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What Is Piece-Rate Compensation?

Learn more about piece-rate compensation and why it matters to certain employees in California.
Piece Rate Compensation

What is Piece Rate Compensation?

In certain industries it is common for employers to pay workers on a “piece-rate” basis instead of by the hour. Unfortunately, certain employers use a piece-rate compensation basis in order to attempt to underpay their workers. Essentially, anyone who is being paid on a piece-rate pay system is being paid a set price for each unit of a product that they make, and the more they produce the more they earn.

Some employees may not be aware that they are not being paid the wages that they are entitled to because the law recently changed in California. If you are a piece-rate employee and you have not been paid for non-productive time, you should know your legal rights and speak to a San Diego employment attorney right away. Here are a few things to know about California’s piece-rate compensation law to help you determine if you are owed wages by your employer.

 

Who Is Considered as A Piece-Rate Employee?

A piece-rate employee is one who is paid by the amount of measurable work completed, or according to the number of units turned out, rather than by the amount of time spent working. However, determining who is considered as a piece-rate employee can be tricky because piece-rate compensation can apply to many diverse situations. It includes, but is not limited to:

  • Automobile mechanics paid on a “book rate” (i.e., brake job, 1 hour and 50 minutes, tune-up, 1 hour, etc.) usually based on the Chilton Manual or similar;
  • Nurses who are paid on the basis of the number of procedures performed;
  • Carpenters who are paid by the yard of carpet laid or by the linear foot on framing jobs;
  • Technicians who are paid by the number of units installed;
  • Factory workers who are paid by the widget completed.

In addition to these examples given above, piece rate compensation is extremely common in the construction industry, especially when working on large construction projects. A plumber may subcontract out a job such as fitting faucets in an office block, paying the person they have subcontracted to by the fixture rather than for the length of time that it takes.

If properly executed, this method of compensation is legal and is designed to help motivate employees to increase their productivity beyond what time-based compensation might yield. In addition, it is also designed to benefit the worker because the worker can earn more by becoming more productive.

 

Advantages of Piece Rate Pay Plan

You might be wondering why anyone would choose to pay piece-rate by this point and that’s a very valid question. However, it does have a number of distinct advantages and these apply not only to employers but also to employees.

For the employer, the advantage is that this type of pay plan can be highly motivating to employees, ensuring that they work efficiently, which can be advantageous to the employer’s bottom line.  A worker who is incentivised in this way should also require less supervision in order to push productivity.

For the employee the advantage, in theory at least, is that piece-rate pay allows the employee to earn more money in less time than an employee who is being paid a regular hourly rate for the same work. This allows them to manage their time in order to increase their output

The overall advantages of this form of pay are that the employer is able to create a workplace atmosphere that both rewards and promotes good levels of productivity. And, when it comes to calculating the cost per unit, it is far easier to calculate the time spent per unit and therefore produce much more transparent manufacturing costs.

 

Disadvantages of Piece Rate Pay Plan

Where there are advantages to a piece rate pay plan, there will of course be some disadvantages. Again, these will apply to both the employer and the employee in varying degrees.

Using a piece rate pay plan it can be incredibly difficult to work out just how much product will in fact be created in a set time. Workers will naturally work as fast as they can, so output may vary drastically from day to day. In addition, workers who are sick or even injured will still come into work. At best, this will slow production down because they are less able to work, although obviously output will still be higher than if they remain at home. The worst-case scenario in this instance is that a sick worker risks spreading their germs throughout your workforce making everyone ill and reducing output further. There is of course the risk that they would work too fast when not in full health and injures themselves which in turn could open the company up to liability.

The disadvantages of piece rate pay is that the cost of producing higher quantities of a product could well be a drop in the quality of the items produced. Employees who are dedicated to learning properly need to understand that in order to keep the quality their production levels will be lower until they have mastered what they are doing. Keeping up good quality production at a fast pace can be difficult over longer periods of time.

