Today, instead of paying a fixed monthly salary, businesses often choose to pay a piece wage to improve work productivity. The following article will bring you the most useful information about this form of payment.

What is a piece wage?

Piece wage is one of the most popular forms of salary payment today.

Piece wage is understood as a form in which the employer pays the employee’s wage according to the provisions of Clause 1 – article 96 of the Labor Code 2019. This regulation takes effect from January 1, 2021. According to the agreement with the enterprise, employees will be paid based on product, time, or workload.

See also: 6 labor-salary policies starting from January 2023  

Accordingly, piece wage is a form of salary payment used by enterprises based on the volume, quality, and time to complete the work of employees. The nature of the piece wage is that the employee will receive a wage based on the level of completion of the assigned workload. If completed within the agreed time, the employee will receive the maximum and full wage according to the terms previously committed. This is a form of fair pay, showing the actual productivity of employees.

Instructions on how to calculate piece wage?

According to Clause 1, Article 54 of Decree No. 145/2020/ND-CP, based on the nature of work and production and business conditions, enterprises and employees agree to the labor contract in the form of a piece wage. In particular, the actual wage that the employee receives will be based on the volume, quality of work, and the time to complete that work.

The piece wage is calculated based on the employee’s work completion level.

To easily calculate the actual wage received when choosing the form of package salary, readers can refer to the following formula:

Piece wage = Fixed wage x Percentage of job completion

Example: Ms. A is hired to pack mask boxes with the requirement that she must pack 10,000 boxes of masks every month, then she will receive 6 million VND. However, in the first month of receiving the job, Ms. A only completed 5000 boxes of masks, reaching 50% of the delivered products, so Ms. A will receive the following amount:

6 million VND x 50% = 3 million VND

See also: #Youmustknow: Salary computation and payment

What is a freelance contract?

When enterprises and employees choose piece wages as the form of contract payment, the freelance contract will be considered a civil transaction and be governed by civil law. Accordingly, the lessor is obliged to complete certain work at the request of the lessee. And after it is completed, it must hand over to the lessee the results of that work. The lessee receives the work results and is responsible for paying the agreed remuneration to the lessor.

There are two types of freelance contracts:

– Full contract of assignment: The lessee gives the lessor all the costs. Includes both physical and labor costs associated with activities to complete the job. The amount paid by the lessee to the lessor, includes material costs, labor, and profit from the contract.

– Partial contract of assignment: The lessor must take care of the labor tools themselves. The lessee must pay for the depreciation of the working tools and wages.

The contract of assignment is considered a civil transaction between the enterprise and the employee.

Currently, many people often mistakenly believe that a freelance contract is an employment contract. However, in practice, there are differences between these two types of contracts, specifically:

For an employment contract, the employee only needs to use his or her own labor power to complete the work assigned by the employer and receive a salary. In a freelance contract, the recipient must give part or all of his material and labor power to complete the work within a certain period of time and receive his/her part of the remuneration.

In addition, employment contracts are usually applied to stable and long-term jobs. After the contract expires, the contract extension will be done in accordance with the agreement of the two parties. Meanwhile, the freelance contract is only seasonal, unstable, and not long-term.

Advantages and disadvantages of piece wage

Similar to other forms of salary payment, piece wage also has certain advantages and disadvantages, which are clearly shown in the following aspects:

Advantages of piece wage

One of the outstanding advantages of the piece wage payment method is that employees and businesses can easily agree on the amount of work before signing the contract. By outsourcing and contracting with tight terms, businesses can empower employees, not needing day-to-day control, but just needing to care and focus on the final product. On the employee’s side, the piece wage also creates the motivation and responsibility to complete the project within the committed time period.

Disadvantages of piece wage

Enterprises will normally have to advance to employees a certain amount of money as agreed before implementing the project, usually 30 – 50%. In addition, this form of payment is only suitable for highly specialized jobs and should be performed in a comprehensive and unified manner. Because the determination of the unit price is complicated, difficult to be accurate and it is necessary to conduct construction closely in accordance with the working conditions of the employees. Therefore, businesses need to be very careful and meticulous in the process of calculating piece wages to optimize costs while still ensuring benefits for the contract recipient.

Enterprises need to consider many factors when choosing to pay piece wages to optimize costs.

Once you understand the advantages and disadvantages of piece wages, businesses, and employees will be able to consider coming up with an agreement that suits the needs of both parties. Based on those agreements, the employer and employee will jointly sign a contract with the most detailed terms, and at the same time avoid risks related to legal issues when making piece-wage payments.