How to pay by piecework

July 12, 2015 -  By
Photo: ©istock.com/AbackPhotography

Photo: ©istock.com/AbackPhotography

Some companies advocate paying by the man-hour rather than an hourly rate. See why.

Piecework is paying your employees according to the work they accomplish, instead of paying them for the time it takes to do the work.

At CLIP Lawn Care, each job our company performs is rated in credits or man-hours. Each hour one employee works on the job is considered one man-hour. This means if we rate a property to take one hour for two employees, it has a man-hour rating of two hours. If we estimate a property to take 30 minutes for two employees, it has a man-hour rating of one hour. At the end of the pay period, each employee is paid for the work he accomplished.

Piecework aligns your goal with your employees’ goals so everyone wins. Your employees will now want to be as productive as possible so they can make as much money as possible.

With piecework, you are no longer paying your employees by the hour, and you definitely aren’t paying them a salary, so how do you manage payroll? Explained below are a couple different methods I have found work well. First, note that I’m not a lawyer, and my ideas are not guaranteed to work with the laws of every state.

Minimum wage

The first legal issue to consider is employee wages. It is important to make sure you pay your employees at least minimum wage. Piecework employees almost never make below minimum wage, but in the rare case your employee is scheduled to receive a paycheck below minimum wage, you can just change it and pay him or her minimum wage for the amount of time he or she worked during that pay period.

Even on piecework, you always need to track how long your crews are in the field. This way, you always know how much time properties actually take and have a constant record of your employees’ work. This tracking is easy to do with the right software.

Overtime

The federal and state governments require us to pay at least minimum wage and to pay 1.5 times the hourly rate for all hours worked over 40 hours in a given week. Check your state labor laws to be certain of your rules; regardless, you can still pay “overtime” with piecework by changing your employees’ hourly rate. Here’s how it works.

When you pay your employees using piecework and overtime is included, you have three variables: hourly rate, hours worked and overtime. We can’t change the hours worked, and we can’t change the overtime factor, but we can change the hourly rate.
Let’s see how this would work at ABC Lawn Care if Joe completed 50 man-hours in one week.

We want to pay Joe $10 per man-hour produced, so his total income from working this week is $500. However, Joe was clocked in for a total of 45 hours. So, according to the government, Joe needs to be paid 40 hours straight time and 5 hours overtime at time and a half. Take Joe’s 45 hours and separate them into 40 hours of regular work and 5 hours of overtime.

When you pay overtime, you are paying your employees 1.5 times their pay rate for the hours they worked over 40 hours. So, all you need to do is take the 5 hours of overtime and multiply it by 1.5 to determine that you can treat it like 7.5 hours of regular work time. Then, you add the 7.5 hours to the 40 hours of straight time for a total of 47.5 hours.

Now, go back to the amount that you owe Joe based on piecework: $500. Divide this $500 by 47.5 hours (the total of Joe’s regular and overtime hours) and you get an hourly rate of $10.53 per hour. If you “change” Joe’s pay rate to $10.53 per hour, he’ll make $500 this week—exactly what you wanted to pay him based on his piecework hours.

You can check your work by calculating backwards. If Joe were paid $10.53 per hour, he would have made $421.20 ($10.53 X 40 hours) for his straight time and $78.98 ($10.53 x 7.5 hours) for his overtime, which would equal $500.18, approximately $500. Because there is rounding involved, you might come out a few cents over or under, but you get the idea.

If you decide to use this method, when you transition over to the piecework system and also when you hire new employees thereafter, have your employees sign an agreement that states their hourly rate will change from week-to-week depending upon their productivity.

Travel time/shop time

The employees don’t make money unless you’re making money. You already calculated into your customer pricing all the travel time and overhead. If you simply divide the price of the job by the man-hour rate you want to make, you will know the amount of time the guys can spend getting to, unloading and loading, performing the job and returning to the shop.

You may get pushback on not paying for shop time, travel time and down time. Let me encourage you: Don’t give in. You want your workers to be partners with you. They need to understand the same thing you do: Getting the work done is the only thing that pays. This concept is key to piecework’s success. Don’t pay if you aren’t getting paid.

Now, I will give you the exception to the rule. There will be times when you might pay one or two guys to do some work that’s not tied to productivity, such as changing oil. Sometimes you need to choose the guy who has the right skills and pay him straight time to change the oil, perform inspections, do minor repairs and more.

The best way to set it up is to agree on a set amount of time for these predictable jobs and pay the set amount of time you agreed upon, regardless of the time it takes him. He will work faster, and you won’t have the nagging feeling that someone is milking the clock on your dime.

Piecework may require a different mindset when you do payroll, but it’s perfectly legal and provides amazing results that are well worth the effort.

 

Tucker is president of CLIP Lawn Care AND CLIP Software. He’s the author of “Lawn Maintenance and the Beautiful Business: Getting Your Employees to Pull with You,” from where this article is adapted. Reach him at thebeautifulbusiness.com.

Photo: ©istock.com/AbackPhotography

About the Author:

Dave Tucker is president of CLIP Software and author of “Lawn Maintenance and the Beautiful Business,” from where this article is adapted. Reach him via thebeautifulbusiness.com.

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