Do I Need To Pay My Staff A Minimum Rate If They Are Being Paid A Piece Rate?

Paying your employees a piece rate can be a great option to incentivise and improve productivity in the workplace. 

However, it is vital that any piece rate agreement you enter into is fair to your employee. 

A common question in the workplace is, “If my employees are being paid a piece rate, do minimum wage requirements still apply?”.

The answer here is yes and no, as it depends on how you arrange their work. In other words, it depends on whether you know the number of hours they work. If not, this is considered ‘output work’, and does not necessarily require minimum wage.

However, implementing an unfair piece rate agreement can be detrimental to your business, both financially and reputationally.

Understanding how to effectively and fairly implement piece rate agreements within your business is vital to the success of your business and the protection of your employees human rights. 

What Is A Piece Rate?

A piece rate is when an employee gets paid by the amount of pieces they pick, pack, prune or make. The purpose of a piece rate is to improve productivity in the workplace. 

Piece rates are often utilised for employees who pick fruit on a fruit farm or grapes on a winery. A person who works for a piece rate is often referred to as a ‘pieceworker.’

A piece rate is generally utilised instead of an hourly rate. This means that an employee does not get paid by the hour, but by the amount of pieces they pick, pack, prune or make. 

Let’s consider the following example: 

Example 1  John works on Alex’s fruit farm as a ‘pieceworker.’ Alex and John have a registered agreement that states John will be paid a piece rate.  The agreement states that for every bag of fruit John picks, John will be paid £10. John generally picks around 3 bags of fruit per hour. As such, he is earning approximately £30 an hour. Note: This is above the minimum wage for John’s award (more on this in a bit).

The above scenario details a simple example of an agreement where an employee is paid a piece rate.

Hourly Work Vs Output Work

If you know how many hours your employees work and you pay them based on this, they are performing hourly work. As such, you need to pay them minimum wage.

However, if you’re paying your employees per task, this is known as piece work or output work.

Output work does not necessarily require minimum wage, however, the concept of a ‘fair rate’ applies. This means that workers must be paid fairly for each piece of work they complete (we’ll cover this in more detail shortly).

How Do I Know If My Employees Are Doing Output Work?

Like we mentioned, output work is when an employee is paid on a piece rate, or per task. Generally, it is not considered output work if you:

• Set a minimum or maximum time your workers can work
• Set the start and finish times for their work

Do I Need To Give Notice For Fair Rates?

Yes, you need to give written notice to your workers if you plan on using a fair rate.

The notice should cover the following key matters:

• The worker will be paid for producing output work
• Clarify that minimum wage will be paid assuming the task takes an average time to complete
• Provide details around how many tasks are expected to be performed within an hour
• Provide the amount that will be paid
• Include the ACAS helpline number (0300 123 1100)

How Can I Tell If My Piecework Agreement Is Fair? 

The purpose of a piece rate is to improve productivity in the workplace. It is certainly not a means to exploit your employees. 

Ensuring that your business’s piecework agreement is fair is vital to your business and its livelihood. 

So, how do you know what is ‘fair’ for output work? Employers are encouraged to look at the following process to do this:

1. Conduct a test – this will allow you to observe the speed, productivity and output from work performed
2. Results – conclude how many pieces of work were completed in one hour
3. Calculate – divide this by the number of workers. This will give you the average rate
4. Work out the fair rate – divide the average rate of work by 1.2
5. Divide the hourly minimum wage rate by the above result to work out the fair rate

What Are The Repercussions Of Not Having A Fair Piecework Agreement In Place?

Failing to have a fair piecework agreement in place can be extremely detrimental to your business. 

Failing to pay your employees the correct wage is wage theft. Wage theft encompasses serious repercussions. If you are found guilty of wage theft you can be both fined and forced to pay back your employees.

Not only can wage theft result in hefty fines for your business, it can also result in significant loss of reputation and brand. It is vital to remember that the purpose of a piece rate is to incentivise and increase productivity in the workplace. It is not a means to exploit your employees. 

Need More Help?

Getting your legals right when it comes to piece rate agreements is vital to the success of your business. 

Exploiting your employees through the means of an unfair piece rate agreement is simply not an option. It will likely heavily impact your business, both financially and reputationally. 

Getting your legals right can be a complex task, we’re here to help! Reach out to our team for a free, no-obligations chat at [email protected] or 08081347754.

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