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X- BUSINESS STUDIES

From the Desk of SOHAIL MERCHANT

PIECE RATE SYSTEM /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.

Merits
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.

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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.
Demerits:
Under the straight piece wage plan no minimum remuneration is guaranteed. If due to
reasons beyond ones 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
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.
2) Piece rates with guaranteed time rates and
3) Differential Piece rates

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TIME RATE OR TIME WAGE SYSTEM


Time Rate or Time Wage System is the most popular method of wage payment.
Known by various other names such as time work, day work, day wages and day rate,
the payment is made on the basis of attendance. Wages are paid to the workers on time
basis irrespective of the quantum of production, at a specified wage rate. The wage rate
may be fixed on hourly, daily, weekly, fortnightly, or monthly basis. Calculation of wages
under this1 method of wage payment takes into account: (i) the time spent by the worker
and, (ii) the wage rate per unit of time fixed. The formula is:
Wages = Time spent x Wage rate per unit of time
For example, if a worker gets Rs.10 per hour, he works for 8 hours per day and has
been present for duty on 25 days during the month, his wages for the month on the
basis of time rate system will be:
(25 x 8) hours x Rs.10 = Rs. 2,000
Thus the worker is paid on the basis of time and not on his performance or quantity of
output.
Suitability of Time Rate System
The system may prove to be quite ideal is the following cases:
(i) Where quality of production is relatively more important than quantity, e.g., tool room,
testing and inspection, etc.
(ii) Where it is difficult to measure the performance precisely, e.g., the performance of
indirect workers, night watchman, gate-keepers, maintenance and repair work, etc.
(iii) Where output of the worker is beyond his control, e.g., where his speed of work is
restricted by the speed of machines or conveyor belts, or where his work is dependent
upon the work done by other workers.
(iv) Where close supervision of work is possible.
(v) Where the nature of work is such that there is no basis for incentive plan, e.g., night
watchman.
(vi) Where production is intermittent on account of delays, power shut-down, etc.

Merits
Important advantages of this system are the following:
(i) Simplicity - It is simple to understand and operate.
(ii) Economy - The system is economical. Records of labour are simple and less
detailed. This means a saving in overheads.

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(iii) Quality output - The system results in better quality of output aim workmanship since
workers are in no hurry to complete the jobs.
(iv) Offers fixed minimum wage - The system offers a fixed minimum waggle the
workers for a defined period of time. They are assured of s earnings in spite of work
stoppages or due to below par efficiency cans by personal factors.
(v) Elimination of speeding - Speeding is eliminated as the security of minimum wage is
ensured to the workers. Speeding would have result in poor health of the workers and
wastage of raw materials.
(vi) Equality and unity among workers - The system is generally preferred trade unions
because uniform rate of wage is given to workers irrespective of efficiency. It maintains
unity among workers.
Demerits
Although the time rate system is a common system of wage payment and widely
applied, yet it has the following disadvantages:
(i) Unfair - As the wages are paid on the basis of time irrespective efficiency of the
workers, there is no correlation between the outputs an wage of a worker. The more
efficient worker gets no extra reward lord his efficiency. The wages of a beginner and an
innovative and experience worker may be the same.
(ii) Discontent and Turnover - The system may cause discontentment among the
efficient workers and they may leave the organisation resulting labor turnover.
(iii) Reduction of efficiency - Efficient workers may become inefficient because they
notice that the inefficient workers also get the same wages.
(iv) Increased cost of production - The cost of production per unit is higher; there are
direct incentives to workers to work slowly which ultimately results in doing the
incomplete work during overtime and overtime wages are paid at higher rate. Workers
also get wages for idle time which helps to increase the cost of production per unit.
(v) Difficulty in preparing quotations - It is not possible to ascertain the exact labour cost
per unit because it will change if output falls or rises. So difficulty is experienced in
sending the quotations for tenders.
(vi) Conflict - The system may cause conflict between the management and workers
since management wants maximum output and workers want maximum wages. Such
conflict may lead to serious confrontation between management and workers.
(vii) Increased cost of supervision the system needs close supervision to ensure
continuity of operations which results in increased cost of supervision.
There are a few variations of the time rate system with a view to introducing an element
of incentive in the time wages. These methods are:

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(a) High Wage Rate:


Under this wage system, a time rate of a worker is fixed at a higher level than the
average wage rate of the industry. The wage rate is fixed by hour or day. Higher rate is
given to attract efficient workers. Overtime is not permitted under this system. Stable
working conditions are created to enable the workers to achieve the standard output
within the regular hours of work. Those who are not able to achieve the standard are
taken off the scheme.
(b) Graduated Time Rate:
Under this method, wages we paid at time rates which vary with changes in cost of
living index. The wage rate per hour or per day goes on changing with changes in the
general cost of living index. This system is preferred by the workers during the time of
rising prices because their wages go on increasing with increase in the cost of living
index. In India, the basic wage rates normally remain fixed and the worker is paid
dearness allowance which rises with cost of living.
(c) Differential Time Rate:
Under this wage plan, different wage rates are fixed for different levels efficiency.
Normal time rate is paid to the workers up to certain percentage efficiency. The rate
gradually increases beyond the standard. Thus higher rates are giving to efficient
workers in recognisation of their efficient performance.

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DIFFERENTIATE BETWEEN PIECE RATE SYSTEM AND TIME RATE SYSTEM

1. Meaning
Piece rate system is a method of wage payment to workers based on the quantity of
output they have produced. Time rate system is a method of wage payment to workers
based on time spent by them for the production of output.
2. Nature Of Payment
Piece rate system pays the workers according to the units of output produced. Time rate
system pays the workers according to the time spent in the factory.
3. Emphasis
Piece rate system gives emphasis on larger quantity of output. Time rate system
emphasis on better quality of output.
4. Discrimination
Piece rate system discriminates the workers and pays more wages to efficient and
skilled workers. Time rate system does not discriminate the workers and pays the same
wages to efficient and inefficient workers.
5. Supervision
Piece rate system requires strict supervision to get the required quality output. Time rate
system requires strict supervision to get required quantity of output.
6. Determination Of Labor Cost
Piece rate system helps to fix per unit labor cost in advance. Time rate system does not
help to fix labor cost per unit in advance.
7. Flow Of Production
Piece rate system does not bring uniformity in the flow of production and causes an
excessive wastage of inputs. Time rate system helps maintain a uniform flow of
production and ensures an efficient use of materials, tools and equipments.

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