Some of the systems of wage payments commonly used are: 1. Time Rate System 2. Piece Rate System 3. Combination of Time and Piece Rate System.
Method # 1. Time Rate System:
Time rate system is the simplest and oldest method of wage payment. According to this system, the workers are paid in accordance with the time spent on the job. The time may be on hourly, daily, weekly, fortnightly or monthly basis. The work or production done by an employee is not taken into consideration.
For example,
If the worker is paid at the rate of Rs.20 per hour and he spends 50 hours during a week, the weekly payment is:
Weekly wages = (Number of hours worked during the week) x (Rate per hours) = 50 x 20 = Rs.1000 per week.
Advantages:
a. This method of wage payment is very simple. The workers will not find any difficulty in calculating the wages.
b. This method is acceptable to trade unions because it does not distinguish between workers on the basis of their performance.
c. The quality of goods will be better as workers are assured of wages on time basis.
d. This system is good for the beginners because they may not be able to reach a particular level of production in the beginning.
e. There will be less wastage, as workers will not be in a hurry to push through production.
Disadvantages:
a. This method does not distinguish between efficient and inefficient workers. The payment of wages is related to time and not output. Thus, the method gives no incentive for producing more.
b. There will be wastage of time, as the workers are not following a target of production.
c. Because wages are not related to output, employees find it difficult in determining labour cost per unit.
d. Work needs supervision. Thus, cost of supervision increases.
Method # 2. Piece Rate System:
Piece rate system is a system in which wages are paid in accordance with the number of units of work produced. This is independent of time spent on the job. A fixed rate of wage is paid for each piece of unit produced.
For example,
If a worker produces 100 pieces per day and he is paid at the rate of Rs.1.2 per piece, the daily wage is 100 x 1.2 = Rs.120.
Advantages:
a. This system is simple in working and the workers can easily calculate their wages.
b. This system helps in distinguishing efficient and inefficient workers.
c. Strict supervision is not required in this system.
d. This system is fair to employee and employer both.
e. There will be no dispute for wages, as workers will be rewarded satisfactory for their work.
Disadvantages:
a. This system does not guarantee a fixed minimum wage to a worker.
b. The quality of goods will be poor as workers try to speed up their work in order to produce more.
c. There will be increase in wastage of materials.
d. Workers intentionally ignore safety rules, inviting accidents.
e. Workers neglect their health in order to put their maximum efforts.
f. The wages of beginners will be less, as their output cannot be equal to the experienced workers.
Method # 3. Combination of Time and Piece Rate System:
In this system, both time and product are taken into consideration. The minimum weekly wages are fixed for every worker, which are to be paid irrespective of his output during the week, provided he has worked for full working hours required in a week. The wages for the period of his absence are deducted from the total amount of his wages.
The piece rate system is also combined with time rate system as follows:
A job card of each worker is maintained which clearly shows the number of jobs completed by the worker during a week. Payment for each job is fixed in advance. If the piece rate wages earned by the worker are more than time rate wages, the balance is paid to the worker. On the other hand, if piece rate wages are less than time rate wages, then the worker will have to compensate the same by making more pieces during next week.
Advantages:
a. This system provides incentives to workers to produce more,
b. It is simple in its working and the workers can easily calculate their wages.
Disadvantages:
a. It needs check on quality.
b. It needs careful piece rate fixing.
c. The entire benefit of extra payment goes to worker.