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Industrial Engineering includes the contents of Time and Motion Study, Layout, and Cost Reduction; but not Construction Piece Rates .
Construction Piece Rates Explained
The purpose of piece rates is to motivate employee performance in return for a monetary reward.
A simple, valid concept which is centuries old.
Piece rates do have benefits, but they also have downsides and potential pitfalls. This article has an informative purpose, and explains the characteristics of construction piece rates, as well as some practical alternative actions to cut out cost.
The comprehensive book, Construction Piece Rates , addresses the subject much better than a web page can. Please click there for a description of the contents.
For an action oriented version of this topic, please click the Piece Rates button above. It is written for a manufacturer, contractor or service company who considers piece rates.
Workers on piece rates must still be paid at least the minimum wage,
State or Federal. Period.
A key factor to recognize is that workers on piece rates must still be paid at least the minimum wage, state or Federal; and that all work hours must be considered in the minimum wage calculation. As a result, reporting must record not only the production on which piecework is applied but also timekeeping of all hours, and the arithmetic to assure that the letter of the law is followed.
Piece rates involve bookkeeping and labor law in addition to the expectations themselves. It's a good idea to involve the company lawyer and CPA in any pay plan.
Also ask, does the payroll system, in-house or contract, have the ability, and software, to provide the service?
Advantages of Construction Piece Rates
1. Piece rates jobs tend to be completed more rapidly, so the contractor can bill and move on to the next project, can keep the cash flowing.
2. Actual labor costs with piece rates tend to be closer to the estimate.
3. A company can attract the best tradespeople, who will want to work where individual effort and skill are monetarily rewarded.
4. Pay incentives are effective employee motivators, because most people go to work for money in the first place.
5. Incentives, or piece rates, offer an opportunity for employees to increase their pay by their own skill, effort and mental ability.
6. Piece rates for repetitive, high volume tasks are relatively easy to set, and accurate.
7. The process of setting rates requires observation of actual practice. Observation will uncover cost reduction opportunity in advance, which you can correct.
8. The use of piece rates will require a statement of expectations, and accurate site reporting, both of which will benefit the contractor.
Disadvantages of Construction Piece Rates
1. Piece rates may, probably will, require more careful reporting from the field.
2. Construction quality may suffer; it doesn't have to, but may. More pay for more output can cause an employee to cut corners, and if so you'll have to find the problem. In case of a do-over, the tradesman will correct his mistake but still earn at least minimum wage.
3. Custom work often requires a larger variety of different tasks than for repetitive, high volume tasks; piece rates will be harder to set and administer, and less accurate. Custom work doesn't allow tradesmen the practice opportunity that leads to high pace rates, and so may not result in net cost improvement.
4. When working conditions vary widely, even on common tasks, piece rates are less accurate.
5. More office setup time and analysis will be required to establish piece rates, and more administration in the field and office to apply them correctly.
6. At this time, there are few published data bases of construction tasks and the times required to perform them, especially with written detail of the specific conditions that apply. Since it is quite risky to promise to pay without being sure of the conditions, a contractor had best develop the rates that apply to his particular circumstances, tools, crew size, market, support, supervision.
Cautions before Starting Construction Piece Rates
1. Get the waste out first. Stay with me here, this is slightly technical. You do not want to set a rate with wasteful practices built in, or based on a historical average. If the rate has waste built in, that means the contractor will pay for the waste even if it is not performed. Tradesmen can be counted on to identify unnecessary work and cut it out on their own, if it benefits them. If you want the cost saving, you pull the waste out. Believe me, it will pay dividends.
But read on, for ideas how to get the waste out.
2. Piece rates are not good for remodeling, rework, trouble shooting, warranty because content of that kind of work is not predictable.
3. Piece rates are closely related to values used by project estimators, and will require coordination such as feedback systems to correlate piece rates, actuals, and estimated times. For best effect, you may want to incorporate piece rates and estimating, and / or to revise estimating and bidding practices and software.
Piece rates apply to many construction activities
Piece work has traditionally been in a factory setting, especially apparel. This page addresses labor intensive construction activity.
