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Overview
Piece rate compensation refers to a payment method where employees are paid based on productivity, rather than on the number of hours worked. Piece rate compensation is common in the trucking industry, with many companies paying drivers based upon metrics such as miles driven and stops made. In recent years, however, the legality and rules that must be followed to legally pay on a piece rate basis have changed substantially. Such laws vary significantly from state to state in the United States.
Federal law
Under the Fair Labor Standards Act, piece rate payment is generally legal so long as piece rate employees receive at least the federal minimum wage when their earnings are averaged across all hours worked. If the piece rate earnings do not meet the minimum wage threshold, the employer must make up the difference under federal law. Additionally, unless they are otherwise exempt, piece rate employees are entitled to overtime pay.
Examples of states with specific piece rate requirements
- California
- California has stringent laws for piece rate compensation. First, California does not allow for averaging; rather, piece rate employees must be paid at least minimum wage for each hour and minute of work. Second, employers must pay piece rate employees for rest and recovery periods and other nonproductive time separately from their piece rate earnings at statutorily specified rates. These requirements make paying on a piece rate basis very difficult in California.
- Employers must provide detailed wage statements that include all the information required under Labor Code section 226 and the total hours of rest and recovery periods, nonproductive time and the corresponding pay rates for each item.
- New York
- The Empire State requires that piece rate employees receive at least minimum wage for each hour worked. Employers also must ensure that piece rate workers are paid for overtime at the appropriate rate of pay.
- Detailed wage statements are required, which must include the number of units and the corresponding piece rate earnings, among other things.
- Washington
- Washington State law requires that piece rate employees be paid at least the state minimum wage for all hours worked. In addition, employers must pay for rest breaks separately.
- Detailed wage statements are required, showing the number of units produced, piece rate earnings and pay for rest breaks, among other things.
- Although many trucking companies use piece rate compensation to ensure efficiency, it has come under significant scrutiny in certain states in recent years
- Employers using piece rate compensation for truck drivers who cross state lines must pay careful attention to choice of law issues and the legal constraints in each state
- Upfront review of piece rate practices benefits companies by avoiding risk and ensuring competitive pay structures