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Piece Rate Pay Calculation

Piece Rate Pay Overview

The piece rate pay plan is used by companies that pay their employees at least in part based on the number of units of production completed. To calculate wages under this method, multiply the rate paid per unit of production by the number of units completed in the work week. An employer who uses this approach must still pay its staff for overtime hours worked; to calculate this, divide the total piece-rate pay by the hours worked, and then add the overtime premium to the excess hours worked. An employer can avoid this extra calculation by computing wages earned during an overtime period by using a piece rate that is at least 1.5 times the regular piece rate.

Piece Rate Pay Example

The Alice Company makes miniature Alice dolls, and pays its staff a piece rate of $0.75 for each doll completed. One worker completes 320 dolls in a standard 40 hour work week, which entitles her to pay of $240.00 (320 dolls x $0.75 piece rate). The worker then labors an extra five hours, and produces an additional 42 dolls. To calculate her pay for this extra time period, her employer first calculates her regular piece rate pay, which is $31.50 (40 dolls x $0.75 piece rate). The employer then calculates the overtime due by calculating the standard wage rate during the regular period, which was $6.00 per hour ($240.00 total pay divided by 40 hours), resulting in a premium of $3.00 per hour. The employee’s overtime pay is therefore $15.00 ($3.00 overtime premium x five hours).

The employer could also have simply set the piece rate 50% higher for work performed during the overtime period, which would have been $1.13 ($0.75 x 1.5). In this example, the higher piece rate would have resulted in a slightly higher payment to the employee, since the person produced slightly more than the standard number of dolls during the period.