piece.

Piece work, and piece rate payment. Is this a strategy for your organization?

Piece Rate, Piece Work, Piece Rate Pay Systems



The purpose of piece rates is to motivate employee performance in return for a monetary reward. A simple, valid concept which is centuries old. Incentives are effective employee motivators because most people go to work for money in the first place. Incentives, piecerate, or piece rate pay systems, offer an opportunity for employees to increase their pay by their own efforts both physical and mental.

Please keep in mind that piece rates don't replace minimum wage laws. But piece rates will often insure that actual labor costs match budgeted costs more closely.

But incentives also benefit a company, who perhaps for the first time will measure labor performance and relate it not only to costs but also to output, and calendar performance, and customer service, and capacity.

Wikipedia has it right when they say "An advantage for the company is that this method of payment helps to guarantee the costs per unit produced, which is useful for planning and forecasting purposes."

Piece rates apply anywhere the work content can be predicted. Piecerates have traditionally been set in factories, especially apparel. But other labor intensive activity is also well suited for piecework, for instance:

1. Construction; masonry, block, brick, slabs, beams, electrical, dry wall and sheeting, stucco application, painting, piping and plumbing, carpentry. roofing

2. Installation for commercial or home; HVAC, electronics, security, TV, irrigation, flooring, appliances, septic tank, energy equipment such as windmills and solar panels

3. Hotel housekeepers, maids

4. Maintenance with a clear work description such as preventive maintenance

5. Piecework is difficult to apply to the activity of repair, trouble shooting, maintenance, and warranty because specific content of the work is much less predictable.

Piece rates may, probably will, require more careful reporting. A key factor to recognize is that workers on piece rates must still be paid at least the minimum wage, state or Federal; and that all work hours must be considered in the minimum wage calculation. As a result, reporting must record not only the production on which piecework is applied but also timekeeping of all hours, and the arithmetic to assure that the letter of the law is followed.

Piece rates involve bookkeeping and labor law in addition to the expectations themselves. The company lawyer and CPA must play a significant part in any actions.

Will incentives pay for themselves? Maybe so, because productivity and output tend to increase with incentives. But balance improvement against any extra costs you anticipate, and consider options to gain many of the benefits with somewhat less structure.

A piece rate agreement is what you make it . A piece work agreement can be simple, where one party offers what he is willing to pay and another agrees or not.

The typical piece rate in a factory may depend on work measurement, but that is not necessarily true elsewhere. There are piece rates for many trades and businesses. These may be time studied, or negotiated, or set near the price that applies locally for the work. In Texas there are piece rates for agricultural workers picking commodities; rates are set by a state commissioner.

So it is certainly practical for you to set piece rates. Set a goal, and pay according to results. I'll be happy to help you set the goals and the reporting mechanisms, but also please see a labor law attorney and your CPA.

In some applications such as apparel piecework plans, the rate paid is essentially all of the labor cost, agreed in advance with employee and buyer, so bookkeeping is simplified and more predictable.

In construction, incentive pay can be tied to the prevailing price paid by local contractors, for instance a value per block laid or square foot of slab, so that estimating and actual cost are more closely related.

Incidentally, a tradesman is typically responsible for quality, so rework would be performed "on the clock". Be sure that quality standards are well defined and enforcement quick and fair. In such cases the minimum wage may apply, so your time system has to be accurate.

Incentives often reward output, or units produced. But any criteria may be selected, such as widgets built or installed, or customer satisfaction, or first time quality, or phone calls, or tests processed, or block laid, or applications processed, or feet of cable, or cubic yards of concrete poured, or cartons shipped, or tests completed. The key is to create a measurement system to meet business objectives.

Travel and traffic are factors in construction, delivery, off site and remote locations

Construction, delivery, off-site and remote locations will involve travel. Any discussion of travel in this day and age will focus on GPS, global positioning systems. GPS is very sophisticated today and will get more so. It is inexpensive and many commercial applications exist to allow effective route planning; your organization could use it for that purpose at least. Instructions to drivers should include GPS input.

