What is production pay, or piece rate?

Companies in the manufacturing industry may choose compensation a compensation policy that assigns different rates of pay based on products or widgets produced.  This type of policy is often called a piece rate, or production rate.

Example of a piece rate scenario:

Piece Rate:  Employee completed 100 units of widget A at $0.50/piece and 200 units of widget B at $1.00/piece during the pay period.  Due to these factors the employee would earn $250 (100 x $0.50 + 200 x $1.00).

Adding further complexity, you may have a tiered piece earnings structure based on quantities completed (e.g. completing 1-100 = $0.50/widget, 101-250 = $0.75/widget, etc.).

Most piece rate policies also provide wage protection to employees that don't meet a certain daily or weekly wage.  A common practice is to compare the employee's piece earings vs. hours worked at minimum wage and pay the higher of the two.  This safeguards the employee in the event their equipment is broken or other factors beyond their control prevent them from earning piece work when they come to work each day.

In addition to rates and/or bonuses based on unique, production-based incentive policies, many manufacturing companies pay different rates based on the type of work performed, such as job, plant, work order, etc.  Additionally, many piece rate policies have defined rates for non-piece work (e.g. cleaning equipment, training, downtime) that could be paid at different rates.

Accurately calculating the proper overtime earnings to be compliant with FLSA guidelines for a company paying a piece rate becomes even more complex with all of these factors.

Most Time and Attendance systems are not designed for these complexities.

How can IDI help?

IDI can automate your time-consuming processes!  Our Time Bank™ Piece Rate solution is designed for companies employing workers with variable rates of pay, specifically with rates based on number of pieces, or items, produced.  Our solution removes the need to rely on time-consuming and error prone manual calculations.

When Time Bank is run at the end of the pay period, it retrieves the time and labor information from the time system and associates the correct piece rate for the employee, ensuring the employee gets the higher of piece earnings vs. hours worked at minimum or other base wage.  

For clients that track their piece amounts in an external system (e.g. ERP or shopfloor system), Time Bank can retrieve the piece counts and apply the piece earnings to compare against hours worked in the time system.  After determining the piece earnings and other wages, Time Bank calculates the weekly average rate of pay, or FLSA rate, used for all overtime hours in accordance with FLSA guidelines.

With the click of a button, Time Bank reads the rates from a stored user-maintained table or from a client-provided comma-delimited file, the calculation is made, and the results are passed to payroll.

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