Guide
Piece rate or hourly: paying roofing crews without losing margin
Piece rate makes labour predictable per square and unpredictable everywhere else.
Reviewed by Darren Lim, US CPALicence CPA.742536028 min read
Piece rate looks like it solves the labour problem. You pay per square, the cost per square is fixed, and a slow crew is the crew's problem rather than yours.
It does solve that problem. It creates others, and the ones it creates do not appear on the invoice — they appear in rework, in your insurance audit, and occasionally in a wage claim.
What piece rate actually gives you
Predictable labour cost per square. This is real and it is the whole appeal. Bidding gets easier because the largest variable cost stops varying.
Speed. Crews on piece rate work faster. Nobody disputes this.
No exposure to a slow day. Weather delays, a crew that turns up flat — on hourly that is your cost, on piece rate it is not.
What it costs you
Rework does not pay twice — it costs twice. A crew paid per square has every incentive to finish and none to go back. When a job needs correcting, you are paying the correction and carrying the warranty exposure, and the second crew's time comes out of your margin rather than theirs.
Overtime does not disappear. This is the one that catches people. Piece rate does not exempt you from overtime obligations for non-exempt workers — the regular rate is generally worked out from total earnings over hours actually worked, so a crew that earns well on a fast week can still be owed a premium on hours past forty. If nobody is recording hours because everyone is paid by the square, you cannot calculate it and you cannot prove you did.
Hours still have to be recorded. For the same reason, and for the workers compensation audit, which is assessed on payroll and wants to see hours and classifications. "We pay by the square so we don't track hours" is the answer that turns a routine audit into an expensive one. Surviving your workers comp audit covers what the auditor actually asks for.
Your cost per square is not your labour cost. The rate is the wage. On top of it sit payroll taxes, workers compensation at a roofing classification — one of the highest there is — and any benefits. Labor burden is the whole gap, and it is proportionally the same on piece rate as on hourly. A $95 per square rate is not a $95 per square cost.
How to compare them honestly
One number, calculated the same way for both: fully burdened labour cost per square, including rework.
For each completed job over a month or two:
- Total wages paid to the crew for that job, whichever way they were paid
- Add payroll taxes, workers comp and benefits — the burden
- Add any return visit, at its own burdened cost, coded back to the original job
- Divide by squares completed
Then compare the average across piece-rate jobs against hourly ones. Not the rate — the cost.
Step 3 is where the comparison usually turns. Without it, piece rate wins nearly every time. With it, the gap narrows and sometimes reverses, because rework concentrates on the fast jobs.
What the answer usually depends on
Tear-off and complexity. Piece rate works cleanly on straightforward work with a predictable pitch and deck. It works badly where conditions vary, because the crew absorbs risk it cannot price and either slows down or cuts corners.
Who inspects. Piece rate with a supervisor signing off each job is a different proposition from piece rate with nobody checking. The inspection is the control that makes the incentive safe, and its cost belongs in the comparison.
Crew stability. Fast crews prefer piece rate and will leave for it. If your best crew is on hourly and being courted, that is a retention question rather than a costing one.
The setup that makes this answerable
Labour coded to the job rather than to a single payroll expense line, burden carried with the wage rather than in overhead, and a warranty and callback account so return visits land somewhere you can see them. The 5000 series in a contractor's chart of accounts does all three.
Without that, the honest answer is that you do not know which structure is cheaper — you know which one is simpler to administer, which is a different question.
Related
How we do this
We build this into your books. Starting with a month that costs you nothing.
Labour cost per square by crew and by job, with burden and overtime included, so the two pay structures can be compared on what they actually cost rather than on what they feel like.
- Every transaction categorized, accounts reconciled, the month closed
- Reviewed and signed by Darren Lim, US CPA — licence CPA.74253602
- The Two-Day Guarantee: Your first month back in two days, or the next month is free.
Piece rate is not cheaper because the number per square is lower. It is cheaper or dearer depending on burden, rework and how the hours are recorded — and only the books can tell you which.