Much like any other business, they would be paid by the value of their production. The jail could run several businesses with different positions available, each producing some salable product or service.
The inmates would be given their share of any profits, less rent, food, taxes, SS, child care, and a "restitution" tax. They could use the money to buy cigarettes, better food, whatever, or they could choose to send it home.
This could teach the inmates a usable skill, let them gain work experience, and make their reintegration with society less of a shock.
Yeah, I know in actuality they would buy drugs, sex, protection, and bribe guards with the money, but it's not really that bad an idea for inmates that would go along with the system.
What would happen to the ones that just won’t work?