The Piecework Payoff
Posted Apr 28, 2011 in Management
Laboratory owners and managers who are using a pay-by-the-unit compensation system say that it offers them greater control over their labor costs, minimizes management headaches and results in a quality product with fewer remakes. Here are various ways owners and managers are adapting piecework strategies into their laboratories and making them work to their advantage.
Piecework has often been considered a dirty word in our industry, synonymous with shoddy, low quality restorations produced at breakneck speed. However, laboratory owners and managers who have implemented various pay-by-the-unit compensation strategies say "piecework is the only way to go."
By directly linking the technician's income to his productivity, lab owners have more control over their labor costs and can more easily maintain a 30% direct labor expense. "If you pay by the hour, your direct labor cost is fixed. When sales are slow, you still have to pay your technicians their hourly wages even though you aren't selling as many units. As a result, your direct labor cost as a percentage of sales increases. However, if you pay by the unit, your labor cost isn't fixed and it increases only when productivity and sales are up," says Charles Moreno, owner, Excel Dental Studios, a seven-person laboratory in Encino, California.
Given the labor-intensive nature of the laboratory, there is always a potential battle between the employer who wants his technicians to produce at a maximum level and the employees who want to produce at a level at which they feel comfortable. Piecework compensation minimizes conflict and the natural tendency of making work expand to fill the time. "It is to the employees' economic advantage to produce the number of units that are expected of them in a timely manner, so I don't have to stay on top of them as much," says Moreno.
These owners and managers feel that paying by the unit is a fairer method of compensation, for both the employees and the laboratory. "If you have two technicians who produce the same quality of work, but one can fabricate more units in a day, why shouldn't that technician earn more?" asks Dale Woolley, owner, Discovery Dental, Salt Lake City, Utah. "It is also fairer for the employees because if sales are increasing, they can reap the benefit. From the laboratory's perspective, it is equitable because it is only paying its employees for what they produce."
In many labs, the technicians who are paid by the unit earn more than those who are paid by the hour. Paying by production also eliminates the traditional hierarchical attitude that ceramists are the most valuable employees and make the most money. "In our laboratory, a good metal finisher or waxer makes just as much, if not more, than a ceramist," says Janie Sartoris, co-owner of DCS Dental Lab, Inc. a 22-person laboratory in Jacksonville, Florida.
Opponents of piecework maintain that it creates a work environment that emphasizes quantity over quality. However, advocates say this is a misconception. "I will argue that technicians being paid by the unit produce a more consistent product than hourly employees," says Mark Jackson, vice president and general manager, Precision Ceramics Dental Laboratory, a 35-person lab in Montclair, California. "When a technician tries to make his work fill an eight-hour day, he can have a tendency to overwork the restoration. In a piecework situation, the technician shifts into an autopilot mode and produces a consistent product."
Many pay-by-the-unit plans have a built-in system of checks and balances that prevents a quantity over quality situation. As work progresses through the laboratory, each technician becomes a quality control manager of the previous technician and their incomes are directly related to their quality control abilities. For example, if the ceramist feels a unit from the metal finisher is satisfactory, then he accepts responsibility for the final restoration. However, if the ceramist doesn't feel that the metal work is adequate, the unit goes back to the metal finisher and he has to fix it on his own time.
"Each person has the power to pull the cord to stop the production line. It is a way to get technicians to buy into their jobs, make them accountable for their work and get them to work as a team; accountability is really our goal," says Dennis Sartoris, CDT, co-owner of DCS Dental Lab, Inc.
Piecework compensation works best for technicians who handle specific, "production-line" functions that you can price out. It can be difficult to track the productivity of a floater technician or one who handles multiple tasks. Consequently, laboratories usually don't pay all of their employees by the unit.
For instance, laboratory owner Craig Pickett, CDT, employs two part-time technicians at Pickett Fabrication, Vacaville, California. Although he pays the waxer/metal finisher by the unit, the model and die/pick-up and delivery technician is paid by the hour.
Pickett, who does the porcelain work, has set his laboratory's production quota at 12 units a day. He requires his dentist-clients to preschedule their cases so he maintains a consistent workload each day. When cases come into the laboratory, he indicates the completion dates and the waxer/metal finisher can set his own hours as long as he meets the deadlines. However, in any given day, the technician is only assigned a maximum of 12 units.