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How Should You Pay Commissions Based on Piece Work?

For employers the technicalities of pay for piece work can present a logistical nightmare. Even under a piece rate commission scheme, legally the employer must ensure that they are paying at least the minimum wage for each hour of work. In essence this doesn’t mean that the employer is paying a set rate per piece produced, but rather that at the end of the working week they must ensure the employee is receiving a minimum amount for time worked.

As an example, they will need to work out how many pieces the employee produced and divide it by the number of hours that the employee worked, if the resulting number is less than the minimum wage then the employee has not been paid enough for the work that they have done.

It is worth remembering with production rates varying from one week to another, due to any number of factors including the health of the employee, that the employer will be required to work these figures out on a weekly basis to ensure that no employee is receiving less than the minimum wage. In order to this efficiently an employer must keep accurate records of the hours worked by each employee and the amount that they have produced during this time. Failing to do so can leave an employer wise open to issues in the event of a complaint being filed or government investigators coming to make a check on the business.

The method used for correctly calculating overtime compensation for those employees who are paid on a piece rate basis can be even more complicated. From an employer’s point of view the whole field of piece rate compensation can be a complex and time-consuming nightmare that needs good record keeping in order to avoid attracting, what can be, substantial penalties for violations.

 

Is Piece Work Legal in San Diego?

Piece work is legal in California and there are laws that have been put into effect that protect those employees who are paid on a piece rate basis. This is to ensure that the financial compensation they receive for the work that they do is fair and in at least in line with the minimum wage.

 

What Is AB 1513?

AB 1513 (Piece-Rate Compensation) is a new section of the California Labor Code that went into effect on January 1, 2016. It establishes compensation and wage statement requirements for piece-rate employees and creates a defense for employees to bring claims against an employer if they fail to pay compensation for rest and recovery periods and other non-productive time that an employee should have been paid.

Under California law, piece-rate workers are required to receive compensation for non-productive time that is separate from their piece-rate compensation. The rate of compensation must also be the higher of the applicable minimum wage or the employee’s average hourly rate.

The average hourly rate must be determined by dividing the total compensation for the workweek, exclusive of any compensation that was paid for rest and recovery periods and overtime, by the total number of hours worked during the workweek, exclusive of the time that was taken for rest and recovery periods.

 

Which Employees Are Exempt from AB 1513?

Some types of employees are exempt from receiving additional compensation for non-productive periods under AB 1513. These employees are employees who are compensated on a commission basis. A compensation plan that is considered to be commission compensation is one that pays based on a percentage of a sale.

 

Types of Situations That Fall Under AB 1513

Every piece-rate claim is different. If you are trying to determine if you should file a claim against your employer for failing to compensation you, you need to know whether your employer is in violation of the law.

You may be eligible to file a piece-rate claim if:

  • Your employer has misclassified your compensation as commission-based in order to avoid paying you wages for non-productive time.
  • You have not been compensated for valid non-productive time.
  • Your employer prevents you from taking rest periods if you have worked more than 3.5 hours in a single day in order to avoid having to pay you for non-productive time.
  • Your employer has not compensated you for non-productive time in which you are still under the employer’s control, exclusive of rest and recovery periods.
  • Your employer has retaliated against you after you have filed a claim for unpaid non-productive time wages.

 

What Should You Do If You Believe You Have a San Diego Piece-Rate Law Case?

While employers can design piece-rate compensation plans, they may not opt out for paying you for non-productive time, unless your pay is considered to be commission-based. In addition, all piece-rate employees must be compensated according to their average hourly rates and must be paid overtime according to the existing California overtime statutes.

If you believe that you have a piece-rate case, you should contact a San Diego attorney right away. Delaying your claim could potentially harm your chances of receiving the compensation that you are owed. If you would like someone to review your case today, send us an email or call Walker Law at (619) 839-9978 to schedule your free consultation.

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