Different types of working arrangements are being considered and adopted by employers as organisations respond to changes in the market.
In some cases, this involves a combination of new and traditional practices that meet both the individual needs of the worker and the operational needs of the business. Piece work, in particular when performed at home, is a perfect example of this.
Below we examine the rules relating to piece work, from what is a fair rate of pay for this type of work to the piece worker’s paid holiday entitlement.
What is piece work?
Piece work is a type of employment where the worker is typically paid according to the number of things they make or the tasks they complete. In other words, they are paid by the piece. This is also known as output work, where under their employment contract the worker is paid by reference to a measure of output.
Historically, piece work was typically prevalent in the textile industry where the worker would receive payment for every article of clothing produced. That said, piece work is being used more and more in other types of industry, such as the construction industry, with other common examples including:
- Home assembly jobs, where workers are paid per item built
- Artists and crafters, who can be paid per item created
- Carpet cleaners, who can be paid per room cleaned
- Seamstresses, who can be paid per item altered
Although paying per piece is in contrast to more traditional ways for a worker to be paid, including by the hour or by way of salaried hours, for the individual worker piece work can offer a high degree of flexibility to fit around other commitments, whilst potentially increasing productivity to benefit the employer.
However, piece work can usually only be used in limited situations when the employer does not know which hours the worker does. In circumstances where an employer sets the working hours and the workers have to clock in and out, this counts as what’s known as timework, not as output work.
What are piece work contract rules?
Even though piece work is founded on the basic premise that the worker is paid for the work produced, whereby the piece worker is free to choose when to start and when to complete that work, albeit subject to any agreed deadlines, there are statutory rights and obligations that still govern the working relationship.
In particular, the piece worker has the statutory right to be paid the National Minimum Wage (NMW), or equivalent thereof, as well as the right to be granted a minimum level of paid holidays. In other words, these are basic legal rights that will be automatically implied into the contract of employment.
Further, any express terms within the employment contract seeking to limit or restrict the pieceworker’s statutory rights will not be enforceable, whereby the individual will still retain the right prescribed by law.
What are piece work pay rules?
As indicated above, although the working process for piece work is different to more traditional working arrangements, piece workers should be paid either at least the minimum wage for every hour worked or, alternatively, on the basis of a ‘fair rate’ for each piece of work or task that they do.
The NMW rate is a legally enforced standard governed by the National Minimum Wage Regulations 2015 that ensures workers receive a minimum pay per hour. Although the minimum wage is set at an hourly rate, based upon the individual’s age bracket, it applies to almost all workers, even in circumstances where they are not paid by the hour, including piece workers.
In particular, the rules under the 2015 regulations mean that no matter how someone gets paid, their employer will still need to work out their equivalent hourly rate to ensure that they are receiving the minimum wage.
For 2020/21, the NMW rates are as follows:
- 25 and over (National Living Wage): £8.72
- 21 to 24: £8.20
- 18 to 20: £6.45
- Under 18: £4.55
What is a fair rate for piece work?
In the context of piece work, an employer can decide to pay either the national minimum wage or a fair rate for each piece produced or task performed. The fair rate is the amount that allows a piece worker to be paid at least the national minimum wage per hour if they work at an average rate.
However, under the regulations, there is a certain formula that must be used to calculate a fair rate. This is as follows:
- The employer must establish the average rate of work per hour, namely by counting the number of pieces or tasks completed
- This figure must be divided by 1.2, so as not to disadvantage new workers who may not yet be up to speed with any other pieceworkers
- Divide the relevant hourly NMW rate by that number to work out the fair rate per item or task completed
By way of example, where a piece worker is paid for each pair of jeans they make, where the average rate of work per hour is 10 pairs, this will need to be divided by 1.2, making 8.33. Where the worker in question is aged 23, s/he will be eligible for a NMW rate of £7.70. This means this particular worker must be paid at least 93p per pair of jeans s/he makes (£7.70 divided by 8.33).
The rules do not specify whether or not an employer should round up to the nearest penny per unit, although they cannot round down, as this would be classed as an underpayment and, as such, a breach of the regulations.
Further, so as to calculate the average rate of work produced per hour, as per the formula above, an employer must first carry out a fair test in the following way:
Test some or all of the piece workers employed. In the event that only a proportion of workers is to be tested, this must be a representative group, typical of the whole workforce, not just the most efficient workers.
