Making peace with piece-rate pay

When determining how to compensate nonexempt employees, employers have a variety of options. Paying an hourly rate is certainly the most common, but other methods include salary, commissions, daily rates, and piece-rate pay (sometimes referred to as piece work). Piece-rate pay refers to a system in which employees are paid a fixed amount per item of work completed per day or per week. Unfortunately, some employers don’t realize piece-rate workers are covered by minimum wage and overtime rules—or worse, they ignore the rules. This can result in substantial liability if employees file suit or complain to the U.S. Department of Labor (DOL). One Arizona company recently learned this lesson in a very expensive and burdensome way.

Background

Piece-rate pay is most commonly used by manufacturing companies and other types of businesses in which outputs can be measured. For example, employees may be paid based on the number of products assembled, the number of autos serviced (and/or type of work done), or the number of appliances installed.

Like all nonexempt employees, piece-rate workers are covered by the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA), which means although piece-rate workers aren’t paid based on the hours they work, employers must still track each employee’s hours (in addition to total compensation for the week) so they can determine whether the employee has received at least the federal or the state minimum wage (whichever is higher) and whether the employee is due overtime pay for hours worked over 40 in a workweek.