The way you employ your staff can change over time. And your business needs to keep up with these changes to grow.
Piece-rate work is just one type of employment you could apply to your company. But, there are several things to consider, such as your employee's wellbeing, and how to calculate piece-rate pay correctly.
In this guide, we'll explain what piece-rate work is, what businesses employ it, and when and how you should use it.
What is piece-rate work?
Employers pay piece-rate workers for the number of tasks they perform, or per unit of work they complete.
This means piecework staff don't have a base salary. For example, a company may pay a garment worker for each piece of clothing they make.
However, employers must ensure they pay pieceworkers the minimum wage. Otherwise they could face serious legal claims.
The difference between piece-rate pay systems and time-work systems
Piece-rate systems and time-work systems are different types of employment. A time-work system is when an employer pays an employee according to the time spent working. Whereas, a piece-rate system focuses on the number of products an employee produces.
If employers set certain terms, such as:
- The minimum or maximum time the worker must work.
- The work period's start and finish times.
They cannot pay their workers via piece-rate. And should instead employ their workers on a time-work system.
If an employer sets working hours, meaning workers have to clock in and out, this counts as time-work. Therefore, the employer should pay staff - including home workers, at least the minimum wage for every hour worked.
The difference between piece-rate and commission
Unlike piece-rates, a worker may receive commission on top of a base salary.
Commission pay pays workers based on the percentage of the sales the company makes, rather than the amount of work or pieces they produce.
What is piece-rate pay?
As an employer, you should ensure you pay your piece-rate workers a fair wage each pay period. This is known as the fair rate.
Fair rate
The fair rate is the amount an employer must pay staff for each piece of work completed.
The workers must receive at least the minimum wage rate per hour. Even if they work at an average speed.
If you want to use fair rate pay, you should give notice to your employees.
The notice must state:
- That the employer will pay the worker per completed unit or completed task.
- That to calculate minimum wage, it’s assumed the piece or task will take a certain amount of time to complete. The employer must include how much time they have estimated it will take.
- That the average time to complete the piece or task is an estimate or has been tested by the employer.
- The number of tasks or pieces the employer assumes an employee can complete in an hour.
- The amount the employer will pay the worker for each task completed or unit produced.
- An ACAS helpline number for employees to get advice.
Otherwise, the employer must pay the worker by the hour instead.
Is piece-rate legal?
The piece-rate pay system is legal in the UK. As long as employers use it in limited situations.
For example, when an employer doesn't know an employee's working hours or how many hours they work. This can be the case if they hire home workers.
Under UK law, employers aren’t legally required to provide overtime pay or overtime premium. This applies to piecework as well.
Types of piece-rate pay systems
Employers in often hire piece-rate workers. This is because it's easier to measure the employee's performance by the number of items they make.
For example, construction sites may employ bricklayers on a piece-rate system. This means they get paid per brick they lay rather than their time on site.
However, businesses that use piecework should ensure they are following the law accordingly.
How to calculate piece-rate
Piece-rate pay is relatively easy to add up, and doesn't require a fancy payment system to manage it.
Calculating piece rate pay consists of two processes. These include:
- Working out the average rate of work per hour.
- Working out the fair rate per hour worked.
Let's explore the process for working out piece-rate pay in more detail.
Work out the average rate of work per hour
To calculate piecework pay, you should first work out the average time it takes for a worker to complete a task or piece per hour. To do this, you must carry out a fair test.
The test will establish how many tasks - or how much output work, a member of staff could potentially finish per hour.
To test this, you should use the following method:
- Test some or all the workers. The group should be a random selection but still representative of your workforce.
- From the test, you should work out how many pieces of work the employees complete.
- Divide the number of tasks or items made, by the number of employees tested to calculate the average rate.
- If your work changes significantly, you should do another test.
Work out the fair rate
To work out the fair rate of pay, you should divide the average rate of work by 1.2. This lowers the average rate to give new workers a chance to catch up.
Then, you must divide the hourly minimum wage rate by that number.
This will work out the fair rate for each item an employee produces.
What are the advantages of piecework?
There are many advantages your company could gain from using piece-rate pay systems.
These include:
- Increased output efficiency.
- Higher production rates.
- Easier wage calculation.
Let's discuss these advantages in more detail.
Increased output efficiency
Piece-rate systems are performance-based pay, so workers naturally work harder to achieve their targets.
Your team may work more efficiently as they know the business pays workers based on the amount of output they produce.
Minimal supervision
Another advantage of using a piece-rate system is employees require minimal, or even no supervision. Piece-rate systems encourage employees to be self-driven and work quickly.
As a result, your senior members will spend less time managing workers's productivity, and more time growing your company.
Easier wage calculation
It's easier for employers to work out a pieceworker's wages. This is because the employer agrees that they should pay the employee per unit produced.
However, employers must consider other deductions that affect pay. Such as tax, National Insurance and pension contributions.
The disadvantages of piece-rate pay
A piece-rate system also comes with disadvantages depending on how a company implements it.
The drawbacks include:
- Poor employee wellbeing.
- Poor quality control.
Let's explore how these disadvantages could affect your business.
Employee pressure
Some piece-rate workers may overwork themselves to earn more money. This could ultimately damage an employee's wellbeing if they are overextending themselves or working long hours.
If pieceworkers are falling behind, they may worry about how much their employer will pay them. In most cases, this could result in employee stress. And may affect their quality of work.
Poor quality control
Your business could sacrifice quality if using piece-rate pay. This is because employees may sacrifice quality over speed. Ultimately, this could cost your business as it lowers product quality. This may mean your company loses customers and money as a result.
Your business could be affected massively by these drawbacks. So you should consider if piecework pay is right for your company.
Get expert advice from Peninsula
Piece-rate pay could boost employee effort and efficiency in your business. But you need to ensure you are managing it effectively.
Otherwise, your business could be at risk of employment tribunal claims, financial loss, as well as reputational damage.
Peninsula offers you expert 24/7 HR advice and support, helping you pick the best type of employment for your staff members. Contact us on 0800 051 3687.