Work out how many pieces of work have been completed in a normal working hour and divide this by the number of workers. This will give the average rate of work per hour.
In the event that the work changes significantly, do another test to work out the new average rate. That said, where the same work is simply carried out in a different environment, for example, at home rather than in a factory, it will not be necessary to re-run this process.
By way of example, where there are 5 workers in the group, two of whom produce 8 pairs of jeans over the course of an hour, two who produce 11 pairs, and one who produces 12 pairs, the overall average will be 10 pairs of jeans per hour (50/5). This is a simple calculation of adding together all the pairs of jeans produced, and dividing the total amount of workers required to produce them.
Clearly, you must take into account an overall average rate and not just the output of the fastest worker although, in practice, this may potentially mean that some pieceworkers earn substantially more than the NMW rate for each hour worked, whilst others may receive a little less if they complete fewer pieces or tasks than the average number per hour. However, the important issue is that a pieceworker is not underpaid in accordance with the the NMW regulations.
What is the process for paying a fair rate for piece work?
When applying a fair rate for piece work, an employer must not only follow the fair rate calculation under the regulations, as set out above, but also comply with a specific procedure in writing. In particular, the written notice provided to the piece worker will need to convey the following information:
- An explanation that for the purposes of the NMW regulations the worker is to be treated as working for a certain period of time when doing the job of producing pieces or performing tasks.
- A statement that in order to calculate that period of time, the employer has conducted a test, or made an estimate, to identify the average speed at which their workers work when doing the same job.
- Confirmation of the average hourly output rate, namely, the number of pieces or tasks the average worker can complete in an hour.
- Confirmation of the rate, or sum, pieceworkers will be paid for producing a single piece or performing a single task.
- Provide the pieceworker with the number of the ACAS helpline.
In the event that the notice does not contain this information, the employer will be legally obliged to pay the NMW for every hour worked. Further, this written agreement must be issued prior to the start of the first pay reference period.
What is piecework holiday entitlement?
In addition to the right to be paid a minimum rate of pay per piece, or per hour, the piece worker will also begin to accrue paid holiday entitlement as per the statutory minimum requirement.
Under the Working Time Regulations 1998 almost all workers, including piece workers, are entitled to a minimum of 5.6 weeks’ paid holiday per annum, where annual leave will begin to accrue as soon as a worker starts their new job.
For a full time piece worker working five days a week, this equates to a total of 28 days, although an employer can include bank holidays and public holidays as part of an individual’s statutory leave entitlement. For part time workers, they will be entitled to the same amount of holidays, albeit pro rota.
By law, all workers are entitled to one week’s pay for each week of statutory leave that they take, where the amount of pay a worker receives will depend on the amount of hours they work and how they are paid for those hours. The principle is that pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work.
For a piece worker, a week’s pay for the purposes of paid holiday entitlement will usually be based on their average pay from the previous 52 weeks prior to the calculation date. This is known as the holiday pay reference period. This period was increased from 12 weeks to 52 weeks on 6 April 2020 by virtue of the Employment Rights (Employment Particulars and Paid Annual Leave) Regulations 2018.
It is also important to remember that, in the first year of any employment contract, an employer can insist on the piece worker waiting until they have worked enough days to build up their holiday entitlement before they can take it. This is known as an accrual system.
What happens if a piece worker is underpaid?
As set out above, every worker, including piece workers, have certain minimum statutory rights, including a right to a minimum amount of pay and paid holiday, where a breach of these rights may entitle that worker to bring a claim before the tribunal for what’s known as an unlawful deduction from wages.
Needless to say, most issues over pay or holiday pay can be resolved informally between the parties, without recourse to legal proceedings. However, in circumstances where you are unable to resolve a piece worker pay dispute on amicable terms, expert legal advice should be sought from an employment law specialist at the earliest possible opportunity.
In this way, you can consider the merits of any claim, or defence to any claim, exploring all alternative options, including negotiating some form of settlement agreement or even engaging in mediation as a means of resolving the matter.
Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
Author
Anne Morris is the founder and Managing Director of DavidsonMorris. A highly experienced lawyer, she is recognised by Chambers & Partners and the Legal 500 UK as a trusted adviser to multinationals, large corporates and SMEs, delivering strategic immigration and global mobility advice. Anne is also an active commentator on UK immigration and HR matters.