Masonry, block, brick, slabs, beams. Electrical, HVAC installation. Dry wall and sheeting installation. Stucco application, painting. Piping and plumbing. Septic tank installation; pumping. Carpentry. Flooring. Roofing. Energy installation; windmills, solar panels; both commercial and private. Commercial or home electronics installation
Piecework is difficult to apply to the activity of repair, trouble shooting, maintenance, and warranty because specific content of the work is much less predictable.
Will incentives pay for themselves?
Maybe so, because productivity and output tend to increase with incentives. But balance improvement against any extra costs you anticipate, and consider options to gain many of the benefits with somewhat less structure.
Further discussion of other options
which will increase productivity and output in construction, delivery, off site and remote locations.
Construction is more complex than factory operations, because it tends to spread out over a wide area, requires more sophisticated communications, is subject to weather, and can be affected negatively by other jurisdictions, trades, and vendors quite easily.
Consider these factors in your circumstances, both the challenges and actions to improve, instead of piece rates or as a foundation for piece rates, in advance.
A. Provide the more sophisticated communications.
The state of the art is moving rapidly, so keep up with it. Be sure to know what is happening at your sites without having to drive across town. Invest in the electronics that can make an impact on your particular problems, whether that may be cameras, phones, laptops or pads; wi-fi; computers or software. Don't just buy the latest fad, but invest in technology that will solve your problem.
B. Travel, traffic
Construction, delivery, off-site and remote locations will involve travel. Any discussion of travel in this day and age will focus on GPS, global positioning systems. GPS is very sophisticated today and will get more so. It is inexpensive and many commercial applications exist to allow effective route planning; your company should use it for that purpose at least. Instructions to drivers should include GPS input.
When GPS can recognize rush hour, and road construction delays, and the weather, and accident backups, it will become even more useful but that time is not yet I think; stay tuned.
There is at least one more travel factor to consider, which arose with a masonry client of JPR. We talked about the potential problems of setting rates for travel during the day, and someone would mention the hypothetical day in court when an employee would claim the incentive made him drive too fast and he had an accident and got hurt. I'm an engineer and not a lawyer, so I don't know the answer to that nor if that is different from any on-the-job exposure.
C. To improve output, observe the work and correct the problems you see;
then improve field reporting.
These actions are very effective and pretty simple to accomplish. Once you have performed them, you may decide you don't need piece rate.
Field and remote operations are commonly less well organized and supported than they are in a central facility; they are less visible and more subject to outside influence. But work measurement (someone with a watch and a note pad is all it takes) can nevertheless define and quantify the circumstances accurately, and lead to better controls. Even without piece rates.
I have often performed time studies in labor-intensive construction sites, and uncovered many inefficient practices which were eminently correctable, and management acted on the problems. Typically,
a. Lost time was prevalent, and study told how much and why it occurred.
In particular, a site was not ready when tradesmen showed up, some other jurisdiction was not done yet, a materials vendor was late or had placed material in the wrong location.
b. The observed problems were correctable, but reporting must recognize and quantify the problem first.
c. Crews were too large, often waiting on one another.
d. The work pace was not what management expected.
e. Travel during the work day was excessive and large crew sizes compounded the loss.
Management, when it learns of these problems, can improve communications, change internal practices and supervision, balance crews, and add equipment based on the results. Then of course after the person with the watch has observed the work, it is easy to establish formal rates and expectations for individuals and crews.
2. Report field results, then read and summarize reports, then act accordingly. A manager can't be everywhere, especially in construction or service. Develop an informative reporting system for the key results, read the information, and let employees know that you monitor activity.
D. A good sequence, in theory and perhaps for your company, could be:
1. Observe work first; find, judge, and prioritize problems; correct them. See the detail above.
2. Set up reporting forms for high priority / high frequency activities, itemized to isolate actual results. The objective is to determine the actual minutes taken to perform each particular task, over enough jobs to establish a repeatable reliable average. (Note that this time is what occurs, not necessarily how long the job should require.)
Print a series of forms, one for each major task that a crew is assigned. Require crews to complete a form for each project assigned, each customer. Not only will this report define what people do and how long it takes, it will give insights as to the profitability of each customer, and of each kind of service the company performs. Later feed this information to estimating, or even have estimating receive the information from the field in the first place, and summarize it.
Report travel on specialized forms as well.
