Wage Payment Systems: 4 Major Systems

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Wages, in the widest sense mean, any economic compensation paid by the employer under some contract to his workers for the services rendered by them. Wages, therefore, include family allowance, relief pay, financial support and other benefits.

But, in the narrower sense wages are the price paid for the services of labour in the process of production and include only the performance wages or wages proper.

There is no single system of wage payment which can be considered to be applicable universally since every business and industrial unit has its own peculiarities and problems to solve. A system has to meet the requirements of the establishment concerned.

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There is no single system of wage payment which can be considered to be applicable universally since every business and industrial unit has its own peculiarities and problems to solve.

Some of the systems of wage payment are:-

1. Time Wage System 2. Grading System 3. Piece-Wage System 4. Balance and Debt System 5. Minimum Wage System 6. Fair Wage System 7. Living Wage System.


Systems of Wage Payment for Workers

Systems of Wage Payment – 4 Important Systems: Time Wage, Grading, Piece Wage and Balance & Debt System

Wages, in the widest sense mean, any economic compensation paid by the employer under some contract to his workers for the services rendered by them. Wages, therefore, include family allowance, relief pay, financial support and other benefits. But, in the narrower sense wages are the price paid for the services of labour in the process of production and include only the performance wages or wages proper.

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There is no single system of wage payment which can be considered to be applicable universally since every business and industrial unit has its own peculiarities and problems to solve. A system has to meet the requirements of the establishment concerned.

The fundamental bases of wage payment are only two – (1) Payment by time worked, and (2) Payment for output. There are indeed all kinds of modifications and minglings of these two principles, but they are nonetheless fundamentally distinct.

In its simplest form, time wage system would adopt time as the basis of worker remuneration without taking into account the units produced. Similarly, in the simplest form of payment for output, wages are paid on the basis of the units produced regardless of the time taken to produce them. In actual practice, however, these systems in their simplest forms are seldom applied.

A time-wage system is never wholly without relation to output; for the employer inevitably expects a certain amount of work from a worker whom he employs and if this amount is not forthcoming, he discharges him. Payment by output is never wholly without relation to a time standard; for prices are invariably determined to a great extent by the income which constitutes the normal standard of life for the workman concerned.

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The four important systems of wage payment are explained as under with their variations:

System # 1. Time Wage:

In this system, time is made the basis of payment. It is the oldest of the wage systems and offers the workers a given sum of money for a fixed period of his time taking no account of the quantity of work done. The worker is guaranteed a definite sum, and the rate may be quoted as so much per hour, day, week, fortnight, or month. The payment of the wage may be made at the end of the day, the week, the fortnight or the month, according as is mutually agreed, provided that not more than one month must elapse between two wage periods.

Advantages:

Time wage system has the following advantages:

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i. Simplicity is the greatest merit of time wage system. The time which a man expends on a job is easy to measure.

ii. It gives the worker some security which is so important for sustaining his interest in work. There is no danger of the worker losing his remuneration or part of it due to temporary reduction in his efficiency resulting from unavoidable accident or sickness.

iii. A worker, being assured of a fixed income, can adjust his expenditure to his income and maintain a certain standard.

iv. Time rate favours careful work, for the workman can show his craftsmanship and enjoy the pleasure of a perfect product without any loss to him.

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v. The quality of the work is not degraded, as the workers are in no hurry to increase the output.

vi. As a corollary to this, there is no rough handling of machinery which is a distinct advantage to the employer.

vii. The system requires less administrative attention than others, and leaves men contented with delays and breakdowns.

viii. Since the calculations are simple, the Trade Unions favour this system. It also creates solidarity of interest with each wage group as the standard wage is always paid and it can be made the basis of easily understood negotiations.

ix. Where the productivity of a worker cannot be accurately measured because the production is not standardised, time rate system is the only just method of wage payment.

Disadvantages:

The time wage system suffers from the following weaknesses:

i. The principal weakness of the system is that it does not discriminate between the efficient and inefficient worker and between the honest worker and the shirker.

ii. As both good and bad workers are paid alike, the system “represses the superior man”, for there is no incentive to hard work.

iii. The time basis provides no basis to reward the good worker and punish the loafer. In fact, the system tends to place a premium on inefficiency.

iv. The system encourages “soldiering”.

v. Since it does not encourage men to work hard, it becomes the responsibility of foremen and supervisors to keep men working.

vi. The system permits many a man to work at a task for which he has neither taste nor ability, when he might make a mark in some other suitable job.

vii. The herding together of men into classes regardless of personal character and performance leads to employer-employee trouble.

viii. The result of all the above factors is that latent talent finds vent in antagonistic forms of activity rather than productivity for it produces a sense of personal injury in exceptional men.

