Ways to Pay Your Staff – Piece Rate and Commission
Piece Rate / Commission
A piece rate or commission based pay scheme is where an employee is paid solely on performance or productivity. This usually involves either a set amount per sale/unit, a percentage of each sale, or set increments of pay depending on the targets met.
An employee works at a commission of 5% of each sale made, and sells £5000 in a week. They would be paid £250 before tax in that week.
Advantages of piece rate / commission:
A piece rate/commission pay scheme means that your employees are paid purely on results. This means that if targets were not met, you do not have to pay for work that has not been done; which can improve the efficiency of your business. A key benefit is that a piece rate scheme helps to reward extra productivity, as employees are paid directly on performance. This means that employees who make extra effort will be rewarded for it, and are likely to feel more appreciated by your business.
A piece rate system makes flexible hours (flexitime) and ‘rota’ schemes much easier to implement, as you can adjust an employees hours to match the amount of sales/ production you believe is needed.
Disadvantages of piece rate / commission:
A piece rate or commission pay scheme is much harder to administrate than other pay schemes. Each employee needs to have their wages calculated every payroll, which raises your costs in providing and accounting for their pay. Employees may worry about losing pay if sales or production is lowered. This can make them de-motivated, especially when you need to change hours or rates; as they are left uncertain as to the safety of their finances.
Employees may become angry if productivity (and therefore pay) is lowered because of the actions of other employees, management, or by external forces; as they will be losing money and not be able to do anything about it.
When should it be used?
A piece rate or commission pay scheme is most appropriate for jobs that rely almost entirely on sales or production, and have relatively stable requirements throughout the year.
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