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method of wage payment

method of wage payment

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Published by Poonam Satapathy
based on MBA syllabus.
based on MBA syllabus.

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Published by: Poonam Satapathy on Jan 20, 2013
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03/22/2015

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Methods of wage payment and Incentives

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There exists several methods of employee wage payment and incentive,which can be classified under tfe following headings: 1.Time Rate systems 2.Piece Rate system 3.Combination of time and piece rate system 4.Premium bonus method Time Rate System Under this system,the workers are paid on the basis of time spent in the factory.No consideration is given to number of units produced. Wages=Time spent (in hours/days/weeks/months) *Rate per hour /day/week/month Suppose a worker is paid @Rs.80 per day & he has worked for 22 days during a particular month;his wages for the month will be Rs.1,760(i.e.22 days * Rs.80) Advantages of time rate system: 1.Simple to understand system. 2.Calculation of wages is every easy. 3.Quality of output is maintained.

A company has adopted high day rate of Rs.This is called high day rate.No incentive for exta production. 10) (b)High Day Rate:under this method.his wages for that particular day will be Rs.Disadvantage of Time Rate System: 1. Example. 8 hours*Rs.if the flat hourly rate is Rs. Wages=hours worked*high day rate Example. 3. A worker .10 per hour.the workers paid at a flat rate on the basis of time spent in the factory.10 & a worker has worked 8 hours on a particular day.Workers may work slowly so as to earn overtime wages. 2.e.No distinction is made between the slow and efficient workers. Wages =time worked(in hours/days/weeks/months)*Flat rate.workers are paid at a rate higher than the the average wage rate prevailing in the industry.12 per hour. The flat rate is usually fixed by the management. Time rate system has the followings four variations: (a) Flat Time Rate:under this method.80 (i.the average wage rate prevailing is Rs.

Thus.the time rate per hour or day or week or month also increases proportionately and vice versa. 12 per hour.different time rates are fixed for different workers depending upon their efficiencies and skills. (d)Differential Time Rate:under this method. 14 per hour.96 (c)Graduated Time Rate:under this system.12=Rs. @Rs. @Rs.96 calculated as under: Wages=8 hours*Rs.different time rate is linked with the cost of living index.who worked for 8 hours on a particular day will be paid Rs.if the cost of living index goes up. 10 per hour. .a company may fix different time rates for different workers on the basis of the their skills as given belows: For skilled workers For semi-skilled workers For unskilled workers @Rs. Example.

health of the workers may suffer due to non-stop working. Piece Rate System has the following variation: (a) Straight Piece Rate system:under this method. on the basis of number of units produced without taking into account the time involved. Disadvantage: 1.no strict supervision of workers is required. increase in overall production 2.quality of output may suffer 2.The workers are paid on the basis of their work i.a specified of wages is fixed per unit of output. Advantages: 1.wastage of material may increase because the workers will try to work fast 3.no payment is made for idle time 3.Piece Rate System Under this system.the workers wages are calculated as follow: Wages=number of piece produced *rate per piece .e.

75.workers a output for a particular day 25 pieces.e.e. workwe Low piece rate output is below standard) (c) Merrick s Multiple Piece Rate System: EFFICIENCY LEVEL Up to 83% Above 83% and up to 100% Above 100% PIECE RATE Normal Piece Rate 110% of Normal Piece Rate 120% of Normal Piece Rate . 120% of normal piece rate) worker output is at or above) (2)Below 100% (i.e.normal piece rate is fixed at Rs.if the (1)High piece rate(i. (b)Taylor s Differential Piece Rate System:This method was introduced by Talyor.The system aims at rewarding efficient workers by giving them higher piece rate and penalizing slow workers by paying them lower piece rate.3.Example. EFFICIENCY LEVEL PIECE RATE (1) 100 % or more(i.his wage rate will be Rs.

If a worker takes the standard time to perform the task(i.e.time wages are guaranteed to every worker.Combination of Time and Piece Rate System (a) Gantt s Task and Bonus Plan: under Gantt s bonus plan system . . If a worker completes the task in loss than standard time (i. if his efficiency is above 100%) He is given piece wages for actual output + Bonus @ 20% of piece wages.e. efficiency is below 100%) He is given wages for the time taken by him. if his efficiency is 100%) He is given wages for standard time + Bonus @ 20% on wages earned.e. If a worker takes more time than the standard time to perform the task (i.

A. Halsey. T=time taken.Workers can easily understand this method 3. R=rate per hour Advantages 1.It guarantees time wages to workers 4.Premium Bonus Methods An incentive is a kind of motivation to the worker to work more quickly and efficiency. S=standard time. Followings are the important incentive plans of wage payment: (a) Halsey Premium Plan: This plan was introduced by F. Under this method. a standard time is fixed for the completion of a job & the worker is given for the actual time taken to complete that job plus a bonus for the time saved. Formula for calculating wages under Halsey plan: Total Earnings of a worker = T*R + %(S-T)R Wages + bonus Where.This method is easy to operate 2. .This method provides incentives to efficient workers by making a distinction efficient and inefficient workers.

This method is similar to halsey premium.Under this method.a standard time is fixed for the completion of a job and bonus is paid if time is saved.is deemed to be an efficient worker encouragement.But beyond a certain efficiency level.bonus in addition to minimum day wages is given. ranging from 66 2/3% to 150%. Formula for calculating wages under Rowan plan: Total Earnings of a workers=T*R + (S-T) *T*R S Wages + bonus (c) Emerson s Efficiency Plan: under this system minimum time wages are guaranteed to all workers. A worker who is able to attain efficiency measured by his output equal to 2/3rd of the standard efficiency.or above. . The scheme thus provides for payment of bonus at a rising scale at various levels of efficiency.the only difference between the two is in the calculation of bonus.(b)Rowan Premium Plan: This plan was first introduced by David Rowan in 1901.

Bonus Varying between 0.No Bonus.01% & 20% Above 100% efficiency Bonus of 20% of basic wages + 1% for each 1% increase in efficiency .EFFICIENCY LEVEL % OF BONUS Below 66 2/3% 66 2/3% to 100% Only time wages.

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