He is paid $4 per coping and $6 for full wax crowns and but Pickett can't offer him a full day of work. The technician, who is applying to dental school, earns about $500 per month working five to six hours per week.
"The real advantage to the technician is flexibility because he can come and go as he pleases," says Pickett. "It creates a relaxed atmosphere, the two employees are happy and I have fewer management headaches," says Pickett.
However, he acknowledges that his system doesn't work for someone who wants to work an eight-hour day and there is a limit to how much his waxer/metal finisher can earn because Pickett is restricting the number of units he wants fabricated. "But it can solve a lot of problems for a small laboratory and it can be a great opportunity for retirees or technicians who want to get back into the industry. I can easily teach someone to wax a coping at a proficient level," he says.
A piecework plan is also ideal for laboratories that hire independent contractors. Owner Stephen Murphy, Aspen Dental Studio, Palos Park, Illinois, uses the services of a waxer and a ceramist. The ceramist opaques and builds up the units and Murphy grinds in the anatomy and finishes the restorations. He pays her $12 for a crown and $36 for a three-unit bridge and the waxer earns $6 to wax and invest a PFM unit and $12 for a gold crown. His goal is to keep his subcontracting expenses under 1/3 of the price of the unit.
"I have direct control over how much I want to spend on labor. If I'm busy, we are all making money. If we are slow, I don't give them any work," says Murphy. To ensure that the technicians maintain an independent contractor status in the eyes of the IRS, they work out of their homes, determine their own hours and have to invoice Murphy each month.
Laboratory manager Wolf Lange, Grossmont Dental Laboratory, La Mesa, California, also hires independent contractors for waxing and ceramic work. He pays $17 per unit for waxing, $25 per unit for building, finishing and glazing PFM units and $25 per unit for finishing and glazing all-ceramic units. Although his direct labor cost for technicians paid by the unit is higher than for hourly employees, he feels the additional cost is justified. "It's worth the extra money to get the consistency and quality of work. If the quality is not good, the technicians have to do it over again at their own cost so they have a personal incentive to do it right the first time," says Lange.
Skill Level Systems
Some laboratories use a skill level system in which the technician's productivity is converted to an average hourly wage. For example, at DCS Dental Lab, each fabrication task is assigned a dollar value that is based on the fabrication time and 33% of the selling price of the unit (33% being the laboratory's direct labor percentage).
Technicians are designated according to their skill levels: trainees are level one, a level two technician can do most of his work independently but still requires supervision and a level three technician can complete all of his work without supervision. The higher the skill level, the higher the dollar value assigned to the task.
The technician's pay is based on an hourly rate calculated as follows:
- A Level III technician is paid $13 per unit to build, contour and glaze.
- If he completes 12 units in eight hours, then he is producing $156 per day (12 x $13 = $156).
- To determine his hourly rate, divide $156 by 8 hours which equals $19.50 per hour.
- If this technician completes the same number of units in less time, his hourly rate increases. For example, if he finishes 12 units in six hours instead of eight, the total production value is the same, however, he earns $26 per hour ($156 divided by 6 = $26).
The technician can choose to go home early or stay and work more. If he decides to reorganize his supplies, clean his bench, use the PTC system to further his knowledge, he gets paid $26 per hour for his porcelain work as well as for these non-production tasks (non-production tasks are subject to the owners' approval).
This method encourages technicians to do non-piecework tasks such as cleaning and continuing education, which can sometimes be difficult if they aren't getting paid. "We have tried to make the system as fair and technician-friendly as possible," says Janie Sartoris. "Our system encourages cross training because we are basically paying them to learn and doesn't hold anybody back."
Precision's Jackson uses a similar multi-tiered system but has modified how he differentiates between skill levels and uses a different approach for new employees. He promises them an hourly wage or daily salary and pays them for any work they produce that exceeds production levels. "For example, I'll guarantee a technician $150 per day and anything he produces above and beyond that level, he gets to keep. This way, it minimizes the trainee's apprehension because I'm the one taking the gamble," explains Jackson.
