What is Piecework Pay?

Piecework is a compensation arrangement under which employees or third parties are paid based on the number of units produced. Under this arrangement, a standard amount is paid for each unit produced. Where there are minimum wage laws in effect, the minimum wage must still be paid to employees, irrespective of the number of units produced. This approach to compensation will only work if product quality can still be assured; otherwise, employees tend to focus on increasing their production volume, irrespective of quality considerations.

Advantages of Piecework Pay

There are multiple advantages to having a piecework pay system. These advantages are as follows:

Strong efficiency incentive. Having a piecework pay system in place presents a strong incentive for workers to produce in volume, and as efficiently as possible. From the perspective of the employer, this can result in more units produced for a given pay level.
Reduced worker hours. A piecework pay system can be beneficial for workers, if the arrangement is for them to reach a certain amount of output, after which they can leave work. This can be beneficial for those working second jobs, or who can only work for a certain number of hours per day.
Rewards hard workers. Those employees who work efficiently and quickly can enhance their earnings under a piecework pay system. This tends to attract the best workers, while more inefficient workers are more likely to find work elsewhere.
Simplified pay structure. Workers can easily calculate their pay, simply by adding up the number of units completed and multiplying this figure by the pay rate per unit.
Reduced idle time. Since employees can earn more money by producing more output, they are more likely to cut back on any activities that are not directly related to the production of more units.