Payment Systems


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Payment Systems

  1. 1. Higher Business Management Labour Payment Systems
  2. 2. Payment Systems <ul><li>Piece Rate </li></ul><ul><li>Hourly (Time) Rate </li></ul><ul><li>Flat Rate (Salary) </li></ul><ul><li>Commission </li></ul><ul><li>Overtime </li></ul><ul><li>Bonus Rate </li></ul>
  3. 3. Piece Rate <ul><li>Workers are paid per item they produce </li></ul><ul><li>Often used in factories </li></ul><ul><li>The more a worker produces the higher the rate of pay </li></ul><ul><li>Often acts as an incentive for employees to work hard </li></ul><ul><li>Supervision is required so that workers do not sacrifice quality for quantity </li></ul>
  4. 4. Time Rate <ul><li>Workers are paid by the hour (e.g. £5 per hour) </li></ul><ul><li>Often used in the service sector </li></ul><ul><li>It is simple to calculate for the employer and rewards the employee for the time spent at work </li></ul><ul><li>No incentive to produce quality work </li></ul>
  5. 5. Flat Rate <ul><li>Workers are paid a set salary per annum </li></ul><ul><li>This is split into 12 equal payments </li></ul><ul><li>Managers, supervisors and office staff are usually paid this method (and teachers) </li></ul><ul><li>It gives employees a guaranteed monthly income – security </li></ul><ul><li>Doesn’t reward staff for an increased high level of effort </li></ul>
  6. 6. Commission <ul><li>Workers are paid a percentage of the products’ sales value </li></ul><ul><li>Car salespersons and double-glazing sales representatives usually use this method </li></ul><ul><li>Either added on to a basic pay or as the sole income </li></ul><ul><li>Used as an incentive to motivate staff to sell more </li></ul><ul><li>Supervisors must ensure everything is sold by the book… </li></ul>
  7. 7. Overtime <ul><li>When employees work a set amount of hours, overtime may be offered </li></ul><ul><li>Employees will be paid more for this overtime </li></ul><ul><li>Time and a half </li></ul><ul><li>Double time </li></ul><ul><li>Bank holidays, Sundays… </li></ul>
  8. 8. Bonus Rate <ul><li>Workers are paid a basic rate with additional payments for targets being met </li></ul><ul><li>This could be for agreed time-keeping, productivity or efficiency </li></ul><ul><li>A bonus is added on to their normal pay </li></ul>
  9. 9. Questions <ul><li>Some organisations use a flat rate system to pay employees. Describe 2 other types of payment systems. </li></ul><ul><li>(4 marks) </li></ul><ul><li>Distinguish between the following: </li></ul><ul><ul><li>Piece rate and time rate </li></ul></ul><ul><ul><li>Flat rate and overtime </li></ul></ul><ul><ul><li>Bonus rate and commission </li></ul></ul><ul><ul><li>(3 marks) </li></ul></ul>
  10. 10. Other Payment Methods <ul><li>Performance Related Pay </li></ul><ul><li>- directly related to the output of each worker, usually in achievement of targets </li></ul><ul><li>Profit Sharing Schemes </li></ul><ul><li>- staff are given a share of the annual profits </li></ul><ul><li>- in some cases the share of profits is paid in the form of free shares which gives the employees part-ownership of the organisation </li></ul><ul><li>Share Save/Options Schemes </li></ul><ul><li>- employees save a regular amount each month for a set period (usually 5 years) which they then turn their savings into shares to keep or sell at a profit </li></ul><ul><li>- a successful method of payment which creates loyalty and motivation </li></ul><ul><li>Fringe Benefits </li></ul><ul><li>- any payments other than wages and salaries </li></ul><ul><li>- includes private medical insurance, subsidised meals, company cars… </li></ul>
  11. 11. Employee Objectives <ul><li>Employees want their pay to: </li></ul><ul><li>Reward them for the work done </li></ul><ul><li>To be seen as a recognition of their value to the organisation </li></ul><ul><li>To give them purchasing power </li></ul><ul><li>Be achieved through basic earnings rather than relying on overtime, etc </li></ul>
  12. 12. Employer Objectives <ul><li>Employers have a number of objectives they want to achieve when devising payment systems for their employees: </li></ul><ul><li>Motivation </li></ul><ul><li>- many believe that workers are motivated by money, and this is reflected in the number of employers who use performance related methods of payment </li></ul><ul><li>Cost </li></ul><ul><li>- employers want to keep the cost of labour as low as possible </li></ul><ul><li>Prestige </li></ul><ul><li>- employers want a good reputation of ‘good payers’. This improves their ability to recruit and retain staff </li></ul>
  13. 13. Questions <ul><li>Arnold Clark are considering ways of financially rewarding sales staff. Explain 3 payment methods which they could implement. </li></ul><ul><li>(3 marks) </li></ul><ul><li>Describe possible objectives an employee might have regarding pay. </li></ul><ul><li>(3 marks) </li></ul><ul><li>2b. Compare these objectives with those of an employer. </li></ul><ul><li>(2 marks) </li></ul>
  14. 14. Solution <ul><li>Arnold Clark are considering ways of financially rewarding sales staff. Explain 3 payment methods which they could implement. </li></ul><ul><li>(3 marks ) </li></ul><ul><li>They could use Commission . Workers are paid a percentage of the products’ sales value This would be suitable as it would motivate staff to sell more as they rely on commission to earn money. </li></ul><ul><li>They could use a bonus scheme. Workers must achieve pre-agreed sales targets to earn the bonus. This would encourage staff to sell more which would increase the company’s turnover and profits. </li></ul><ul><li>They could offer sales staff a salary (flat rate). This would provide staff with financial security. However, it may not motivate staff to sell more are the same amount is pay each month regardless of performance. </li></ul>