordance with federal, state and local laws.