METHODS OF WAGE

PAYMENT

WAGES
Labour is one of the main factors of
production. The success of a concern
depends upon the efficiency of labour to a
great extent. Low wages do not necessarily
result in low cost of production. Actually
there should be optimum wages for
remunerating labour and any single
method cannot be recommened for all
business concerns. However there are
some factors which can be considered-

MUTUAL
BENEFIT
EASILY UNDERSTOOD
MINIMUM WAGES
SIMPLE OPERATION
FLEXIBILITY

METHODS OF WAGE
PAYMENT

In devising system of wage determination, the

critical question that emerges is whether the wage
will be linked to time spent on the workplace or
output achieved during a specified period. This
results into two types of wages time wage and
piece wage.
These two basic systems have their own relative
merits and demerits.
In order to avoid hardship to employees, a
combination of these two methods is followed to
ensure the payment of minimum wages. This
method is known as balance method

1. TIME WAGE METHOD

In time wage method, the wage is determined on

the basis of time worked which may be hourly,
daily, weekly, monthly or any other time base.
A worker is paid wage for the time worked
irrespective of his output during that time.
Perhaps, this is the oldest and most prevalent
system of wage payment.

Merits of Time Wage

1.

2.

There are certain jobs in which output

within a specified period is not easily
measurable. For example, the job of a
peon. In such a case wage payment is
linked to time.
It is quite easy to understand and
calculate the amount of wages to be paid.
Thus, even an illiterate worker can
understand it.

CONTD..
3. Both employers and workers know well in
advance the amount of wages payable
and they can adjust their budgets
accordingly.
4. It ensures the payment of regular and
specific wages which is beneficial from
social point of view.
5. Product/service quality tends to be high
as workers are not in hurry to produce
more without regard to quality.

DEMERITS OF TIME WAGE

1.

2.

3.

Since there is no direct linkage between

performance and wages employees tend to
take easy approach.
This system does not differentiate between
efficient and inefficient workers: gradually,
inefficiency percolates to efficient workers
too.
It de-motivates efficient workers for more
output as they are put at par with inefficient
ones.

CONTD..
4. Labour cost of production becomes
difficult to determine in advance because
wages are not linked to output.
5. Since productivity is not a criterion for
fixing wages. there is a possibility that
wrong employees are placed on the job.

Time Wage System suitable in

the following situations
1. Where units of output are not measurable precisely like office work.
2. Where individual employees do not have direct control on their outputs
like assembly work.
3. Where quality of work is more pronounced and requires creative
imagination like artistic work.
4. Where machinery and raw materials are quite sophisticated which
require handling with utmost care like processing of precious metals.
5. Where work is of highly varied nature and standards of outputs cannot
be ascertained like research work.
6. Where workers' unions oppose the introduction of piece rate system.
7. Where supervision is good and the supervisors can estimate a fair day's
work.

2. Piece Wage Method

In piece wage method workers are paid
wages according to the quantity of output
during a specified period.
This may be calculated on the basis of
number of units produced or the
completion of a job where output is not
measurable in terms of individual units.

Merits of Piece Wage

1.

2.

3.

There is a direct relationship between output and

wages which works as a motivating factor to
workers to produce more.
It differentiates efficient and inefficient workers
and provides incentives to inefficient workers to
become efficient.
This is fair and equitable so far as utilisation of
human resources is concerned.

CONTD..
4. It. requires less supervision if there is inbuilt system for product quality control.
5. The organization can estimate its cost of
production well in advance because wage
cost is directly proportional to output.

Demerits of Piece Wage

1.

There is a problem in fixing piece rate in the

absence of any standardized procedure.

2.

There is a tendency on the part of the employers

to cut piece rate if workers earnings are quite
high.

3.

The method does not ensure minimum wages as

output may be adversely affected by factors
beyond control.

CONTD..
4. The product quality and machinery
conditions are likely to suffer because
workers concentrate more on quantity
rather than quality.
5. There may be jealousy and interpersonal
conflict among workers because of their
uneven earnings at the same workplace.
6. Trade unions generally oppose this system
because of the fear of discrimination
among workers based on their working.

Piece Wage System suitable in

the following situations
1.

2.

3.

4.

5.

Where the output of each individual worker can

be measured precisely.
Where the quantity of output is a direct result of
skills and efforts of individual workers.
When the flow of work is regular and work
interruptions do not occur.
Where production methods are standardized and
job is of repetitive nature.
Where workmanship is not required.

3. Balance Method

Balance method also known as debt method, is

essentially a combination of time wage and piece
wage methods.
Under this method, a worker is guaranteed a fixed
wage based on time rate with a provision of piece
wage method.
Thus, if a worker produces more quantity in a period,
usually on weekly or monthly basis, and earns more
than his time wage, he is given credit for additional
output which is compensated in another period in
which production quantity falls below the time wage.

CONTD..

This method provides a sense of security to a

worker so far as his wage earning is concerned.
At the same time, he is also motivated to produce
more because of inclusion of piece wage system.
This method has its relevance in a workplace
where the work flow is irregular like docks.

POWERPOINT
PRESENTATION
BY:
LOHITAKSH-1622
MANISH-