Provide columns for start and stop time, name of activity, crew size, quantifying variables such as miles actually driven, time of day, GPS route in miles; yards of earth moved, feet of trench, number of tiles, gallons pumped, customer discussions. Be sure to allow space for the "Degrees of Difficulty", such as rain, rush hour traffic, wait on whatever, site not ready because of whatever, can't proceed because of whatever, name of person / object causing the delay.
3. Have tradesmen / crews / vehicles report on the forms daily.
4. Keep score, summarize and build history. Ask questions to clarify and sharpen field reporting. Issue results back to the ield employees.
5. Build intelligence from reports. Look at averages, judge which elements are out of line, or take too long, based on your own experience or further observation. Consider the degrees of difficulty; what is important and what can be forecast or predicted? Build that into expectations.
6. Relate results to project profitability, and to the rates that are part of the local bid structure for work.
7. Then when all these building blocks are in place, consider if the step of incentives or piece rate is likely to be cost effective.
8. You will note that the steps described are similar to any manager or dispatcher's routine; instruct a tradesman what to do, explain how long it should take, and request a report when done, for the next assignment. That's the way to do it, with the minimum paperwork necessary.
E. A piece rate agreement is what you make it .
Piece work is nothing more than a agreement, where one party offers what he is willing to pay and another agrees or not.
The typical piece rate in a factory may depend on work measurement, my specialty, but that is not necessarily true elsewhere. There are piece rates for many trades and businesses. These may be time studied, or negotiated, or set near the price that applies locally for the work. In Texas there are piece rates for agricultural workers picking commodities; rates are set by a state commissioner.
So it is certainly practical for you to set piece rates. Set a goal, and pay according to results. I'll be happy to help you set the goals and the reporting mechanisms, but also please see a labor law attorney and your CPA.
In construction, incentive pay can be tied to the prevailing price paid by local contractors, for instance a value per block laid or square foot of slab, so that estimating and actual cost are more closely related. Note that use of "historical" averages for an incentive is not recommended, as the historical will have wasted time and motion in it. Tradesmen will quickly remove the waste, yet be paid for it in the rate.
Incidentally, a tradesman is typically responsible for quality, so rework would be performed "on the clock". Be sure that quality standards are well defined and enforcement quick and fair. In such cases the minimum wage may apply, so your time-keeping / pay system has to be accurate.
Incentives often reward output, or units produced. But any criteria may be selected, such as widgets built or installed, or customer satisfaction, or first time quality, or phone calls, or tests processed, or block laid, or applications processed, or feet of cable, or cubic yards of concrete poured, or cartons shipped, or tests completed. The key is to create a measurement system to meet business objectives.
F. Bookkeeping comments on the web
There are many web references. The most common is the point that workers on piece rates must still be paid at least the minimum wage, state or Federal; and that all work hours must be considered in the minimum wage arithmetic. http://www.twc.state.tx.us/ui/lablaw/tmwsum.html
Other sites suggest that piece work requires more paperwork that a company might be used to, and I definitely agree. see also http://www.summitquote.com/uploads/Piece_Rate_Contractors_May_June.pdf
If your idea is to motivate employee performance in return for a monetary reward, Jackson Productivity Research Inc. can help you establish a fair and consistent system.
We are located in the Southeast US but practice throughout the country.
We will not push you to establish piece rates because that is a decision only a contractor can make.
But we can point out the likely advantages and disadvantages in your circumstances.
And we can help remove the waste from the sites, gaining a major part of the likely benefits of piece rates. After you see the benefits, you will have a more solid position to make the final call, piece rates or not.
Your particular objectives and circumstances are unique.
One size does not fit all, because a number of factors affect a piecerate plan.
We've done this before, and can apply our experience to generate a successful application for you, quickly and objectively. We are familiar with incentives and piecework in both unionized and non-union situations. We can determine what is needed, establish plans and priorities, and implement the actions. We can train your resources, perform the work entirely, lead, or work within your organization. Please give us a call or email to initiate discussion, at no cost or obligation.
Jack Greene, 843-422-1298 Jack Greene has headed Industrial Engineering for ITT Latin America and RayBan Sunglasses, and worldwide IE for Abbott Labs. Now as president of JPR, Jack can work with your construction organization, from strategic guidance at the executive level to practical, hands-on application of time study, piece rate and work measurement techniques.
Good luck in your use of piecework. Jack Greene, President Jackson Productivity Research Inc.