System # 2. Grading:

It is suggested that as a measure of improvement on the time rate system graded payments may be made, based on the normal or ordinary wages according to the skill and experience necessary to perform different tasks. This is done by what is called as Grading System. Each worker is graded according to his ability and placed in one of several different classes, for each of which a minimum wage is set by collective bargaining.

System # 3. Piece-Wage:

In contrast to time wage, this system makes speed as the basis of payment. The piece rate plan of payment is based on the idea that men are hired to work, not to stand around, and so their pay is based on the quantity of work they complete satisfactorily during a specified period, called the pay-period. Thus, a worker is paid according to the speed at which he works, the amount of work per day, or per week, not merely the amount.

Under this system the employee makes all the gain or loss of his own time. If he shortens the time used, i.e., works with greater speed, he receives no less for the job finished, and he gains time in which to make extra earnings at the same time. If he takes a longer period, the remuneration may fall below time wage. The employers also gain because through rapid performance the factory burden to be charged to each piece or job is decreased.

Employers favour piece – wage system where soldiering is difficult to detect, as in moulding, where speed is unusually important, as in railway repair shop; where work is, done away from employers’ place of business. The system is best suited for work of repetitive nature and for trades which “sell-then-make”. It has been successfully followed in coal mining, textile industries, shoe factories, etc.

Advantages:

The piece-wage system offers the following advan­tages:

i. Since payment is based on results of efficiency, this system recognises merit. It is therefore more equitable than the time-rate system.

ii. It encourages voluntary effort as against a “drive” under time-rate, creating an atmosphere of willingness and zeal for work.

iii. The total costs are reduced, for which direct labour costs remain constant at all speeds of performance, the increase in the amount of work per hour decreases the hourly charge on account of plant and manage­ment. This illustrates the proposition that higher wages mean lower labour costs.

iv. The direct labour cost per unit of product or per job becomes a fixed amount reliable for use in cost calculations.

Disadvantages:

The piece-wage system suffers from the following drawbacks:

i. Straight piece rate does not guarantee day wages, so that a worker may at times earn below the subsistence level because of some factor beyond his control. The fluctuations in earnings are a source of constant worry and annoyance to the worker.

ii. While payment based on speed provides an incentive for greater volume, it discourages quality and judgement.

iii. It also becomes necessary for supervisors to inspect the work carefully, since the system encourages the sacrifice of quality for quantity.

iv. High speeds are injurious to the workers and also they are hard on machinery and equipment.

v. It is objected to on ethical grounds as it encourages greed and unhealthy rivalries among the workers. Politically, piece-rate weakens trade unions, and higher earnings are likely to encourage absenteeism.

vi. The system can become a source of trouble between the management and workers. Where, for instance, piece wage is introduced in place of time rate, workers, have increased their output and income. The employers thinking that some employees are earning too much money, have often “cut” the rate, which the workers resent. This induces Antagonism and economic warfare between management and men.

vii. As a result of this, the system encourages soldiering because to escape further cuts the workers begin to produce less, and also regard their employers as their enemies, to be opposed in everything they want.

System # 4. Balance and Debt:

This system combines within itself the time-and piece-rate. Under this system a minimum weekly wage is guaranteed for a full week’s work, with an alternative piece-rate determined by the rate fixed on the assumption that the worker would put in enough effort to earn his minimum wage.

If the wages calculated on piece basis are in excess of the time rate, the worker earns the excess; if the piece-rate wages are less than the time-rate earnings, he would still get the Weekly wage, but on the condition that he shall have to make good the excess paid to him out of the subsequent wage he would earn. Suppose a- worker is expected to complete at least 10 pieces during the week in order to earn his minimum wage of Rs.60, the piece rate has been fixed at Rs.6 per unit.

If the worker produces 12 units within the week his earning will be Rs.72. If, on the other hand, he produces only 9 units, he will still be paid Rs.60, his minimum weekly wage, but as on the basis of piece-rate, his earnings should amount to only Rs.54. Rs.6 paid in excess will be debited to him to be deducted out of his subsequent earnings.

Under this plan the whole of the benefit of extra pay as an inducement to increased output goes to the worker; and yet speed is not the only factor in the basis of pay. A man’s wages are determined by both the number of hours he works and the speed at which he works.


Systems of Wage Payment – With Merits and Demerits

There is no single system of wage payment which can be considered to be applicable universally since every business and industrial unit has its own peculiarities and problems to solve. A system has to meet the requirements of the establishment concerned. Even in a given establish­ment it may be required to have varying systems of wage payment for different categories of workers working at different plants.

