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Recently, I have received some inquiries about one of the most fundamental tasks in business—paying employees. So I thought I would share some of the nuances about the laws regarding piece-rate compensation.

Please note that, by law, neither I nor NJBIA can provide tax or legal advice. This article is provides general guidance for compensating workers, and employers should always consult with a licensed attorney before taking action.

Question:  Do I still have to keep track of employees hours if I pay them a piece-rate instead of a salary or hourly wage?

Answer:  Yes. The federal Fair Labor Standards Act (FLSA) requires all non-exempt employees to be paid minimum wage ($8.44 in New Jersey), so even though you pay per piece, it still has to work out on an hourly basis.  For example, if an employer pays $10 for each widget installed and an employee installs 38 widgets during a 40-hour work week, the weekly pay would be $380, which works out to an hourly rate of $9.50. So there’s no problem.

Now suppose an employee only installs 30 widgets in a 40-hour week. At $10 a widget, that would come to $300 for the week, which works out to an hourly wage of $7.50. That’s 94-cents-per-hour short. The employer would then have to add $37 to the employee’s weekly pay check to make up the difference.

Note that this only applies to non-exempt employees. Employers do not have to track hours of those who receive a salary and meet the legal definition as exempt from the hourly wage requirements. Make sure such employees meet the proper legal definitions, however. Just because an employee receives a salary does not mean they are exempt.

Question: What about overtime? Do I have to pay extra for piece-rate workers who exceed 40 hours a week?

Answer: Yes, the FLSA requires all non-exempt employees to receive time-and-a-half for every hour beyond 40. This goes for piece-rate workers, too. Taking the above example, let’s say a piece-rate worker installs 45 widgets in 45 hours in one week and earns $450. The employee’s effective hourly rate is $10 per hour, but because he or she worked more than 40 hours, they are owed an additional $5 per hour (half of the hourly rate of pay) for each of the five hours of overtime. Therefore, the employee should receive $25 on top of the $450 received as straight time compensation.  In total, the employee would have to be paid $475 for that particular week.

I hope this information is helpful. If you have any questions or problems and you are a member of the New Jersey Business & Industry Association, please contact me at the Member Action Center 1-800-499-4419 or member411@njbia.org.