When GPS can recognize rush hour, and road construction delays, and the weather, and accident backups, it will become even more useful but that time is not yet I think; stay tuned.

There is at least one more travel factor to consider, which arose with a masonry client of JPR. We talked about the potential problems of setting rates for travel during the day, and someone would mention the hypothetical day in court when an employee would claim the incentive made him drive too fast and he had an accident and got hurt. I'm an engineer and not a lawyer, so I don't know the answer to that nor if that is different from any on-the-job exposure.

Observe the work and correct the problems you see; then adopt reliable reporting. Maybe you will improve enough you won't choose piece rate.

These actions are very effective and pretty simple to accomplish. Once you have performed them, results may be quite impressive.

1. Observe; field and remote operations may yield the most improvement but this approach is effective for any work situation which is not measured.

Work measurement (someone with a watch and a note pad is all it takes) can spot inefficient practices which were eminently correctable. Typically,

a. Lost time is prevalent, and study can quantify how much and why it occurred.

b. Crews are not the right size.

c. Correctable constraints and delay are common, usually because some activity is not performed when crews are ready to perform the next operation.

d. The work pace is not what management expected.

e. Non-value-added time during the work day is excessive.

Management, when it learns of these problems, can improve communications, change internal practices and supervision, balance crews, and add equipment based on the results. Then of course after the person with the watch has observed the work, it is easy to establish formal rates and expectations for individuals and crews.

2. Adopt an effective reporting system and use it.

a. Develop an informative, simple, reporting system for the key results, especially output, time spent, time lost.

b. Install the system and let employees know that you monitor activity. Involve direct supervision in the process.

c. Summarize and analyze reports, then act accordingly.

d. Build intelligence from reports. Look at averages, judge which elements are out of line, or take too long, based on your own experience or further observation. Consider the degrees of difficulty; what is important and what can be forecast or predicted? Build that into expectations.

e. Relate results to project profitability, and to the rates that are part of the local bid structure for work.

Good luck with your project.

Jack Greene

Jackson Productivity Research Inc.

Author:.

Jack Greene is president of Jackson Productivity Research Inc. His consulting practice and articles address practical actions to control and reduce costs through time study; plant and facility layout and design; balance workloads; optimize capacity and utilization; improve productivity; manage constraints; merge and consolidate facilities; cost-justify facility relocation.

Mr. Greene's articles demonstrate how principles of industrial engineering and productivity achieve results wit...

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Have a question for Jack?

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Darryl Rhoda
14th July 2014 11:21am
Jack,

Can piecework employees have their health insurance and PTO "prorated" based on their production? For example if 100 units is the standard then an employee who averages 85 units would receive 85% prorated benefits....even if they worked 40 hrs to achieve the 85 units?
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Jack Greene
15th July 2014 12:01pm
Darryl, Good question. Points that come to mind as you consider a solution: 1. Workers on piece rates must still be paid at least the minimum wage, state or Federal. 2. Typically a worker will be paid an incentive only for performance over 100%. At 85% performance the base rate would apply, the worker would be paid 100%. 3. A worker who consistently makes 85% of a rate is not the kind of worker you want to have around, I would think. (100% performance is what an average, experienced worker ... Read More
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Darryl Rhoda
15th July 2014 12:29pm
These are difficult to recruit employees with technical degrees. Yes we do bonus them for over 100% and we also reduce wages for less than 100%. However, I also need to retain some of those who are slow, just not pay them the same or provide the same level of benefits. I would like to prorate their benefits but prorate on productivity, not actual hours worked. Minimum wage is not an issue as these are highly paid employees. I just wasn't sure if I could legally prorate benefits on ... Read More
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Jack Greene
15th July 2014 11:26pm
Darryl, The most important question you have is a legal one, I think; and I am an engineer. Please ask your law resource about state and Federal law regarding variable benefits. After I've said that, seems to me you have utilized the concept of incentives very well. Like many other tools, one size does not fit all, for incentives. You have tailored a plan to fit your unique company needs, and one to which valuable employees respond. A major purpose of incentives is to motivate employees ... Read More

