Piecework Wage

Piecework wages are paid to employees who perform piecework. Payment is directly linked to performance and is therefore a performance-based wage - the working time itself is usually irrelevant. The benchmark for calculating piecework wages is a clearly defined quantity of work/number of pieces within a fixed period of time, usually per hour, shift or working day. 

Such a piece rate creates incentives for the employee to prioritize the work relevant for calculating the wage and to complete it as time-efficiently as possible. The aim is to produce many results (installations/assemblies) within the shortest possible time. The better the individual work performance, the higher the respective compensation. 

This type of payment assumes that the work is highly similar, manual and less complex. As piecework wages typically serve to reward a high pace of work and a high output, the individual effort of the employee must have a relevant influence on the production process.

Two factors are taken into account when calculating the wage for the time piecework (also: piece time chord):

• Production quantity/number of pieces
• Working time of the employee

In practice, the piece time chord is the most common form of piecework wage today. First of all, the normal output is defined. This is the average quantity of products/pieces etc. produced per time interval (hour/shift/day). Another decisive factor is how long it takes to produce each individual product/item. This is usually referred to as the target time.

If this standard performance is achieved, employees receive the piecework rate. If the performance is higher, i.e. more is achieved in a shorter time, the employee's compensation is correspondingly higher. If performance is poorer, however, the piecework rate paid is lower than the reference rate.

Good to know: If the employee's performance is significantly worse, i.e. significantly below the normal performance, the employee's compensation may still not be lower than the statutory or collectively agreed minimum wage.

In industry, construction and manufacturing, the piecework/ piecework wage model is still the most popular. This form of work is particularly common in the following sectors:

• Production/Manufacturing
• Automotive
• Construction (assembly)

• Packaging industry

   

The piecework model is frequently used in industries and fields of work where highly uniform, manual tasks are to be performed. These often take place in shifts and almost exclusively without customer contact.

In general, work for which the piecework model would be relevant is increasingly being taken over by machines in the course of automation. From an overall economic perspective, the importance of piecework is declining.

• Need to define normal performance 

  On the company side, it must be precisely determined where piecework is to be introduced. This requires a data-supported definition of the respective normal performance in advance - this cannot simply be determined on a gut feeling.

• Need for process optimization 

  If the workstations and work processes on site are not (yet) designed for the possibility of piecework, a corresponding revision and optimization of the entire workflow can be very time-consuming. In such cases, the piecework model may even be less economical.

• Increasing the pressure to perform

  If employees' pay is directly linked to their work performance, they will be under considerable and constant pressure to perform. This can have a medium-term impact on the physical and mental fitness/health of employees. This constant stress also increases the risk of injury, sick leave and resignation.

• Increasing the (false) risk of illness

  If employees do not feel completely fit and it is foreseeable that they will not be able to perform at 100% on a given day, the piecework model actively creates incentives for these employees to call in sick. This means they receive their full salary, whereas they would otherwise run the risk of receiving less piecework pay than usual if their work performance is poorer.

• Declining product quality

  If the quantity of a product produced is always the top priority, there is a good chance that the quality of the product will suffer over time. As the quantity is what determines employees' piecework wages, they have little incentive to pay attention to quality. 

   

With the help of suitable software solutions, it is possible to strengthen the individual advantages of piecework or compensate for the disadvantages in a targeted manner. For example, process optimization can often be further accelerated and implemented more efficiently, while a quality management software can help to identify any quality deficiencies at an early stage and take targeted countermeasures at the right point.

If the employees are unionized, they have collective bargaining rights. This means a representative of theirs can bargain on their behalf prior to the implementation of a piecework model regarding terms and conditions.

They can negotiate with the employer until they reach an agreement or an impasse. If they reach an impasse, the employer can impose terms and conditions offered before the impasse. Once a contract is in place, both parties must follow its terms unless they agree to changes or extraordinary circumstances apply. If a contract expires before a new one is finalized, most terms continue during negotiations, except for union security, management rights, no-strike/no-lockout, and arbitration provisions.