Basic system of wages

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 w ages, 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: 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.