calculating piece rate

Piece rate pay is a method of paying employees based on the amount of work they do. Although this method of payment is legal and can be lucrative for employees, there are unfortunately many cases in which employers attempt to use piece rate to skirt overtime wage laws. If your employer uses this system of compensation, you deserve to know how it works and what your legal rights are. We can help.

The Basics of Piece Rate Pay

Piece rate pay is an arrangement in which an employee is paid according to the number of goods produced or the volume of services rendered. In other words, the employee is paid based on his or her work output. Piece rate can potentially be advantageous to both the employee and the employer by encouraging more work, higher production and service levels, and increased efficiency. It is commonly found in such industries as manufacturing, agriculture, and home services.

This form of employee compensation is an alternative to the traditional hourly pay system with which most workers are familiar. Pay is generally calculated by multiplying the number of units made or service jobs completed by a fixed pay rate. While this system is completely legal, employers may be required to pay their employees more to comply with minimum wage and overtime laws.

How Piece Rate Pay Works with Minimum Wage and Overtime

The Fair Labor Standards Act (FLSA) is the primary federal law that concerns minimum wage and overtime pay. Under this law, an employer must pay a non-exempt employee at least the federal minimum wage. Many state and local governments have enacted laws and ordinances that set their minimum wage rates substantially higher than the $7.25/hour rate. Employers must pay the highest applicable rate in their jurisdictions.

As for overtime, employees who work over 40 hours per week are entitled to time and a half pay. That means 1.5 times their regular hourly rate, which must be at least 1.5 times whatever the applicable minimum wage is.

Piece rate pay must meet or exceed what an employee would be paid under these rules. If an employee is working a certain number of hours per week, but the regular hourly rate is effectively less than minimum wage (or the overtime rate is less than 1.5 times the minimum wage), the employer must make up the difference. Piece rate pay is not a substitute for following the FLSA’s requirements.

How much should you be paid?

To make sure you are being fairly compensated for your work, you first need to determine your effective regular hourly rate. Your regular rate of pay is calculated by dividing your total weekly earnings by the total number of hours worked in that week. Don’t forget, you are also entitled to time and a half pay for any hours worked above 40 in a given week.

Say you work 40 hours in a week, at the piece rate pay of $10 per unit. You produce 50 units, and are therefore paid $500. $500 divided by the 40 hours you worked equates to $8.00/hour. If the applicable minimum wage is $7.25/hour, then your employer is paying you enough to comply with the law.

Now assume you work 50 hours in a week, also producing 50 units at a piece rate pay of $10 per unit, for total earnings of $500. The regular rate of pay for that week is $500 divided by 50, or $10.00 an hour. As long as the minimum wage doesn’t exceed $10.00/hour, your rate of pay meets applicable rules. In addition to the straight-time (or regular) pay, however, you are also entitled to $5.00 (half the regular rate) for each hour over 40. This works out to an additional $50.00 for the 10 overtime hours, for a total of $550. Your employer must pay you at least this much for the week to insure that you have been paid time and a-half for each of the overtime hours you worked. 

Have Questions About Piece Rate Pay? We Have Answers

Piece rate pay can be complicated when overtime and changes in hours from week to week are involved. If you’re not sure whether you are being accurately paid in compliance with minimum wage and overtime laws, The Lore Law Firm can review your situation. Complete our free and confidential online client intake form today.

Michael Lore is the founder of The Lore Law Firm. For over 25 years, his law practice and experience extend from representing individuals in all aspects of labor & employment law, with a concentration in class and collective actions seeking to recover unpaid back overtime wages, to matters involving executive severance negotiations, non-compete provisions and serious personal injury (work and non-work related). He has handled matters both in the state and federal courts nationwide as well as via related administrative agencies. If you have any questions about this article, you can contact Michael by using our chat functionality.