I have been round and round about employee pay rates. We currently pay per hour and for the most part, the employees could work as much as they wanted. Lately, hours have gone up but production has stayed stagnate. We did hit a lull in sales and I reduced hours to straight time only with no overtime. You would have thought I asked everyone to work for free. If I could do a per piece on cabinet production, I think my cost would be known and the guys could still make a decent rate. Does anyone have a system they worked out that actually works for both parties. I realize different areas of the country have varying pay scales, but I'm just looking for things that have, or even ones that have not worked. Any insight would be greatly appreciated. Thanks MIKE
Mike, I build shutters not cabinets, but I believe it may be possible to pay by the piece in your shop. I did this about 15 years back, when I had about 23 employees. I took what my production cost was suppose to be, the very numbers we based our sales price on, and broke it down to just how much money we were taking in to pay for all the individual functions being performed in our shop. (After all, your labor cost when estimating prices should run true to the actual payroll, right?) I also ran live realistic trials to be sure I was being fair to my employees. An added unseen benefit was the process helped me get my pricing more accurate as to my true cost of labor for production. My big motivation for starting to go to piece work, was payroll would go up, production stayed the same. Payroll could stay the same, production would still drop. I also knew I had some workers, just a few who were not pulling their fair share, or they were making too many errors. My better employees would not rat them out, and I strongly disliked the few bad apples, making it difficult for me to cover the payroll every week, endangering the jobs of the productive people. I actually saw this as an opportunity to better pay the good workers, while weeding out the bad.
To be truthful, when I held meetings to set up our going to piece work, you would have thought I threw ice water on everyone. It took a lot of convincing and educating my crew that it could work and be beneficial. One downside, some of my less intelligent people (but good workers) did not understand how we would track the work flow. After a few weeks they caught on, and several saw some actual improvement in their checks. Which I was only too glad to pay, as I saw several of the suspected shirkers quit within just a few days. I actually had one guy get about a 10% increase in his pay, and he quit because he had to start working harder than he had wanted to. It was a lot of hard and trying work on me to set up the system, to break down all our functions and come up with rates that fit the skill required and difficulty of the work performed. Bonuses helped round things out too and helped the system be accepted. You may lose some workers, but in the end you may be glad you did. Might even lose one or two you had been thinking were really good. I did keep my entry level guys who were on a 90 day trial, at hourly rates. That took care of things that needed to be paid by the hour, that were not production. Like cleanup, unloading trucks, sweeping the floor, that type of stuff. Oh yea, we based our rates on square footage, as that was the way we sale our product.
The whole thing required a lot of paperwork and forms, as I had the workers tracking their work flow, and turning these forms in at the end of the week. I had to double check their numbers, and we also had to keep an eye on quality as this can create a tendency for workers to rush the product. I quickly learned to better evaluate each employee, much better than when paying by the hour. A very eye opening experience.
Mitch, do you still pay by the piece?
Do you penalize for pieces that are done incorrectly and that someone else or they have to repair?
How do you compensate the worker for the non production time of keeping area clean?
Have you found that people will get the work done faster and leave earlier because they get paid the same either way?
How do you handle situations when there is a machine or tool breakdown that results in that they can't do the job as efficiently or can't do it at all?
I have been thinking about this in the back of my mind. Just a few questions that I have been thinking about. My operation would be easy to convert to this method as each person is set up to produce their part of the work.
Puzzleman, I have given some of your questions some thought. To help with mistakes, and to keep things kind of even, I figured I would cover the material cost. That way everybody has a stake in it. But now instead of "Mike" will fix it, they now have to fix the mistake, but the cabinet count stays the same. I was thinking of estimating deliveries and cleanup and giving a standard dollar amount for the week. Some weeks they make out (no deliveries) and some weeks would have more. BUT, if they don't keep their area clean, I would take it off. In my shop, if the cabinets are done, we are going to install them. Probably on an hourly rate, or even some sort of split. If there is nothing is to be fabricated, at least I'm not paying for guys to stand around piddling waiting for the clock to get to punch out time. I'm still interested in any other ways people have made this work, especially in the cabinet shops. I give many thanks to Mitch. It was very helpful, and actually got me thinking it could work. A problem I'm working on, is the production. How to divide up the cutting, to dado, to assembly, to finish. All the guys can do it all, but you typically don't need two guys doing each thing. So, anyone with more ideas, keep them coming. Thanks MIKE
Puzzleman, I currently do not pay by the piece. I currently have only two employees, as we drastically changed the way we build our products. I outsource our components, which reduced my crew by half. My piece work experience helped me realize the benefit of outsourcing. Then the economy dip caused us to cut way back again. Mostly we just never replaced employees who left for various reasons, or did not move with us to another town. But still, every set of cut sheets we print for our shop has those piece work rates attached. In other words, our two shop employees see those rates as a reminder of what we are expecting in terms of work output versus hours sent on each product. Reminds me too of how much time we work on orders.
When I was applying the piece work pay rates, work that was not acceptable was not payed for, or counted in the employee's weekly totals. This did a couple of things, the employee quickly learned to get it right, as they experience the loss of poor workmanship. It also caused me and my supervisor to jump in and train, often working side by side with employees to help them make good checks. Of course we wanted the production results, but it seemed to also create some good relationships with the workers. On the other hand, the uncooperative ones, with consistent low numbers, left sooner of their own choosing. Most worker will police their area, as it helps the efficiency of their work flow. Serious cleanup was done by our newest entry level workers, who were training and working out a 90 day trial period prior to be hired as a regular employee. Many workers would leave earlier than normal, and if their quota was met, we didn't mind. Break downs and late deliveries of supplies were always headaches, and just part of the deal. Also missing sick employee could creat problems for the workers who were waiting next in line for product to work on. Cross training and moving people helped with that. Plus the peer pressure from those employees who were getting short changed by whoever was missing, also helped everyone step it up a little bit. I noticed too, employees became quicker to complain about the weaker employees, where before, they would not. Unfortunately, people who couldn't perform were weeded out pretty quickly.
Mike, you are welcome for any help I have provided. Dividing the task is definitely difficult. One thing I did was I really broke the task down into areas, that could be defined by tools. Like the same guy did all the chopsaw work, and maybe too the table saw work. Then another guy did all the part processing, but you have to keep at it until you have all the work balanced among the workers. I will say, the more workers you, the more difficult it can be to work it out. Ill try to post one of pay rates sheets and explain a little further in a day or so.
I have a blank job report, and a completed one to show how we broke down the work performed in our shop. Again this applies to shutter work, not cabinets, but I think they are very similar.
I used these sheets for specific job orders, but more than 1 employee could work on the same sheet. You have to separate who gets paid for what at the end of the pay period. The completed sheet is for a very small order and is the best place to start implementing this type of pay method.
I would also like to add, that one of the greatest benefits to this method is that it teaches employees a broader understanding of how important their work results are to generating the funds that cover their payroll. I was able to even engage some of my better employees in conversations about how if we increased shop pay, without an increase in production, how we would in turn possibly have to increase pricing to the customer. When orders are hard to come by, they quickly realize we could miss out on orders are out of line with what our market is willing to pay. This is not a fix all by any means, but it can be a great tool for many reasons.
Click the link below to download the file included with this post.
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