Is Piecework-Based Compensation Right for You?

Today’s economic landscape is something of a head-scratcher.  

On the one hand, you’re contending with the lowest unemployment rates that Americans have seen in a generation. (As of the writing of this post, the average sits comfortably in the mid-3% range.) As a result, employers of every size, industry, and organizational structure report challenges attracting and retaining workers.  

On the other hand, the United States – and many other parts of the world – are experiencing inflation rates that were last seen 40+ years ago. According to the U.S. Bureau of Labor Statistics, inflation for June ’22 just surpassed 9% - a market dynamic weighing on employees and employers alike.  

This places employers in a somewhat sticky situation. Attracting and retaining top-tier workers will undoubtedly require paying a premium, but given emerging economic headwinds, cost containment must be at or near the top of the priority list.  

For many organizations – particularly those in manufacturing, assembly, and other similar trades – compensation tied to piecework is an increasingly attractive option.

Simply stated, piecework is the practice of paying workers based upon tasks completed, units produced, or other similar quantitative measures. It’s not a new practice, but it is a compelling tool employers can use to incentivize high productivity. At the same time, workers enjoy greater direct control of their compensation.

Piecework-based compensation (also known as “piece rates”) is typically set at a fixed amount per unit. Still, premium multipliers can sometimes be leveraged to keep quality degradation in check. (Paying workers based on volume alone could lead to rushed work and poor quality, so premiums based on minimal amounts of scrap or rework can keep that at bay.)

Another way piecework can create a win-win scenario for employers and workers alike is the ability to pay different rates for different completed tasks. For example, a worker at a contract assembly plant might build a relatively simple product in the morning but something more complex in the afternoon. More complex and time-consuming builds could be assigned a higher piece rate to compensate for the lower total throughput.  

If you think piecework might be a good option for your organization, or if you’re currently paying employees using this methodology and would like to automate the process, there are a couple of critical factors to keep in mind:

• Not all payroll platforms are created equal
  Ensure you leverage a system that can automate the application of multiple piece rates in a way that accommodates the diversity of units you produce. Solutions offering a limited range of rates and options will ultimately force you to handle some aspects of production outside the system. That introduces opportunities for pay calculation errors, increased complexity, increased workload for your payroll and HR teams, and gaps in recordkeeping and data.  
  
• Regulatory pressures must be addressed
  Minimum wage, overtime, and other “traditional” compensation concerns must also be followed for piecework employees. So, in addition to capturing the number of units produced, you must also record “on the clock” time. Ensuring you leverage a technology partner that can easily accommodate both measures is critical to driving the cost and operational efficiencies you need to remain competitive.
  
• State and region-specific laws may apply
  Over and above wage-related regulations, some unique work condition laws could impact your business. California, for example, has fatigue risk mitigation efforts on the books that stipulate employers must offer 10-minutes of rest for every four hours of work. Similarly, if employees need to spend time setting up a workstation, putting on protective gear at the beginning of a shift and taking it off at the end (a.k.a. donning and doffing), or on other “non-productive” but necessary tasks, workers must be compensated for that time.

Shifting to a piecework-based compensation model could yield significant savings, efficiency gains, and employee satisfaction improvements. And when combined with an HR and payroll platform that delivers transparency, accuracy and is designed from the ground up to address the unique needs of deskless workers, you gain a powerful tool weapon in the war for talent.  

For more information, contact sales to speak with one of our payroll and HR consultants at sales@greenshades.com.  

Disclaimer: Greenshades will handle total compensation payouts in payroll, but the core components of piecework pay must be calculated outside of Greenshades (units completed x pay per unit = total unit pay).