Thursday, 11 July 2013

METHODS OF WAGE PAYMENT

METHODS OF WAGE PAYMENT

Basically there are two methods of paying labor remuneration and other methods are combinations or modifications of these two. One is the time wage system and another is the piece wage system.
1. Time Wage System
Under this system, wages are paid on the basis of time spent on the job irrespective of the amount of work done. The unit of time may be a day. A week, a fortnight or a month. In the past, daily wages have been the most common basis and, therefore, it came to be known as the ‘Day Wage System’.
Time wage system has the following advantages:
  1. It is the simplest and the oldest method. It is easy to understand and workers can easily compute their own remuneration.
  2. Earnings of workers are regular and fixed and they do not suffer from temporary loss of efficiency.
  3. As there is no pressure to speed up production, the quality of work can be kept high. A worker can show his skill.
  4. Learners can concentrate on learning the best methods of work as their earning s are not dependent on the amount of work.
  5. It is an objective method.
The time wage system suffers from the following disadvantages:
  1. The method provides no incentive for better performance as reward is not proportionate to effort.
  2. Guaranteed remuneration makes workers indifferent and complacent.
  3. Calculation of labor cost per unit is difficult as the total wage bill does not change with the volume of production.
  4. In the absence of an incentive to hard work, productivity of labor becomes low unless close supervision is used. Thus, costs of supervision are high.
  5. Control over labor cost becomes difficult and more payment may be made for the lesser amount of work.
Time wage system is suitable under following conditions:
  1. Where units of output are non-measurable an in case of office work and mental work is involved as in policy working.
  2. When quality of work is especially important, e.g., artistic furniture, fine jewelry, etc.
  3. When supervision is good and supervisors know what constitutes a “fair day’s work”.
  4. When workers are new and learning the job.
  5. When collective efforts of a group of persons are essential for completing the job.
2. Piece Wage System
Under this system, remuneration is based on the amount of work done or output of a worker. One unit of output is considered as one piece and a specific rate of wage is paid per piece. Greater id the number of pieces produced by a worker, higher is his remuneration. Thus, a workman is paid in direct proportion to his output. It is called payment by results.
Piece wage system has the following advantages:
  1. There is a direct relation between effort and reward; workers who work hard and produce more get more wages. This provides an incentive to increase productivity.
  2. Ambitious and efficient workers are provided ample opportunity to utilize their talent and increase their earnings and thereby improve their standard of living and morale.
  3. The method is just and fair to all. Efficient workers get ample reward, while shirkers are penalized. It prevents soldiering on the job.
  4. Management can distinguish between efficient and inefficient workers for the purpose of promotion, etc.
  5. Increase in productivity results in higher output and lower costs of production per unit.
  6. The cost of labor per unit of output can be easily calculated as the wage bill varies in direct proportion to the output.
  7. As workers themselves have a stake in maximization of efficiency, cost of supervision is low.
Piece wage system is, however, subject to the following drawbacks:
  1. It is very difficult to fix piece wage rates. Employers often cut the piece rate when they find workers are producing large quantities.
  2. The earnings of workers are not stable and they may suffer due to temporary delays or difficulties. They feel insecure and dissatisfied.
  3. Employees may not stress quality so that rigid quality control becomes necessary.
  4. This system may create jealousy between efficient and inefficient workers. Trade unions do not like it as it affects their solidarity.
  5. Detailed records of production have to be kept so that the clerical work is increased. The method is not practicable when contribution of individual workers cannot be calculated, i.e., construction work.
Piece wage system is suitable under the following conditions:
  1. When work done by an individual worker can be measured accurately, e.g., production of standardized goods in the factory.
  2. When the quantity of output depends directly upon the skill and efforts of the worker.
  3. Where the flow of work is regular and interruptions are minimum i.e., repetitive jobs.
  4. Where quality and workmanship are not very important.
  5. In large scale production involving heavy overheads and heads and broad supervision.
  6. When competitive conditions and cost control require that labor cost per unit fixed in order.
  7. When methods of production are standardized and the job is of a repetitive nature.

Difference between Time wage system & Piece wage system
3. Balance or Debt Method
This method is a combination of time and piece wage systems. The worker is guaranteed a time rate with an alternative piece rate. If the wage calculated at piece rate exceeds the time rate, the worker gets credit. On the other hand, if those wages exceed piece wages, the worker is paid time wage and the deficit is carried forward as debt to be recon served in future.
Suppose, the time rate is Rs. 250per week and the piece rate is Rs. 2per unit. The wage of a worker, who produces 150, 100, 125 units in three weeks will be calculated as follows:
 

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