Piece Rate Systems

Guaranteed Time rates:
In this system the payment is at the time rates but adjusted to the cost of living. Merit awards for personal qualities, skill, ability, punctuality etc. are also considered. The employer compensates the high labour cost by increasing the price of the products. In any case, it is difficult to determine the wage index, though the scheme is acceptable to all.
Under the piece rate system the workers are paid at a stipulated rate per piece or unit of output. Here speed is the basis of payment. Instead of time. In this system the rate is fixed per piece of work and the worker is paid according to the number of pieces completed or the volume of work done by him, irrespective of time taken by him in completing that work. Efficiency is thus, recognized in this system. The method is applicable where 1) quality of work is not important 2) work is of a repetitive nature, 3) joint rate can be fixed satisfactorily 4) there is sufficient demand for output to guarantee continuous work and 5) the job is a standardized one.
1) It provides encouragement for higher production by rewarding efficient workers in a suitable way.
2) In their bid to earn more, workers will try to adopt better and more efficient methods and thereby increase production. As a result the general dexterity and skills of the workers are enhanced.
3) Since wage rate is fixed per unit , it is easy to prepare quotations estimates and budgets
4) Idle time will be reduced to the minimum. As workers are not paid for wasted time on the job
5) Workers take great care in maintaining machines and tools properly because their breakdown would cause work stoppages and reduce their evenings.
6) Cost of supervision is less, as the workers do not require supervisors to oversee their efforts. Higher earning for increased production automatically compels team to work with zeal and enthusiasm.
Under the straight piece wage plan no minimum remuneration is guaranteed. If due to reasons beyond one’s control, delays occur in performance of the jobs, the concerned worker would have to grow without any remuneration.
1) Beginners and average workers will not be able to earn reasonable wages because of their inability to complete the work as fast as their experienced counterparts do.
2) Quantity will be over emphasized at the cost of quality unless close supervision is maintained
3) Piece rates are unsuitable in circumstances where work is intermittent an the job cannot be standardized.
4) Since wages are linked with output, there will be a tendency among workers to labour hard and overstrain themselves to record higher and higher output to get increased wages thereof. Overworking  affects the health of the workers.
5) Since capacities of workers differ widely, their earnings as per piece rates also vary widely causing dissatisfaction among them.
6) Trade unions very often oppose this system on ethical grounds that lead to rivalry among workers and destroy brotherly feeling among them.
Types of Piece rate systems:
The piece rate systems can be classified infield into three categories
1) Straight Piece rate
2) Piece rates with guaranteed time rates and
3) Differential Piece rates
Straight Piece rate>>>
In this method payment is made on the basis of affixed amount per fixed units produced without regard to the time taken Thus,
Earnings = Number of units x rate per unit.
The Fixation of piece rate generally depends upon:
1) The comparable time rate for the same class of workers
2) The expected output in given time.
Source: HRM book

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