Wage Payment Systems are the different methods adopted by organizations by which they remunerate labour. It is the way of giving financial compensation to the workers for the time and effort invested by them in converting materials into finished products. 1. Time rate system 2. Piece rate system 3. Incentive wage system (payout plan)

1. Subject :Compensation and
Reward Management
(HR 3406)
Topic : Basic System of Wages
Submitted by:
Nidhi Singh

2. Introduction
• Wage Payment Systems are the different methods
adopted by organizations by which
they remunerate labour.
• It is the way of giving financial compensation to the
workers for the time and effort invested by them in
converting materials into finished products.

3. Importance
Facilitates the preparation of wage plan for future.
Determine the cost of production and the
profitability.
 Determines the earning their living standards.
Affects the interest and attitude of the workers and
the rate of labor turnover.
Helps in recruiting skilled, experienced and trained
workers.
Helps to increase the productivity and goodwill.

4. Characteristics
• Fair and justifiable to both.
• Help in maximizing workers' satisfaction and
minimizing labor turnover.
• Assure minimum guaranteed wages to all workers.
• Provide more wages to efficient and skilled workers.
• Follow government policy and trade union's norms.
• Simple and understandable to all the workers.
• Help in improving performance and productivity of
the workers.
• Flexible enough to suit the needs of the organization.

5. Principle Methods
The principle methods of wages payment are as
follow:
1. Time rate system
2. Piece rate system
3. Incentive wage system (payout plan)

6. 1.Time Rate System
Under this system, the amount of
remuneration or the total wages payable to
the workers depends on the time for which
he is employed. This is simple and
common method of wages payment. In
this method, the workman is paid an
hourly, daily, monthly or yearly rate rat of
wages.
Thus the worker is paid on the basis of
time and not on his performance or unit of
output. The amount of wages payable to a
workman under this method is to be
calculated as follows:
Total wages = actual time take x time
rate
Or, total wages = total hours worked x
wages rate per hour.

7. Advantages
1. Simplicity: it is very easy to understand and simple to
calculate the earnings of worker under this method.
2. Guarantee of minimum wages: it guarantees a minimum
wages to the workers.
3. Quality production: since this amount of wages is not
linked with the quantity of output, this method ensures
production of better quality due to the careful attention of the
workers.
4. Unity among workers: under this method, all workers
falling under a particular category are paid at equal rate
without any consideration of their quantity of output. It
encourages a feeling of equality among workers.
5. Economical: it involves less clerical work and detailed
records are not necessary. Since the output is not the criteria
for determination of wages, tool and materials are handled
carefully. Wastage are also minimized

8. Disadvantages
1. No incentive to the efficient workers: This system lacks
incentive to efficient workers since all works are paid equally and no
distinction is made between efficient and inefficient workers. So
efforts and rewards are not correlated.
2. Go-slow policy: the workers, in order to earn higher wages for
overtime work, may try to perform the worker slowly which leads to
increase in labor cost per unit.
3. Dissatisfaction among the efficient workers: the efficient
workers are paid wages at the rate equal to these payable ton
inefficient workers, which creates dissatisfaction among the efficient
workers.
4. Payment for idle time: under this method, idle time of the
workers is also paid that increase the cost of production.
5. High cost of supervision: since there is no direct link between
quantity of output and wages, wastage of time on the part of the
workers is common, the avoidance of which requires considerable
supervision leading to increase costs.

9. Suitability
This method is suitable to be applied in the following
circumstances:
• Where the quality of work is more important than
production.
• Where the volume of production is not within the
control of labour.
• Where it is difficult to fix the unit of output.
• When it is volume of production is not within the
control of labour.
• The nature of work is such that there is no basis for
incentive plan.
• Where the amount of output cannot be accurately
measured, counted and standardized.

10. 2.Piece rate system
In this method, wages are paid to the
employees after completion of work. Under
it, a worker is paid on the basis of output.
Not the time by him to perform the work.
This is one of the simplest and most
commonly used systems of wages
payment. In this system, the wage rate is
expressed in terms of per unit of output,
per job or per work-order. This amount of
wages payable to a workman under this
method is to be calculated as follows:
• Total wages = total output x wages rate
per unit of output
Or, output units x unit rate
Or, actual yield x unit or piece rate

11. Advantages
1. Simplicity: just like time rate system, the piece rate system is
also simple to operate and easy to understand. It does not
involve tedious calculations.
2. Incentive to workers: This system provides an increase to
the workers to work hard as the wages are paid on the basis of
quantity of output not on the basis of time. So efforts and
rewards are correlated.
3. Ascertainment of accurate labor cost: since the wages are
paid on the basis of output, the exact cost of labour per unit of
output or job can be considerable.
4. No payment for idle time: under piece rate system, any
payment is made to the workers for the idle time as a result of
which the cost of supervision is not considerable.
5. Proper care and use of machine and tools: the workers
rake proper care of their machine and tools since breakdown of
machine and tools means decrease in output resulting in less
remuneration to them.

12. Disadvantages
1. Less attention to quality: as the payment of wages is made on the
basis of output, the workers, in order to maximize their output, work
with sense of hurry, which may affect the quality of the output
adversely.
2. Inefficient use of machine and materials: since the wages are paid
on the basis of quantity of output, an excursive wastage of materials
and frequent breakdown of machinery may be caused by the workers
due to their efforts to obtain maximum output.
3. No guarantee of minimum wages: since there is direct relationship
between quality of output and wages, the workers suffer if they fail
to work efficiently. There is no guarantee of minimum daily wages o
workers.
4. Dissatisfaction among inefficient workers: the inefficient workers,
who work slowly, become dissatisfied by reason of lower wages as
compared to the wages paid to their efficient counterparts.
5. Adverse effect on worker's health: the worker may try to
abnormally to earn more which has an adverse effect on their health
and efficiency. So, this method is not accepted by trade union.

13. Suitability
This system is suitable in the following cases:
• Where a work is of a repetitive natures.
• Where the measurement of work is simple.
• Where the quality and accuracy of output is not very
important.
• Where strict supervision is not possible

14. 3.Incentive wages payment plan
 To remove the defects of both time rate and piece rate
systems of wages payment, incentive plans have been
developed. Under these plans, the advantages of time
and piece-wages system are combined, and incentives
are provides to workers to work hard.
 The characteristics of these plans are as follows:
1. Incentives by way of bonus and other are given to
efficient works for time saved.
2. A standard time is fixed and the worker is to perform
the given work within the standard time. The standard
time is set after making time studies for the performance
of specific job.

15. • The incentive is compromise between the two
extremities, on the one, if the workers are paid
according to time, hey a nothing if time is saved and
on the other hand, if they are paid on the basis of
piece rate, employers get nothing, if time is saved.
Under incentive plans, the employer as well as the
workers shares the benefit of time saved, and both
labour and overtime costs are reduced.
• The incentive plans should be selected according to
the nature of work and other circumstances. It
should be accepted by the management as well as
labour otherwise it does not function successfully.