Employees Paid on a Piece Rate Basis are Entitled to Overtime
Employers tend to assume that by paying employees on a “piece rate” basis, they are not obligated to pay overtime when the employees work over 40 hours in a workweek. However, a recently filed class action overtime suit illustrates the dangers of making that assumption. The suit alleges that Wave Comm, an Arizona-based cable company, failed to pay overtime to its cable installation technicians.
According to class counsel, the technicians were paid a fixed amount of money for different types of installation-related tasks, but did not receive overtime compensation for the numerous weeks in which they worked overtime hours. This is not the first suit such filed by these types of technicians against the cable industry.
Although paying employees on a piece rate basis is permissible under both the FLSA and state law, employers need to be aware not only of their obligation to pay overtime, but the specific formula for doing so. In general, when an employee is paid solely on a piece rate basis and works overtime hours, the employer determines the employee’s regular rate by dividing the employee’s total weekly earnings by the amount of hours worked in that workweek. The employee is then entitled to one-half of the regular rate for each hour worked above 40, in addition to their regular piece rate compensation.
For example, if an employee paid on a piece rate basis works 45 hours and earns $360.00 in that workweek, the employee’s regular rate for that workweek would be $8.00 per hour. The employee would then be entitled to an additional $20.00 in overtime (half the regular rate, or $4.00, multiplied by five overtime hours). In that workweek, the employee would receive $380.00 in total compensation.
It is also permissible to pay piece rate employees one and a half times the piece rate for each “piece” produced during the overtime hours, provided that this is agreed to in advance and that the piece rate exceeds minimum wage and is paid for all hours worked up to 40 in the workweek. However, for administrative reasons, the former approach is usually more feasible for employers.
