New Zealand: Can employers pay their employees a commission or piece rates in NZ?

As an employer, you would know that rewarding your employees for their work while maximising their productivity is a constant balance. Providing commission or piece rates is one method of ensuring that your employees stay motivated. Put simply, a piece rate is a form of commission where you pay an employee for the 'pieces' they have worked on. Nevertheless, you must pay your workers adequately to avoid underpayment. This article will summarise whether piece rates or commissions suit your business and your employees.

What is a Commission?

Commission is where you pay employees a rate for achieving a:

• specific target; or
• certain number of projects within a certain period.

This means the amount your employees earn each week will vary depending on how much work. Typically, employers calculate the commission payment as a percentage of the employee's total sales or output. Nevertheless, you can make a commission payment:

• as an added incentive on top of an employee's pay; or
• as your employee's whole wage.

Depending on your industry, paying your employees a commission might be more suitable than an hourly wage. For example, you can pay sales assistants an hourly rate with a possible commission percentage if the employee meets their sales target.

What Are Piece Rates?

Piece rates are a form of commission where you pay the employee proportionally to the number of "pieces" (this could be projects or products) they have worked on. For example, agriculture is a common industry where employers use piece rates, such as $0.20 for each piece of fruit picked.

If you are considering paying your employees through piece rates, you should also ensure that they still receive the minimum wage for each hour of work that they complete. If you pay employees a piece rate, you can do so in the same manner as regular employees. That is to say, you can pay piece rates weekly, fortnightly or monthly.

What is the Difference Between a Commission and a Bonus?

Performance bonuses are a payment typically connected with an employee's performance. Employers generally pay a bonus in addition to the employee's base salary.

Employers can give bonuses like a commission when the employee meets an agreed performance measure. Nevertheless, there is no legal obligation for employers to pay employees a bonus if:

• there has been no agreement to provide a bonus; or
• if the employee does not meet their performance measurement.

What Are the Legal Considerations When Paying Piece Rates?

New Zealand employment law entitles all employees to at least the minimum wage regardless of how you pay them. The minimum wage is the lowest remuneration you must pay employees for their work, regardless of their employment type and the number of hours they work. As of 1 April 2023, the minimum wage in New Zealand is $22.70 per hour. This means that if you pay workers or employees piece rates, you must pay them at least the minimum wage, even if they do not produce enough "pieces" to make the minimum wage.

Additionally, say you want to dismiss an employee who is not performing, but you pay on a piece rate structure. In this instance, it is essential to note that the employee is still entitled to the minimum entitlements just as a regular employee who is paid wages or salary. If you fail to pay the minimum wage to your employees, it will likely lead to a dispute.

Key Takeaways

Piece rates are a great way to maximise efficiency and motivate employees. Put simply, piece rates are payments that you pay per project or "piece" that an employee completes. This can encourage employees to complete as many pieces as possible within a set time. Nevertheless, if you pay an employee piece rate, you must ensure:

• they receive at least the minimum entitlements that you pay a regular employee; and
• upon dismissal, your employee receives their minimum legal entitlements.