A tiered piece rate is a form of piece rate that includes tiers where the rate being paid per completed unit increases as production increases. Compared to a straight piece pay strategy where the same piece rate amount is applied to all production units completed, a tiered piece-rate pay strategy compensates field employees more as production increases.
How is a tiered piece rate applied?
A tiered piece rate has been added as a piece rate option within the piece rate dropdown inside locations. When selected, the tiered piece rate builder becomes accessible.
Within the tiered piece rate builder, you have the ability to select the type of piece rate you would like to apply to the unit and then design the tiers within your tiered piece rate. Tiered piece rates can have any number of tiers, there is no maximum.
Piece rate builder symbols
The “>” symbol means greater than. The “≤” means less than or equal to. Within the tiered piece-rate builder, the symbols are used to convey the floor and cap of the tier.
Tier Example:
“>0” means anything above zero. For example, that could be “0.00001”. This is the floor or the bottom of the tier.
“≤10” means 10 or anything less is the cap or the top of the tier. With this cap in place, 10.01 would fall into the second tier.
TPR Structure #1: Piece rate tiers based on the average units completed per hour
PickTrace supports two structures of tiered piece rates, in this document, we will cover the structure based on average units per hour. click here to see the structure based on the total number of units produced.
Model A: Avg Units/Hr Following Tiers
In this model, our system will need to look at the tiers and convert the avg/units per hour into a percentage in order to determine how many units fall within each tier
Example 1:
| Tier # | From unit/hr | To unit/hr | Each unit paid at |
| 1 | >0 | ≤5 | $ 1 |
| 2 | >5 | above | $ 2 |
Scenario:
- Hour 1 = 5 units
- Hour 2 = 10 units
- Hour 3 = 20 units
- Hour 4 = 5 units
Total number of units (5+10+20+5) = 40
Total average units per hour (5+10+20+5) / 4 = 10
The calculation for Example 1:
Based on the average per hour total of 10 and the tiers above, if we turn that average in percentages, 50 % of the units fall into tier # 1, and 50% into tier # 2.
So out of 40 total units
- 20 will be paid at $1 (50 % of 40 total units)
- 20 will be paid at $2 (50 % of 40 total units)
Total paid: $60
Example 2:
| Tier # | From unit/hr | To unit/hr | Each unit paid at |
| 1 | >0 | ≤10 | $1 |
| 2 | >10 | ≤20 | $2 |
| 3 | >20 | above | $3 |
Scenario:
Jose worked 4 hours:
- Hour 1 = 20 units
- Hour 2 = 30 units
- Hour 3 = 40 units
- Hour 4 = 10 units
Total number of units (20+30+40+10) = 100
Total average units per hour (20+30+40+10) / 4 = 25
The calculation for Example 2:
Based on the average per hour total of 25 and the tiers above, if we turn that average in percentages, 40 % of the units fall into tier # 1, 40% into tier # 2, and 20% into tier # 3.
Converting the total number of units into percentages based on tiers:
- 40 % of the units fall into tier # 1
- The First 10 out of 25 (1 -10)
- 40 % of the units fall into tier # 2
- The Second 10 out of 25 (11 -20)
- 20 % of the units fall into tier # 3
- The remaining 5 out of 25 (21 -25)
So out of 100 total units
- 10 will be paid at $1 (40 % of 100 total units)
- 10 will be paid at $2 (40 % of 100 total units)
- 5 will be paid at $3 (20 % of 100 total units)
Total Paid: $180
Model A looks at the total avg units per hour and establishes a percentage applicable to each tier, the percentages for each tier are then applied to the total number of units so we can determine the # of units that fall within each tier and which rate to apply.
Model B: Avg Units/Hr Following Production Total
In this structure, we apply the rate that is applicable to the avg/units per hour total to all units produced.
| Tier # | From unit/hr | To unit/hr | Each unit paid at |
| 1 | >0 | ≤20 | $.50 |
| 2 | >20 | ≤40 | $.75 |
| 3 | >40 | above | $ 1 |
Example Scenario:
Jose worked 4 hours:
- Hour 1 = 16 units
- Hour 2 = 22 units
- Hour 3 = 30 units
- Hour 4 = 20 units
Total number of units (16+22+30+20) = 88
Total average units per hour (16+22+30+20) / 4 = 22
Calculation.
Since Jose's average units across the four hours he worked is 22 and based on the tiers the 22 average falls within tier # 2, this means that all 88 units will be paid at $.75
Total Paid: $66
Add videos down here
Comments
0 comments
Please sign in to leave a comment.