Interestingly, there are opposing points of view about whether or not trainees should be paid by the unit. For instance, Excel's Moreno pays his beginning technicians hourly because he doesn't feel it is practical or fair to tie their salary to their production levels when they aren't up to speed. Laboratory owner Michael Rusznak takes the opposite approach—he requires his trainees to be paid by the unit.
"As the owner of a four-person laboratory, I operate on tight purse strings and have to be very concerned about the productivity of a trainee. I can't afford to pay him by the hour if he isn't producing enough. Beginning technicians can work at their own rates and I don't have to worry about their production levels. Once they have proven themselves, they can negotiate an hourly or per unit rate," says Rusznak, Tooth Effects, Huntington Beach, California.
Remakes can be a tricky part of piecework compensation. The general rule of thumb is that the technician doesn't get paid for remakes unless the dentist-client is clearly at fault. However, many laboratory owners handle remakes on a case-by-case basis. For instance, if the laboratory charges the dentist half of its usual fee, the technician receives 50% of his usual pay for that unit.
"Although you want to keep tabs on remakes, you don't want to nickel and dime your employees to death; the laboratory might have to eat the cost of a remake once in a while," says Murphy.
Discovery Dental makes the distinction between "in-house" and "out-house" remakes. As the unit proceeds through the laboratory, there are several quality control checkpoints. If, at any point, the case is rejected, it is sent back and none of the technicians who worked on it get credit for it. "The first technician shouldn't have done it incorrectly in the first place and the subsequent technicians shouldn't have accepted the inadequate work," says Woolley. "Technicians are paid full price for remakes sent back by the dentists, which we call 'out-house' remakes."
The key is to encourage technicians to read the prescription carefully and be aware of potential problems with the case before they do the work. "If a technician brings a case to my attention and I tell him to go ahead with it, I make a note in the computer," explains Jackson. "If the case turns out to be a remake, the employee still gets paid for it because it was my call."
It is also imperative that you pay overtime to employees paid by the unit. "If you don't, it can lead to morale problems as well as problems with the labor department," says Jackson. (Federal labor laws require companies pay overtime to piecework employees.)
To monitor technicians' productivity and make sure there are no duplicate case entries, you need to use a per-unit tracking system. A manual, hand-written method is more practical and cost-effective for smaller laboratories, while larger labs use bar coding computer software and/or a combination of software and manual systems. For instance, technicians at Precision Ceramics Dental Lab record their production manually and Jackson also gives them a computer printout of their daily production for comparison.
If you are considering switching to piecework compensation, you can expect resistance from your employees and maybe even attrition. Implementing the system slowly can help ease the transition. "People are resistant to change. But most likely, you'll lose technicians who weren't carrying their load," says Sartoris. "For example, two of our waxers quit but they were replaced by one technician who is handling their workload plus he has a great attitude."
TIP: consider piecework
Many laboratory owners who use a pay-by-the-unit compensation plan say this method has a built-in system of checks and balances that prevents a quantity over quality situation. For instance, since each technician's income is directly linked to the successful completion of each restoration, each technician becomes a quality control manager of the previous technician as work progresses through the laboratory. For example, if the ceramist feels a unit from the metal finisher is satisfactory, then he accepts responsibility for the final restoration. However, if the ceramist doesn't feel that the metal work is adequate, the unit goes back to the metal finisher and he has to fix it on his own time. The bottom line: technicians have a personal incentive to do it right the first time.
TIP: control workflow
The conventional practice of accepting "walk-ins" can lead to technicians who are overloaded or burnt out and have a negative effect on the quality of your lab's work. To avoid this scenario, some laboratory owners preschedule their cases. Here's how it works: The laboratory decides how many units it will fabricate per day and asks the dentist to make an appointment for each case. The client either calls the lab to ask when it can accommodate the case, or he sends the case and waits to hear from the laboratory. Based on its pre-determined capacity and current workload, the lab tells the client when the case will be finished. (Some labs opt to schedule their days at 70% capacity to accommodate rush cases or remakes and still maintain the level of quality they want to offer.) There is no guaranteed turnaround time, although some laboratories do give their dentist-clients guidelines as to how long it will take to fabricate various types of cases. Once the lab's day is booked, it doesn't accept any more appointments. For more information on pre-scheduling, click here.
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