Piece-rate pay

What it means

Piece-rate pay is pay calculated from the amount of work done, such as the number of items produced, assembled or processed, at a predetermined rate per unit. It rewards output, so an employee who does more earns more and the company pays for the output actually produced.

It is one form of pay alongside time-based pay, which is calculated from hours worked. Piece-rate pay is used most often in manufacturing, assembly, agriculture or simple administrative tasks where output can be measured unambiguously.

The rate per unit is usually derived from a standard, meaning the time needed to complete the task under normal conditions. Standards should be realistic so that an average employee working at a normal pace earns a reasonable wage, and they should be revisited when technology changes.

How it works in practice

Even with piece-rate pay, the employer must ensure that the employee receives at least the minimum wage and the minimum wage entitlement for the difficulty of the work. If piece-rate earnings for the hours worked fall short of these amounts, the employer must make up the difference.

Statutory pay supplements for overtime, night work, public holidays and weekends apply to piece-rate workers as well. The payroll software must record hours worked correctly so that supplements and the minimum wage check can be calculated.

During absence, for example on leave or due to obstacles at work, wage compensation is calculated from average earnings, which include piece-rate pay for the previous period. Fluctuations in output therefore also affect the amount of compensation.

What to watch out for

Piece-rate pay can create pressure for speed at the expense of quality and safety. The employer should ensure that health and safety rules and output quality are maintained, for example through quality checks or by combining piece rates with a bonus for defect-free work.

The pay method, rates and standards must be known to the employee in advance, usually from the employment contract, pay statement or collective agreement. Tightening standards unilaterally without agreement or notice can lead to disputes and suspicion of circumventing the minimum wage.