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Jack Greene
6th July 2014 10:34pm
3. When a tradesman produces 10% more units than the expected amount for the time he works, pay a piece rate bonus of 10% of his hourly rate. 4. Considering points 2 and 3. Over a week, assume that two tradesman achieve the same percent performance, say 12%. But if each is paid a different hourly rate, their bonus pay in dollars will be different. That is correct. (It is also possible to establish a dollar piece rate; a certain dollar amount to latex paint 100 sq ft of interior residential ... Read More

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Jack Greene
6th July 2014 10:33pm
3. When a tradesman produces 10% more units than the expected amount for the time he works, pay a piece rate bonus of 10% of his hourly rate. 4. Considering points 2 and 3. Over a week, assume that two tradesman achieve the same percent performance, say 12%. But if each is paid a different hourly rate, their bonus pay in dollars will be different. That is correct. (It is also possible to establish a dollar piece rate; a certain dollar amount to latex paint 100 sq ft of interior residential ... Read More

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Jack Greene
6th July 2014 10:26pm
answer 2
Different persons on the same job
When you set a rate, it will apply to whoever does the job. Whoever does the same job is expected to meet the rate. Rates are set for jobs not for a particular individual.

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Jack Greene
6th July 2014 10:25pm
Answer 1 Frank, Thanks for the questions. Perhaps these answers will shed light. For further information, look at my web site, under time study and construction piece rate pages. Crew or individual rates Piece rates may be set for an individual, or for a crew. If a rate covers an individual job, or task, the rate will define how much time one person requires to perform the work. A crew rate uses the same theory, and establishes the time to perform a defined amount of work that will be done by ... Read More

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Jack Greene
6th July 2014 10:21pm
Frank,
I have prepared a decent answer to your questions, but this post system limits me to a couple paragraphs. I'll send several posts, please read them all.

Regards,

Jack Greene

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Frank
5th July 2014 9:17pm
What if you have different employees working on the same job. How do you adjust piece rate? Do I break each job into catagories. And how do I determine what each person gets paid for piece rate on a job?
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Jack Greene
6th July 2014 10:28pm
Categories I am not quite sure what you mean by "categories", but you probably should group tasks by category. Let me offer some examples. Rates for different trades are different, so I'll illustrate with the job of painting. Painting by brush will be require a different time than by roller, or by spray. Painting inside will be different from outside; from the floor different from a ladder or scaffold. Latex and oil based paints may be different. Broad open sections require less ... Read More
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Jack Greene
6th July 2014 10:30pm
Because components of a task are different, then a piece rate for the category will also be different. Very early, the contractor must decide just how much time and cost will be spent on setting the rates, and whether the benefits will pay for setting, administration, and later for keeping records and reporting hours. Pay for making rates. (there are 7 in total) Many choices are available. Let me suggest some guidelines, although before you go live with a payment plan, please consult your ... Read More
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Jack Greene
6th July 2014 10:38pm
Frank, the last 6. Pay by day, or week, or project? First and foremost, obey the federal and state minimum wage laws. Effectively that says if a tradesman doesn't produce the expected units, he still must be paid the minimum for the day. Typically a weekly basis requires less admin than daily. Your internal and contracted payroll people can help work out benefits and disadvantages for your operation. My own preference is to pay a crew bonus to all concerned on a project, when they bring in ... Read More

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Scott Mauder
12th June 2014 6:20pm
My name is Scott, I am a partner in an electrical contracting company in clearwater, fL and we are concidering going to a piece rate system for all our work. Is there a place I can find labor units for residential electrical work, both new construction and remodel work? To do this, we need to know a standard receptacle in a closed wall will take "X" amount of time, same with switches, light boxes and all the other things we may do on one of our jobs. We, my partner and i, feel this ... Read More

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