After reading this article you will learn about:- 1. Meaning of Piece Wage System 2. Features of Piece Wage System 3. Conditions Favouring 4. Advantages 5. Disadvantages.
Contents:
- Meaning of Piece Wage System
- Features of Piece Wage System
- Conditions Favouring Piece Wage System
- Advantages of Piece Wage System
- Disadvantages of Piece Wage System
1. Meaning of Piece Wage System:
It is based on the amount of work performed, i.e., on the basis of output or productivity and not on the basis of time spent. Piece work is one of the simplest and most commonly used of all incentive plans. The standard is expressed in terms of certain sum of money for every unit produced, such as Rs.2/- per piece or Rs.4/- per kilo or Rs.6/- per dozen.
The earnings of the employee are directly proportional to his out-put or performance. It is called a 1 for 1 plan for each 1 per cent increase in production the worker is paid a 1 per cent increase in wages.
2. Features of Piece Wage System (with base rate):
1. It can offer direct connection between effort and reward. Hence, a worker has incentive to produce more. Merit, talent, skill and efficiency all these are at a premium. Hence, it is the best method to ensure higher productivity.
2. It can ensure adequate planning and close control over labour costs. Wage cost determination is easy. Labour cost per unit of output is measurable. Both these features are conscious by their absence under the time wage system but they are duly available under the piece wage system.
Hence, if the piece rate is fair and satisfactory to both parties, piece wage is undoubtedly superior to time wage and it is an ideal system of wage payment, because it is beneficial to all more wages, more profit, lower unit cost of labour, etc.
Job evaluation can determine basic hourly rate, i.e., Rs.10/- per hour. Standard time of three minutes per unit or 20 units per hour is set by industrial engineer. This is equal to Rs. 10/- = Re. 0.50 per unit. If the guaranteed minimum wage is Rs.10/- per hour and if the worker’s output was less than 20 units, necessary to earn the minimum, he would still be paid Rs.10/- per hour.
But with straight piece work (without a guaranteed minimum) the worker would be paid purely on the basis of output at the rate of 50 paise per unit. Under pure piece wage direct labour cost per unit to the employee is fixed. However, in a well- regulated piece wage system, a piece work plan has a guaranteed minimum which is also required under the Minimum Wages Act.
3. Conditions Favouring Piece Wage System:
Piece wage system is eminently suitable under the following conditions:
1. If the amount of work can be accurately measured, standardised and counted.
2. If productivity is closely related to skill and effort.
3. If the unit cost of labour can be easily determined and controlled.
4. If there is no fear of unwarranted rate cutting by the management and employer realizes the distinct advantage of piece work.
5. If labour offers full co-operation.
4. Advantages of Piece Wage System:
1. Direct connection between effort and reward gives incentive to produce more.
2. It is simple and easy to understand.
3. It is fair in its rewards, since earnings are directly proportional to output.
4. Cost accounting and control by management is facilitated as labour cost is constant for output easy estimate of labour cost and control over unit cost of labour. Under time wage, we have fluctuating output for the same wage.
5. Specialised industry with huge capital investment expects maximum output. Piece wage system is the best method to maximise output.
6. The worker is interested in higher efficiency. We have self-supervision, saving of time, etc. There is no need for elaborate inspection and strict supervision by the managerial group.
5. Disadvantages of Piece Wage System:
1. Danger of overwork in temptation to earn more. This leads to excessive fatigue, ill health and risk of accident.
2. If quality is given top preference, it is an ineffective method.
3. In the absence of mutual confidence, fixation of piece wage rate is difficult.
4. Under piece wage system we require a lot of supervision to maintain the quality and standard of work. Workers are tempted to ignore quality.
With all the drawbacks, a well regulated piece wage system (with guaranteed minimum base rate of compensation) is undoubtedly superior to the pure time wage system.
Piece Rate must be based upon:
1. Work study.
2. Time and motion study.
3. Job evaluation technique.
It should be neither too high nor too low.