Wage payments methods


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Wage payments methods

  2. 2. In Brief……………• All wage system must satisfy the basic needs of the employee for food, shelter, clothing and reasonable compensation for their efforts.1. TIME BASED WAGE SYSTEM2. PIECE BASED WAGE SYSTEMAll other wage system are combination of these two methods of wage system
  3. 3. Time Wage System• Wages are calculated on the basis of time worked irrespective of the quality of work done• Thus the wages are calculated by multiplying the time spent by predetermined rate of wages• Wage =Time spent*Rate per unit of time =T*RWhere T =Time spent in HoursAnd R =Rate per hour
  4. 4. Advantages Disadvantages • Simplest system and economical • The system doesn’t differentiate • It gives workers a sense of security as between efficient and inefficient they know that they will be workers. As wages are paid in terms compensated for time spent within the of time spent, it decrease the morale organization irrespective of their of efficient ones. efficiency. • It requires continuous supervision • The quality of the output can be • As the workers are not in hurry to maintained because workers are not in work, production can suffer. a hurry to complete the job for they • Under this process the workers are paid on time basis and not on the generally adopt the policy of go slow. basis of output produced. • This system has no positive • Minimize material wastages as the inducement for workers so that they work is not done in hurry could enhance their efficiency. • This system works best on artistic jobs where quality of output is of prime consideration. • Workers can easily understand the calculation of their wages.
  5. 5. Variations in Time Wage system• High Day Rate: in this case the rate of wages is fixed at level higher than the one prevalent in industry to attract best and efficient workers.• Graduated Time Rate system: A system of wage where the basic time rate is flexible so that it may be adjusted according to the cost of living index is called GTRS. Here the worker is compensated for increase in cost of living index.
  6. 6. Piece Rate System• Under this system, the wages are paid to a worker on the basis of output produced by him without considering the time taken in performing the work.• Wages=N *R• Where N = no. of unit produced.• R= Rate per unitThe earning of workers depends on the speed of the work and his own individual skills and efficiency
  7. 7. Advantages Disadvantages • In an effort to produce more• Work as an inducer for and earn more workers may workers to produce more exert themselves to fatigue.• Here reward is related to • Workers feels insecure in efforts. this system because they• This methods is fair to all as will lose wages for the inefficient workers are period of absence. penalized and efficient • This system requires an up- workers are rewarded. to-date record of output produce by each workers which increase the clerical works
  8. 8. • Not a single wage payment method is alone support for all the time and all the circumstances.• It provides incentives to workers to produce more and get paid for additional works.• A mixed form of both the methods• PERSONAL INCENTIVE PLANS: The incentive or bonus payable to the workers is calculated on the basis of individual efficiency of workers.• GROUP INCENTIVE PLANS: each member
  9. 9. Individual Incentive Wage System Halsey Premium Plan• Under this plan, the standard time required to complete a standard job is determined on the basis of (a) past experience and (b)time and motion study.• If a worker complete his task in a time less than it’s stipulated time , he is saving time and is rewarded with bonus. i.e. in between 33 ⅓ % to 66 ⅔ %of the wages for the time saved. And if he failed he will paid minimum wages.• Wages= T *R+ %(S-T)*R• T=Actual time taken by the worker to complete this task• R=Rate per unit time• S =Standard time to complete the job• % Varies between 33 ⅓ % to 66 ⅔ % Halsey Weir Plan•Here the worker receives 30% of the time saved as bonus
  10. 10. Rowan Plan• Here the proportion of bonus that a worker earns varies if time saved by the worker varies• The time saved by the workers depends on his efficiency which in turn depend on the nature of the task and circumstances.• Hence here the proportion of bonus is variable and thus it is also called “variable bonus sharing plan”.• Wages = T *R+ (S-T)/S*T*R• T = Actual time taken by worker to complete the job• S=Standard Time allowed• R=Rate per unit of time
  11. 11. Taylor’s Differential Piece Rate System• Under this system a standard piece rate is fixed and for each job standard output and time is also fixed.• If the actual output of a worker during the given time is less than the standard output, he gets wages at a lower rate.• And if the output exceeds the standard output, he gets wages at a higher rate.• Wage =R * Efficiency*Output =R*[Actual Output/Standard Output*100]*Actual output Where R=Rate per Unit.
  12. 12. Merrick Multiple Piece Rate System• Merrick believe that it was unrealistic to classify all workers in to two category i.e. efficient and inefficient. Some workers who actually worked but couldn’t reached the benchmark of standard output deserved to be encouraged.• Therefore he introduced three piece rate and made the lowest piece rate equality to the ordinary piece rate. When• (i) output (O) is less than 83% of standard output (SO), scheme for wage (W) is equal to piece rate scheme.• (ii) When 83% of (S) < O < 100% of (SO); W = 110% of piece-rate.• (iii) When O > 100% of (SO); W = 120% of piece rate.
  13. 13. Gantt Task & Bonus plan• A mixture of time rate and piece rate plan• If a worker fails to complete the standard work in standard time, he is paid minimum wage or time wage and no bonus is paid to him.• But if he attains standard output in standard time, he gets time wage plus 20% bonus.• If a worker complete his job in lesser time or produce more output than standard output in standard time, he is paid wages for the pieces produced plus 20% bonus
  14. 14. Emerson Efficiency Bonus Plan• Here whenever a worker’s efficiency reaches 67%, he gets a bonus.• Up to 67% of efficiency, the worker is determined by dividing the time taken by the Standard Time-rate• Up to 100% efficiency, 20% bonus is paid to workers• An additional bonus of Rs 1% is added for each additional 1% efficiency.
  15. 15. Group Incentive Plan• Individual incentive plan can be applied only in those cases where output produced at measurable and one worker works from the beginning till end to produce one unit of output• In real life, the out put of individual workers can’t be measured and a unit of output produced is the combined effort of group workers.• It aims at promoting mutual cooperation among workers, ensuring better productivity, and providing equitable bonus,
  16. 16. Prietman’s Production Bonus Plan• Here a committee represents management and worker union set forth the standard of performance in terms of numbers of unit produced.• This standard set in advance every week or month.• If a group of workers succeed in producing output are more than the standard set, bonus become payable to all members.• Percentage bonus =Actual output-standard Output/Standard Output Towne Plan •Under this system, bonus is related to cost reduction, usually the labour cost as compared with the predetermined standard. •Applicable to both supervisors and workers.
  17. 17. Co-partnership system• Here a worker gets a share in the profits of the company as he can take part in the control and management of company.• Payment of a fixed rate of interest on capital Profit Sharing system•A type of arrangement between the employer and employeeunder which employer agree to pay his employees a share in thenet profit of the enterprise.•Its aim is to promote increased effort and output, to share somegain in the firm productivity, and to strengthen the employeeloyalty.• Also called Industrial Democracy
  18. 18. Conditions for Effective Incentives Plans  Plan is clearly communicated  Plan is understood  Rewards are easy to calculate  Employees participate in administering the plan  Employees believe they are being treated fairly  Employees believe they can trust the company and that they have security  Rewards are awarded as soon as possible after the desired performance.