National Minimum Wage - Fair Rates for Pieceworkers

The Department of Trade and Industry (DTI) estimates that there are over 700,000 homeworkers in the UK - people who work for an employer but do not work at their employer’s premises. Homeworkers are entitled to be paid the national minimum wage but are often paid according to a ‘piece’ or ‘output’ rate. In this case, they are ‘output workers’ for the purpose of the minimum wage.

On 1 October 2004 a new system was introduced providing for ‘fair’ piece rates linked to the national minimum wage, for all output workers including homeworkers. For the purposes of the minimum wage, output work means work that is paid on the basis of the number of pieces made or processed by the worker, or according to some other measure such as the number of tasks or transactions carried out by the worker.

Output workers must either be paid at least the minimum wage for all hours worked or, alternatively, be paid under a system called ‘rated output work’. Under this, workers must be paid the fair piece rate for each piece produced or task performed, determined by reference to the rate of performance of an average worker. As of 6 April 2005, if the employer is paying the minimum compliant rate, the fair piece rate must be multiplied by 120 per cent to ensure that those who work a little slower than the average worker are still paid the minimum wage.

Employers must give each output worker a written notice making it clear that he or she is entitled to be paid a fair piece rate and what the ‘mean hourly output rate’ is.

Employers must have carried out tests to determine the mean hourly output rate for each type of piece or task.

Guidance on this topic can be found in the detailed guide to the national minimum wage published by the DTI. See here for details.