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.
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.
(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.
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:
(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.