U.S. DOL Opines on Piece Rate Calculation Method - American Society of Employers - Michael Burns

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U.S. DOL Opines on Piece Rate Calculation Method

DOLSome employers use a piece rate method of payment. Piece rate payment differs from the normal hours worked approach to pay in that a piece rate worker receives pay based upon how many units a worker accomplishes during a particular period of work.

The period of time is typically a workweek in order to ensure proper minimum wage and overtime calculation for non-exempt employees.  Pieces can be number of widgets produced or for example, the number of trucks unloaded at the employer’s warehouse.

The employer in this case engaged workers to unload trucks at its warehouses. The method of pay was based upon number and types of trucks unloaded. Some unloaders have non-productive waiting time during their shifts. As required, the employer tracks all unproductive hours to ensure it complies with minimum wage and overtime requirements.  No wages are paid for non-productive waiting time.

To get to a regular rate for both minimum wage and overtime purposes the employer wants to know if their method of dividing the employee’s total earnings for that workweek was acceptable to meet wage and hour requirements. The method used calculated the regular rate by dividing the total weekly earnings (all piece rate earnings) by the total number of hours worked in that week (both productive – piece rate pay and non-productive time– no pay). In the event the rate calculated by this method resulted in a regular rate less than minimum wage the employer supplemented the pay to meet the minimum wage rate for that week.  If work hours exceeded 40 hours in that week the rate of pay is paid at a premium of one-half the regular rate calculated for that week. The employer and employee in this case did not have an agreement documenting this approach but rather relied upon an understanding by the parties as to how the regular rate is calculated.

Section 778.318 (a) requires non-productive hours be paid for and counted and section 778.318( c) states that this requirement is satisfied even if there is no special hourly rate formalized but the method is understood by the parties that other compensation received by the worker “is intended to cover pay for such hours.”

Per the request for an Opinion Letter the employer stated both the employer and the employees understood how the piece rate was calculated. This is a requirement that both parties understand that the “pay the employees will earn at a piece rate is intended to compensate them for all hours worked, the productive as well as the non-productive.” 778.318 (c). This agreement does not have to be in writing. 778.318 (c).

The Department of Labor (DOL) noted in the Opinion Letter that in finding whether there was an “understanding” courts have not always agreed on the content or scope of a mutual understanding.  However, the DOL’s Opinion Letter said that understanding by the worker did not have to be so concise to include knowing the mathematical methodology, only that waiting time (non-productive time) is counted in how the regular rate is computed under the Fair Labor Standards Act (FLSA).

The DOL in its Letter was satisfied that the piece rate regular rate method was understandable as described. The method neither promised separate pay for non-productive hours or any other kind of supplemental pay was provided or was ever paid departing from the piece rate only arrangement. The DOL opined that this was all that was necessary to satisfy the requirements of its piece rate regular rate method requirement. 778.318 (c) and 778.111.

Employers using piece rate methodology are advised to use a standard and consistent method of regular rate calculation as well as ensure workers have a basic understanding of how it works in order to comply with the FLSA and its minimum wage and overtime regulations for this method.


Source: FLSA2020-17 Opinion Letter 11/30/2020

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