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Topic: Pay and pensions

fair piece rate notice
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Fair piece rate notice

Fair piece rate notice

Use our notice where you’ve opted to pay output workers a fair piece rate for each item produced, rather than paying them at least the national minimum wage (NMW) for every hour worked.

Output work

You can pay output workers a fair piece rate for each piece produced to comply with your NMW obligations, but you need to have first issued them with a written notice. Output work is work that’s paid according to the worker’s productivity or output, for example pieceworkers or workers paid according to the number of sales made. So, if you pay a worker per item made, they would be an output worker provided they don’t have any set hours of work and they’re free to start and finish work whenever they want. You can choose between two ways of paying output workers for NMW purposes: you can pay them at least the NMW for every hour worked, or you can pay them at least a “fair piece rate for each item produced, provided certain conditions are met - called “rated output work.

Rated output work

You must meet the following conditions to pay fair piece rates rather than an hourly NMW rate: the work must be rated output work; and you must give a written notice to the worker explaining the position to them.

Rated output work applies where the worker’s contract doesn’t set any normal minimum or maximum working hours, you don’t determine or control the hours actually worked by them, and you’ve determined the “average hourly output rate.

Fair piece rate notice

You must give the worker a written notice, before the start of the pay reference period to which it relates, which must:

  • explain that, for the purposes of compliance with NMW law, they’re to be treated as working for a certain period of time to produce an item
  • state that in order to determine that period of time, you’ve conducted a test or made an estimate of the average time it takes to produce the item - the “average hourly output rate
  • state what the average hourly output rate is for the item
  • state the fair piece rate to be paid to the worker for each item
  • give the Acas helpline number: 0300 123 1100.

This is where our Fair Piece Rate Notice comes in - it ensures you comply with the legislation. If the information in the notice hasn’t changed, you don’t need to issue a new notice before every pay reference period.

Average hourly output rate

To calculate a fair piece rate, you must first determine the average hourly output rate in relation to each item. This is the average number of items produced per hour by workers doing that work. It can include fractions and can be obtained by testing all of your relevant workers, or a representative sample, and then dividing the total output per hour during the test by the total number of workers tested. You can also make an estimate of the average hourly output rate in defined circumstances.

Fair piece rate

To then establish a fair piece rate:

  1. Take the average hourly output rate, for example ten items per hour.
  2. Divide the average hourly output rate by 1.2, for example ten divided by 1.2 = 8.33 items.
  3. Divide the worker’s NMW rate by the number of items per hour to get the fair piece rate.

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