For many employers, piece-rate pay can be a desirable way to compensate employees because it helps provide a direct incentive for employees to increase their productivity and output. Since workers are compensated based on their productivity, it can motivate employees to work more efficiently to maximize their earnings. Piece-rate pay also provides flexibility for both employers and employees as employers can adjust staffing levels based on demand, and employees have the flexibility to work at their own pace.

All the benefits aside, piece-rate pay can be complicated to track and manage. An added complexity to managing piece-rate pay are the labor requirements that employers must abide by. In order to ensure that your workers are paid fairly and in accordance with labor laws related to piece-rate pay, we’ll be covering best practices for tracking and calculating piece-rate pay.

What is Piece Rate Pay?

Piece-rate pay is a compensation structure where employees are paid based on the number of units they produce or tasks they complete, rather than receiving a fixed hourly wage or salary. This essentially boils down to employees being compensated based on their productivity or output. This can be common in roles where work can be easily broken into units, such as manufacturing, service, agriculture, or construction.

Under a piece-rate pay system, workers often have the potential to earn more if they are more efficient and complete units in a timely manner. However, there can also be concerns about fairness and potential exploitation if the piece rate is set too low or if employees are pressured to work at an unsustainable pace to earn a living wage. Current labor laws in California and other states help mitigate these concerns by ensuring laborers are paid for periods where they aren’t able to maintain productivity, such as required breaks, company meetings, etc. We’ll cover this law in more detail below, but first let’s cover how to calculate piece-rate pay.

How to Calculate Piece-Rate Pay

Calculating piece-rate pay involves determining the rate per unit produced or task completed and then multiplying that rate by the number of units or tasks completed by the employee. Here’s a basic formula to calculate piece-rate pay:

Piece-rate pay = Rate per unit/task × Number of units/tasks completed

For example, suppose a mechanic at an automotive dealership is paid $20 per unit and a tire change and rotation is considered two units. If the mechanic completes six tire changes during the day, that would equal $240.

Piece-rate pay = $20 per unit × 12 units = $240

California Piece-Rate Pay Law

California’s piece-rate pay laws, as defined in Labor Code 226.2, were enacted to ensure that employees who are compensated on a piece-rate basis receive adequate compensation for all hours worked, including rest and recovery periods. By law, California employers must pay their employees no less than the higher of: 

• The applicable minimum wage for non-productive work hours.
• The average piece-rate compensation rate for all work performed, including rest and recovery periods, during the pay period. 

Additionally, employers must provide itemized wage statements to employees and maintain accurate records of piece-rate employees’ hours worked, rest and recovery periods, as well as corresponding compensation for at least three years to be available for review by the California Division of Labor Standards Enforcement (DLSE).

It’s important to familiarize yourself with California’s piece-rate laws, as they directly impact how employers are legally allowed to pay employees. Review these laws in their entirety and then compare your piece-rate pay structure with the regulations outlined to ensure that you’re compliant. Furthermore, make sure that you have a way to stay updated on any changes to these labor laws and consult with legal counsel or HR professionals for any questions regarding compliance.

How Core Knowledge AI Helps Employers Stay Compliant with Piece-Rate Laws

The more rigorous regulations in California require more thorough tracking of employees hours to ensure that piece-rate pay calculations are accurate and compliant. Core Knowledge AI helps businesses automate the more tedious administrative tasks associated with maintaining compliance with these labor laws, such as:

• Automating Piece-Rate Pay Calculations: Our advanced and flexible rules engine has several pre-designed components capable of handling these complex calculation scenarios with easily adjustable production types and rates based on customer requirements. Units can be easily imported from another application or spreadsheet, or employees can be granted access to enter their own production values into the system using our employee web portal. When it comes time to process a cycle, your calculations are completed with the touch of a button.  
• Auditing: Once the cycle has been processed, our AI-powered Audit Bot helps administrators easily audit the results with our single-view auditing. If any data is missing, or if the minimum pay requirements are not being met, Audit Bot will immediately alert you of these errors and identify solutions on how to correct them. 
• Providing Detailed Wage Statements: Employees get complete transparency into their pay statements with Core Knowledge AI’s intuitive online web portal. Our role-based user-permissions ensure that your employees only have access to their own information, while managers and supervisors can be granted access to oversee and manage their subordinates.
• Recordkeeping: Historical statements are stored in Core Knowledge AI indefinitely, making them easily accessible whenever you need to run reports or review payments made to employees. 
• Providing Documentation on Wage Agreements: Employers can make their wage agreements available to staff through Core Knowledge AI’s online portal. Any time an employee has a question regarding how their pay is structured and calculated, they can easily refer to the documentation in the system. Additionally, our trouble ticket system allows employees to submit requests directly to their supervisor for fast resolution. 

Using Core Knowledge AI for managing piece-rate pay will help you accurately calculate payments, improve recordkeeping, and automate auditing pay statements. These features will help your business minimize potential legal disputes and penalties associated with piece-rate pay arrangements and stay compliant with both FLSA requirements as well as California’s labor laws.

Accurately Track Piece-Rate Pay with Core Knowledge AI

Tracking and managing piece-rate pay can be difficult when done manually, especially when you are working with multiple types of production units and varying rates. Streamline your piece-rate tracking by completely automating the process with Core Knowledge AI’s suite of tools. Thorough and accurate tracking is one of the best ways to ensure compliance with regulatory agencies and this is easy to do with our platform. Piece-rate pay calculations can be completely automated and all records are securely stored through our online portal which can be accessible to both employer and employee.

Core Knowledge AI is a valuable tool for companies who use a piece-rate compensation structure. Our system can easily automate many of the tasks involved with ensuring your employees are paid accurately while providing complete transparency to employees so they have clear records of their productivity and their accrued pay.

Our setup process is quick and easy. Contact us today to get an estimated cost for automation or schedule a demo to see how Core Knowledge AI can simplify piece-rate pay for your company.