Two Methods of Wage Payment

There are two basic methods of wage payment, i.e., payment by time and piece wage unit system .

1) Payment by time:

This is the age-old and most prevalent method of method the employee is paid on the basis of time
worked such as per day per week, and per month rather than output. This is the main difference
between this system and the incentive system.
The wage rate is predetermined by negotiation, by reference to local rates, or by job evaluation.
This method is useful when a worker has to do unstandardized job. This is generally the method
adopted for white collar clerical and managerial jobs.

The advantage of payment by time rate for an employee is that earnings are predictable and
steady. This breeds a sense of security by assuring employee a fixed packet. The employee also
does not need to argue with wage fixer about his/her remuneration.

2) Piece wage system meaning

Under the piece wage method the wages are paid on the basis of the output. They are paid on the
basis of the number of units produced by them irrespective of time spent on the job. So the earning
of the worker depends upon the speed of the worker so an efficient worker earns higher wages
than the inefficient worker.

Wages= number of units produce* rate per unit

This method is also called straight piece rate system

Suppose the worker is paid rs 50 for per unit produced and he made 5 units then he will be paid
wages= 5* 50= rs 250.

Applicability of piece wage system:

i) This method is used when job is of repetitive nature.

ii) When production process is simple and does not require personal skill.

iii) When machines used are not costly.

iv) When quantity is important.

v) When physical work is involved.

Advantages of piece wage system:

i) Less supervision; this method does not require more supervision as they are aware that they will
be paid more if they work hard.

ii) More quantity: in this case organization gets more of the quantity from the work method.

iii) Economy: here the workers production in per day is more than the other method so the overall
production is more which proves to be economical for the organization.

iv) Fair wages: the workers are paid as per the pieces made by them so it penalizes the inefficient
workers automatically.

v) Incentive for more production: here the workers get the incentives for more the output they
give.

Disadvantages of piece wage system:

i).wastage: as the workers are more concerned with production this results into wastage of the
material as well as of the machinery.

ii) Low quality: the workers are concerned about producing more and more rather than the quality
of the product.

iii) Health hazard: some workers are in habit of making more pieces irrespective of the effect of
this on their health.

iv) Inefficient workers: they are not paid properly because the payment is as per the pieces made
by them.

v) Difficulty in rate fixation: it is very difficult to fix the per piece rate for paying the workers.

This is the meaning of piece wage system, its applications, advantages and disadvantages.