Employees Paid On A Piece Rate Basis

There is a special rule for calculating overtime wages for workers paid on a piece rate basis. Piece rate pay is where the employee is paid a certain amount for completing a specific task. For example, a cable installer is paid on a piece rate basis when he/she gets paid a certain amount of money per installation completed. Similarly, warehouse workers are paid based on the number of or weights of the trailers they unload. Being paid that way is called a “piece rate basis.”

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With piece rate pay, there are two types of work – productive and non-productive work. While both types of work count towards overtime wages and minimum wages, there is a special provision for piece rate pay that results in a higher overtime hourly rate of pay than some employers actually pay their employees.

Productive Work

Productive work is the work performed for which the pay is received. For the cable installer example above, it is the time the employee actually spends installing cable services at the customer’s house. In the warehouse worker example, it is time spent actually unloading trailers.

Non-Productive Work

Non-productive time is the time spent in the workday which is considered work but is not spent performing the task which earns the piece rate pay. Using the cable installer example above, non-productive time could be traveling between customer’s houses for installation jobs, gathering supplies and equipment, or completing paperwork. With the warehouse worker example, non-productive time could be the time spent at the warehouse waiting to unload more trailers, safety meetings, and other time on the job that is not spent actually unloading trailers.

However, regardless of whether the work is productive or non-productive, it must be counted towards calculating FLSA mandated overtime wages and minimum wages. 29 U.S.C. § 207(g)  29 C.F.R. § 778.318(a).

The part of the FLSA that some employers do not apply, and probably hope their employees do not know about, is the requirement that the hourly overtime rate be calculated by dividing all piece rate pay received in a week by all productive hours only, up to 40, worked in that week. The overtime rate is time and one-half of that number for all overtime hours worked, including productive and non-productive time. 29 U.S.C. § 207(g) 29 C.F.R. § 778.318(b). Unless the employer and employee enter into an agreement to alter that calculation before the work is performed, the default overtime calculation rule applies. 29 C.F.R. § 778.318(b). (“In the absence of any agreement setting a different rate for nonproductive hours, the employee would be owed compensation at the regular hourly rate set for productive work for all hours up to 40 and at a rate at least one and one-half times that rate for hours in excess of 40.”).

Example – Calculating Overtime Pay Under the FLSA Default Rule for Piece Rate Work

Assume a piece rate paid unloader works 40 productive hours unloading trailers and 20 non-productive hours waiting between the unloading of trailers in a week, for a total of 60 hours worked (under federal law, both the productive and non-productive time count towards overtime). For that week’s work, the unloader is paid piece rate pay of $700. Under the default method, that unloader’s overtime wages are $525. That amount is calculated by first dividing $700 by the 40 productive hours worked, which equals $17.50. Then multiply $17.50 times 1.5 to get the overtime hour multiplier of $26.25. Multiply that overtime hour multiplier by the 20 overtime hours worked that week (which again includes productive and non-productive hours) and that will total $525.00 in overtime wages owed.

In that same example, if the employer improperly divides the $700 piece rate pay by all hours worked instead of only productive hours worked, it shorts the employee $174.90 in unpaid overtime wages. This is calculated as follows: $700/60 total hours (productive and non-productive) worked = $11.67. $11.67 times 1.5 = $17.51 overtime hourly multiplier. $17.51 overtime hourly multiplier times 20 overtime hours worked = $350.20 in overtime wages, which is $174.80 less than the $525.00 overtime wage calculated in the first example.

To make matters worse, some employers only pay a half-time overtime multiplier instead of the time and one-half required under the default rule for piece rate pay. In the same example, that would result in an employee being underpaid $408.20. That is calculated as follows: $700/60 total hours (productive and non-productive) worked = $11.67. $11.67 *0.5 = $5.84 overtime hourly multiplier. $5.84 hourly overtime multiplier * 20 overtime hours worked = $116.80 in overtime wages, which is $408.20 less than the $525.00 overtime wage calculated in the first example.

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