Definition
The term piece rate of pay refers to a compensation arrangement whereby the employee is paid for each action performed or unit of work produced. Employers must conduct detailed time studies when determining the rate of pay provided in a piece work system.
Explanation
Also known as piecework and piece work, a piece rate of pay system is one of the four acceptable means of compensating employees. Instead of compensating the employee using an hourly rate of pay or annual salary, the piece rate of pay system compensates the employee based on the number of units of work produced or actions they perform.
While piece work is an acceptable means of compensating any employee, it's especially useful when establishing a fair rate of pay for an employee with a disability. Employers must follow a strict standard to determine the rate of pay under this system. The process for establishing this rate starts with a study of prevailing wages:
If a survey reveals the prevailing wage for a work to be performed by an employee with a disability is a piece rate, then the employer does not need to conduct a time study. The worker with a disability would be paid the prevailing piece rate.
If a survey reveals the prevailing wage for a worker without a disability is an hourly rate of pay, then the employer has the option of conducting a time study to convert the prevailing hourly wage into a piece rate.
The exact approach to establishing the average hourly production standard can range from simple weekly sampling techniques to sophisticated engineering studies. However, the output of employees being observed should represent what are considered normal productivity levels. For example, employees participating in the study should not be encouraged to work at a pace faster than they could maintain over an entire shift. The study should also include an allowance for personal time, fatigue and unavoidable delays (PF&D).
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