METHODS OF WAGE PAYMENT

METHODS OF WAGE PAYMENT

• In devising system of wage determination, the critical question that emerges is whether the wage will be linked to time spent on the workplace or output achieved during a specified period. This results into two types of wages time wage and piece wage.

• These two basic systems have their own relative merits and demerits.

• In order to avoid hardship to employees, a combination of these two methods is followed to ensure the payment of minimum wages. This method is known as balance method

1. TIME WAGE METHOD

• In time wage method, the wage is determined on the basis of time worked which may be hourly, daily, weekly, monthly or any other time base.

• A worker is paid wage for the time worked irrespective of his output during that time.

• Perhaps, this is the oldest and most prevalent system of wage payment.

Merits of Time Wage

1. There are certain jobs in which output within a specified period is not easily measurable. For example, the job of a peon. In such a case wage payment is linked to time.

2. It is quite easy to understand and calculate the amount of wages to be paid. Thus, even an illiterate worker can understand it.

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3. Both employers and workers know well in advance the amount of wages payable and they can adjust their budgets accordingly.

4. It ensures the payment of regular and specific wages which is beneficial from social point of view.

5. Product/service quality tends to be high as workers are not in hurry to produce more without regard to quality.

DEMERITS OF TIME WAGE

1. Since there is no direct linkage between performance and wages employees tend to take easy approach.

2. This system does not differentiate between efficient and inefficient workers: gradually, inefficiency percolates to efficient workers too.

3. It de-motivates efficient workers for more output as they are put at par with inefficient ones.

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4. Labour cost of production becomes difficult to determine in advance because wages are not linked to output.

5. Since productivity is not a criterion for fixing wages. there is a possibility that wrong employees are placed on the job.

Time Wage System suitable in the following situations

1. Where units of output are not measurable precisely like office work. 2. Where individual employees do not have direct control on their outputs like assembly work.3. Where quality of work is more pronounced and requires creative

imagination like artistic work.4. Where machinery and raw materials are quite sophisticated which

require handling with utmost care like processing of precious metals.5. Where work is of highly varied nature and standards of outputs cannot

be ascertained like research work.6. Where workers' unions oppose the introduction of piece rate system.7. Where supervision is good and the supervisors can estimate a fair day's

work.

2. Piece Wage Method

• In piece wage method workers are paid wages according to the quantity of output during a specified period.

• This may be calculated on the basis of number of units produced or the completion of a job where output is not measurable in terms of individual units.

Merits of Piece Wage

1. There is a direct relationship between output and wages which works as a motivating factor to workers to produce more.

2. It differentiates efficient and inefficient workers and provides incentives to inefficient workers to become efficient.

3. This is fair and equitable so far as utilisation of human resources is concerned.

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4. It. requires less supervision if there is in-built system for product quality control.

5. The organization can estimate its cost of production well in advance because wage cost is directly proportional to output.

Demerits of Piece Wage

1. There is a problem in fixing piece rate in the absence of any standardized procedure.

2. There is a tendency on the part of the employers to cut piece rate if workers‘ earnings are quite high.

3. The method does not ensure minimum wages as output may be adversely affected by factors beyond control.

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4. The product quality and machinery conditions are likely to suffer because workers concentrate more on quantity rather than quality.

5. There may be jealousy and interpersonal conflict among workers because of their uneven earnings at the same workplace.

6. Trade unions generally oppose this system because of the fear of discrimination among workers based on their working.

Piece Wage System suitable in the following situations

1. Where the output of each individual worker can be measured precisely.

2. Where the quantity of output is a direct result of skills and efforts of individual workers.

3. When the flow of work is regular and work interruptions do not occur.

4. Where production methods are standardized and job is of repetitive nature.

5. Where workmanship is not required.

3. Balance Method

• Balance method also known as debt method, is essentially a combination of time wage and piece wage methods.

• Under this method, a worker is guaranteed a fixed wage based on time rate with a provision of piece wage method.

• Thus, if a worker produces more quantity in a period, usually on weekly or monthly basis, and earns more than his time wage, he is given credit for additional output which is compensated in another period in which production quantity falls below the time wage.

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• This method provides a sense of security to a worker so far as his wage earning is concerned.

• At the same time, he is also motivated to producemore because of inclusion of piece wage system.

• This method has its relevance in a workplace where the work flow is irregular like docks.