Piece rate vs. hourly rate: a debate heating up in 2018

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Home » JOMAC Blog » Piece rate vs. hourly rate: a debate heating up in 2018
Piece rate vs. hourly rate: a debate heating up in 2018

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As construction season heads into full swing, there has been some debate amongst contractors and clients amongst the most mutually beneficial and fair method of payment. Typical wisdom says that independent contractors should always bill hourly, regardless of scenario to ensure that no time goes unpaid. More recently, the idea of piece rate for certain disciplines has entered the conversation, sparking debate amongst many as to what is the fairest method of compensation for a contractor’s work.

Many construction companies are arguing that piece rates lead to greater productivity andreward workers and contractors for the exact amount of work they do. In theory, this is true. However, in application, there are issues that could arise from incentivizing contractors to get as much work done as possible in the shortest amount of time.

The center issue of concern with a shift to piece rate is that of safety. The opposition to piece rates argue that contractors and workers are more likely to cut corners to achieve a greater level of productivity, consequently sacrificing quality for the sake of completing more work in a shorter amount of time. The likelihood of this happening on a wide-spread basis is not great, but there are bound to be outliers causing quality and safety issues. Additionally, the same risk of poor quality work compromising safety can be possible with hourly workers.

The argument against hourly rates is rooted in the premise that top performing contractors and workers are penalized for getting more done, as they would be paid the same had they done less. This is fundamentally true, however construction companies have accurate estimates as to the amount of time tasks should take, and for the most part, these estimates are on par with the amount of work that gets done. This holds contractors to a certain level of accountability for the amount of work performed, while maintaining that a contractor will be paid fairly for their time.

If a contractor has the upper hand when negotiating rates, they should be aware of what their capabilities are and understand that companies are beginning to be more open to paying by piece, instead of the standard hourly wage. If the contractor has the ability to perform high quality work quickly, piece rate may be the best route to take for maximizing profits. If the contractor would prefer to work at a moderate pace while upholding a high level of quality, going for the standard hourly rate may be the best course of action.

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