There are a number of employee/employer relationships which are now different from the traditional 9-5 job. A person's employment status will determine their rights and their employer's responsibilities.
Piece work is a type of employment when workers are paid for the piece of work or task they do, for example making articles of clothing and getting paid a rate per piece of clothing produced. Although the working process is different, piece workers should still receive the appropriate National Minimum (or Living) Wage.
- Piece or output workers often work from home and are free to start and finish work when they like.
- Employers can decide to pay either the National Minimum (or Living) Wage or a fair rate for each piece produced or task performed.
- The fair rate is the amount that allows an average worker to be paid at least the National Minimum (or Living) Wage per hour.
The fair rate is 1.2 times the rate which lets a worker of average speed earn the National Minimum (or Living) Wage, the employer will find out how many pieces or tasks an average worker can complete in an hour.
To work out the fair rate:
- Find out the average rate of work per hour (by counting the number of tasks or pieces completed).
- Divide the minimum wage by the average number of pieces to establish a base rate per item.
- Multiply this figure by 1.2 to establish a fair rate for each piece completed.
To work out the average rate employers will need to test a group of workers which must be a typical group and not just the fastest one, work out how many pieces per hour have been completed and divide this by the number of workers, this will give the average rate. In practice this may mean that some workers earn substantially more than the National Minimum Wage rate for each hour worked, and that some will receive less if they complete substantially fewer pieces or tasks than the average.
For example, if there are 3 workers in the group, one of whom produces 20 hats over the course of an hour, one of whom produces 25 hats over the course of an hour, and the third of whom produced 30, then the over-all average will be 25 hats per hour.
This is worked out by adding together all of the hats produced, and dividing by the total amount of time required to produce them:
20 + 25 + 30
--------------- = 25
1 + 1 + 1
The employer should then divide the current rate for the National Minimum (or Living) Wage by this figure, then multiply by 1.2.
The law does not specify whether an employer should round up to the nearest penny per unit, but it is important that they do no underpay by rounding down.
Documentation required when using a fair rate
The National Minimum Wage regulations specify set documentation that a company must provide when using a fair rate calculation under the National Minimum Wage. This includes giving written notice to explain how they have worked out the fair rate, they also need to:
- explain that, for the purposes of complying with NMW laws, the employer will treat workers as working for a certain period of time when doing the job of producing pieces or performing tasks.
- state that in order to calculate that period of time the employer has conducted a test or made an estimate to find the average speed at which their workers work when doing the same job.
- state what the 'mean hourly output rate' for the piece or task is (the 'mean hourly output rate' is the number of pieces or tasks the average worker can complete in an hour).
- state the rate or sum workers will be paid for producing the piece or performing the task in question.
- give workers the number of the Pay and Work Rights Helpline.
If the notice does not contain this information employers will need to pay the NMW for every hour worked.
Holiday entitlement and pay
Full time workers are entitled to 5.6 weeks (or 28 days) of holidays, part time staff are entitled to the same holidays pro rota.
For workers on piece work it is the average hourly rate (over the preceding 12 weeks) multiplied by the normal working hours in a week. Any week in which no pay was due should be replaced by the last previous week in which pay was received to bring the total to twelve.
Total number of hours worked in the 12 week reference period =240 hours. Divide this by 12 to give the average per week = 20 hours. Then multiply by 5.6 to give an annual leave entitlement of 112 hours over 12 months. Employers should re-run this calculation regularly (ideally every 3 months) to take account of any increase or decrease in the average number of hours worked, to ensure workers are receiving the correct holiday entitlement.
Holiday pay for workers who work the same hours will be the same amount they would normally receive had they been working. For piece workers a week's pay is the average pay a worker received over the previous 12 week in which they were paid.