Employers often assume that employees or independent contractors that are paid on a per job or piecework basis do not have to be paid overtime. While paying employees on a piece rate (piecework, per diem, per piece) basis is permissible under both the FLSA and state law, it does not relieve employers of their obligation to pay overtime where applicable, and minimum wage.
Generally, when an employee is paid 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. See, Mullally v. Waste Mgmt. of Massachusetts, Inc., 452 Mass. 526 (2008) . The regular hourly rate is also defined as “the amount that an employee is regularly paid for each hour of work” and that the rate shall include all remuneration for employment paid to, or on behalf of, the employee, but shall not include: (a) sums paid as commissions, drawing accounts, bonuses, or other incentive pay based on sales or production; or (b) sums excluded under 29 U.S.C. § 207(e). and 455 Mass. Code Regs. 2.01.
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 $450.00 in that workweek, the employee’s regular rate for that workweek would be $10.00 per hour. The employee would then be entitled to an additional $25.00 in overtime (half the regular rate, or $5.00, multiplied by five overtime hours). In that workweek, the employee would receive $475.00 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 there is an agreement to in advance and that the piece rate exceeds minimum wage and applies for all hours worked up to 40 in the workweek. However, for administrative reasons, the first approach is usually the easiest method for employers.
Here again, employers regularly misclassify workers as independent contractors, and furnish piecework pay in order to avoid overtime and other benefits of correctly classified employment.