Piece Rate Payroll

Written by Kimberly Clark
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A piece rate payroll system is one in which employees are paid a variable sum of money based on their performances. However, unlike hourly payroll systems, the amount earned is not solely based on the number of hours worked. It is instead dependent on the quantity of units the worker actually produced or processed.

Thus, the basic premise behind a piece rate payroll system is the more productive a person is, the more they are paid. As simple as this may sound, there are several considerations employers must keep in mind when instituting this form of compensation in their workplace. For example, does the system abide by all the standards set forth by the Department of Labor (DOL)? Do you have the appropriate software to be able to track hours and payments?

Piece Rate Labor Laws

The gross earnings of piece rate workers are determined by multiplying the number of items produced by the rate set per item. Even though workers are compensated based on their production levels, the wages paid to them are not necessarily exempt from overtime or minimum wage regulations. Employers need to make sure their payrolls adhere to all state and federal labor laws.

Section 14(c) of the Fair Labor Standards Act (FLSA), specifically outlines certain concessions that must be made when compensating employees with disabilities based on a piece rate pay scale. This portion of the FLSA requires employers to include what is called a PF&D allowance when determining the piece rates used to calculate special minimum wages for workers with disabilities. The term PF&D stands for Personal Time, Fatigue, and Delay factor and cannot be set at less than 9 minutes per hour.


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