What Is Piece-Rate Pay?

Piece-rate pay is a billing arrangement where clients provide compensation based on the number of pieces of completed output. It has its own advantages and disadvantages on both the business and client sides, who will agree on the rate of every piece of output.

Businesses can bill through a flat rate, hourly rate, or piece rate. The piece-rate payment structure is more common among contractual workers, although it can still work on others. 

The most important thing about piece-rate work is that the outputs are quantifiable. This way, it would be easier for the business to bill the client. Both parties must agree on the rate of every piece. 

Who uses the piece-rate payment scheme?

  • Freelance writers/journalists who may bill on a per-word or per-article basis
  • Manufacturers
  • Construction companies 
  • Accessory makers
  • Cleaners who may bill per item or area

Employees who receive piece-rate pay are not exempt from the Fair Labor Standards Act. Employers must still abide by the laws on minimum wage, overtime, and others. States also have different laws on piece-rate pay, so employers and employees must be aware of them. 

The main advantage of the piece-rate payment scheme is that the more productive a person or business is, the more they get paid. But the downside is that some may sacrifice quality over quantity. However, a contract will prevent this, as the business and client may agree that only quality items will be paid. 

Other advantages of piece-rate arrangement:

  • Easy to bill
  • Requires minimal supervision
  • Higher production rates
  • Better time management

But there are also disadvantages:

  • Possible quality deterioration
  • Contestable piece rate
  • Possible discontent among employees due to the lack of reward or promotion

So, what is piece-rate pay? The piece-rate arrangement is not for everybody. The employer has to balance maximizing the number of outputs with the number of hours employees put in to achieve the goal, according to federal laws.


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