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Piece Work Pay Provides Incentive but Requires Eye on Quality Control
Piece Rate Pay Systems Offer Advantages
By Clarence Leising
Date Posted: 3/1/2003
There are several types of piece work systems to choose from in deciding how much to pay workers in a pallet recycling business. This article will discuss a few of them.
The most important principle to keep in mind is the KISS principle: Keep It Simple Stupid.
One of the simplest methods to pay workers who build or repair pallets is a flat rate per pallet produced. This rate is usually between 30-50 cents.
However, if you pay your workers a flat rate per pallet, you will encounter some problems, such as clean-up time. Who is going to do the house-keeping around the shop? It needs to be swept and straightened up from time to time, and bathrooms need to be cleaned. Obviously, workers getting paid by the pallet do not want to spend time on tasks like cleaning.
What about holiday pay? Will you give them paid holidays or not? If so, how much are you going to pay them?
In order to make a piece rate system work, these kind of questions have to answered.
It could be a true bookkeeping challenge if you decide on paid holidays based on average production. If you go back three months or even six months to look at production figures and figure averages, no one is going to be happy with it.
The other side of this equation is this: what if you pay workers an hourly wage? Let’s say you pay them $8-10 an hour. On average, you will find that they will repair about 200 pallets per day, and your scratch builders will build between 75-100 pallets per day. If you need more production than this, you may have to couple hourly wages with some type of incentive pay.
Piece work pay provides an incentive. Workers earning a wage have no sense of urgency. They will get the same wages whether they do their best or not; all they have to do is produce enough to keep their job. Where is their motivation to do more?
However, a piece work pay system has its own set of problems. You will need some type of quality control system. Without one, workers building pallets will give priority to pallet quantity over pallet quality. They will figure, ‘The more I build or repair, the more money I make, and someone else can worry about the quality of the pallets.’
The piece work system that I like best is one that I have used in the past. It combines a piece rate with an hourly wage. We paid all our builders a flat rate of $6 per hour plus a bonus of 20 cents per pallet after the first 100. For example, if a worker built 300 pallets in a day, he earned $88. This breaks down to $48 in wages (eight hours @ $6) and $40 in piece rate pay (200 ‘bonus’ pallets @ 20 cents). This gave each worker building pallets control over his paycheck. If he wanted to earn an additional $1 an hour, he could repair five more pallets per hour.
We paid our builders 25 cents per pallet after the first 100 pallets. This may not seem like much difference, and we probably favored our GMA builders. In addition, we always had our best builders making GMA pallets because that was our biggest need.
I know pallet recycling companies that build pallets from scratch with used material, and the workers earn a flat rate of a half-cent per nail. For example, a GMA pallet takes 84 nails, so a builder earns 42 cents.
All companies are a little different. You will need to answer some questions for your particular operation. Are ready-to-go pallets mixed in with the pallets that go to the builders? Are incoming pallets sorted before they go to the builders? If so, then the builders will know they have to repair every pallet, and their piece rate will have to be higher than the worker who moves the pallets from the truck to the builders.
If you have a piece rate system in place and decide to change it, expect to lose about half of your workers. I don’t know why this is true, but even if the workers make as much or maybe even more money, you should still expect about 50% to quit. Men hate change.
(Editor’s Note: Clarence Leising is a representative of Eagle Metal Products. He previously has held management positions in pallet recycling companies in the Northeast for 25 years. He may be contacted at (800) 521-3245.)