Chapter 1: What is a minimum wage

1.7 Piece rate pay

Piece rate pay occurs when workers are paid by the unit performed (e.g. the number of tee shirts or bricks produced) instead of being paid on the basis of time spent on the job.1

Piece rates are frequently used in certain industries or occupations where the work is repetitive in nature, and where employees have a high level of control over the results. Examples include such tasks as plucking tea, pruning fruit trees, sorting second-hand books, producing garments, or kilometers driven. Home based workers and other out-workers (who work in premises other than that of the employer) are also frequently paid piece rates.

In developing countries, workers relying on piece rate wages often constitute a vulnerable section of workers, with many working in the informal economy. Large numbers are women. Piece rate pay is also frequent in the textile, garment, footwear and leather industries, and in global supply chains.  

The regulation of piece rates

Under some conditions, piece rates may be beneficial to both employers and employees. For this to be the case, however, the manner in which remuneration is calculated for each piece produced or task completed needs to be fair to both parties: if the salary is set too low, discouragement will set in and the workers concerned will work long hours and may ultimately feel burnt out by the system. Occupational health and safety issues also arise when taxi drivers, for example, need to work excessive hours to make a decent living. If the rate is not fair to the employer, the enterprise might fail.

To be fair and effective, piece rate systems should be transparent, reward employees according to the difficulty and quality of their work, and ensure that motivated workers can earn substantially more than the minimum wage. If a larger group is not making the minimum wage, it usually means the piece-rate pay is set too low, and workers’ efforts are being undervalued.

Many countries regulate piece rates and piece rate work:
  • In various countries, the legislation stipulates that pieceworkers’ wages may not be lower than the applicable minimum wage. In these countries, at the very minimum, workers under a piece rate system should earn the minimum wage. When they do not, the difference between what they have earned and the minimum wage needs to be paid by the employer.
  • In other countries, the legislation provides for the possibility of fixing specific minimum wage rates for pieceworkers based on a “standard output”. In the State of Madhya Pradesh in India, for example, the minimum wage notification for piece rate beedi rollers (hand rolled cigarettes) indicates a guaranteed minimum wage per week provided they roll 5600 beedis per week. Workers are entitled to this if the raw materials supplied are inadequate to roll this number. However, the guaranteed minimum wage will not be payable where the failure to roll 5600 beedis is attributable to the worker.
  • In some countries, piece rate workers must be paid a "fair wage". In the U.K. piece rate can only be used in limited situations when the employer does not know how many hours the worker does work (e.g. as with some home workers). If an employer sets the working hours and the workers have to “clock” in and out, this counts as time work not as output work (see box).

Box 1.
A fair wage for piece rate workers in the United Kingdom

Employers are obliged to implement the following method:
  • Find out the average number of tasks or pieces completed per hour; for example workers may produce on average 12 shirts per hour.
  • Divide this number by 1.2 so that new workers won’t be disadvantaged if they’re not as fast as the others yet;  in our example we divide 12 shirts by 1.2 which is equal to 10 shirts produced.
  • Divide the hourly minimum wage rate by that number to work out the fair rate for each piece of work completed. If the minimum wage rate is £6.70, workers must be paid at least 67p per shirt they make (£6.70 divided by 10).2
 


 

1 This section is largely based on G. Billikopf, Piece-Rate Pay Design, ILO, Forthcoming (2015), and on K. Sankaran, Piece Rated Minimum Wages, ILO, Forthcoming.
2 https://www.gov.uk/minimum-wage-different-types-work/paid-per-task-or-piece-of-work-done