Overtime violations assessed against Arizona employer paying piece rate

The Fair Labor Standards Act (FLSA) requires all employers to pay overtime to nonexempt employees for all hours worked over 40 in a workweek. Employers that pay piece-rate compensation to employees are, likewise, required to comply with the overtime requirements under federal law. This means piece-rate employees must still track their hours worked and be compensated at a special overtime rate for all hours over 40. What steps should employers take to ensure they aren't found to be in violation of the FLSA's overtime requirements?

Renewal by Anderson, an Arizona window installation company, recently learned the hard way after the U.S. Department of Labor (DOL) investigated its piece-rate practices, resulting in the company paying $577,997 to 109 employees for FLSA overtime violations.

What is piece rate?

Piece rate is a compensation system by which a worker is paid on a per-unit basis. This means the worker is paid by the output no matter how long it takes. This is typically found in the construction industry.

For example, a drywall worker may be paid by the square foot of dry wall installed. Many mechanics are also paid on a piece-rate basis, the “piece” being the type of repair to a vehicle. In that situation, the amount a mechanic is paid is determined up front by the type of repair.

What are the benefits of implementing a piece-rate system?