The compensation that an employee can expected for his work based either on the production capacity of the worker. The first method is called as day work because the rate of pay is fixed most usually by the day. The second is usually called piece work because compensation is paid by the piece or job.

1. Time Wage:

Here the employees are paid wages on the basis of time worked. The unit of time taken for the purpose may be an hour, a day, a week, month or any other period. As an ancient day, payment was fixed generally for the day the system is often called as the day wage system.

The system is as old as humanity and even today is the most prevent one, especially as the basis of remunerating indirect labour line foremen, supervisors, cleaners, etc., whose nature of work is such that time alone can be taken as the criterion for the purpose. Besides, the system is essential in certain industries whether work cannot be standardised or classified into suitable grades for piece-rating.

In this method the production capacity of the worker is not taken into consideration in fixing the wages he is paid at the settled rate, as soon as the time contracted for is spent. The payment of the wage may be made at the end of the day, the week, the fortnight of the month, as it is mutually agreed, provided that more than one month must elapse between the two wage periods.

Merits of Time Wage:

(i) It is simple, for the amount earned by a worker can be easily calculated.

(ii) As there is no time limit for the execution of a job, workmen are not in a hurry to finish it and this may mean that they will pay attention to the quality of other work.

(iii) As all the workmen employed for doing a particular kind of work receive the same wages, ill-will and jealousy among them are avoided.

(iv) Due to the slow and steady pace of the worker, there is no rough handling of machinery, which is a distinct advantage for the employer.

(v) It is the only system that can be used only profitability where the output of an individual workmen or groups of employees cannot be readily measured.

(vi) The day or time wage provides a regular and stable income to the worker and he can, therefore, adjust his budget accord­ingly.

(vii) This system is favoured by organised labour, for it makes for solidarity among the workers of a particular class.

(viii) It requires less administrative attention than others because the very basis of the time wage contract is good faith and mutual confidence between the parties.

In short, time wage system is the best system provided it is used after proper job evaluation and merit rating.

Demerits of Time Wage:

The main drawbacks of this system are:

(i) It does not take into account the fact that men are of different abilities and that if all the persons are paid equally, better workmen will have no incentive to work harder and better.

(ii) It leads to the reduced quantum of work, unless a strict super­vision is arranged.

(iii) It leads to employer-employee trouble.

(iv) It destroys the morale of workers and efficient workers are either driven out or pulled down the level of inefficient workers.

(v) As no record of an individual workers output is maintained, it becomes difficult for the employer to determine his effi­ciency for purpose of promotion.

(vi) The labour charges for a particular job do not remain constant.

2. Piece Wage:

Under this method, workers are paid according to the amount of work done or the number of units completed, the rate of each unit being fixed in advance, irrespective of the time taken to do the work. This is also known as payment by result method. It is considered as an improve­ment over time wage method. Under this method a worker is paid a fixed rate per unit of work produced. Thus the remuneration of workers depends upon his output and not upon working time.

This system is adopted generally in jobs of a respective nature, where tasks can be readily measured inspected and counted. It is particularly suitable for standardised processes, and it appeals to skilled and efficient workers who can increase their earnings by working to their full capacity.

The wage payable to a worker under this plan is calculated by multiplying the number of products by piece rate e.g. If a worker is paid Rs.2/- per unit, his wages for 10 units would be equal to Rs. 2 x 10 = Rs.20/-

Total wages = N x R

N = Number of units produced

R = Rate per unit

Merits / Advantages:

(i) Under this system the remuneration depends upon the volume of production. There is a direct stimulus to increase produc­tion.

(ii) It encourages voluntary effort as against a ‘drive’ under time rate, creating an atmosphere of willingness and real of work.

(iii) The cost of supervision becomes comparatively less as the workers tend to drive themselves in their own interests.

(iv) As the direct labour cost per unit of production remains fixed and constant, calculations of costs or making of tenders and estimates become easy.

(v) The total unit cost of production comes down with larger out-put because the fixed overhead burden can be distributed over a greater number of units.

(vi) The working arrangements may be improved by the workers themselves to speed up work.

(vii) Not only the output and wages are increased but methods of production are improved as the workers’ demands materials free from defects and machinery in perfect condition.

Demerits / Disadvantages:

(i) When a piece rate has been introduced in a place of time, rate, under the influence, the workers have increased their output and income. The employers thinking that some men were not earning too much money-have often ‘cut’ the rate of ‘nibbed’ it at frequent interval, which the workers recent, for they consider, ‘cuts’ as violations of agreement.

(ii) The system creates a huge gap between men and manage­ment.

(iii) To much emphasis on the quantity of production may lower the quality of products.

(iv) Keeping of individual production records and the making of pay rolls involve time and cost.

(v) Trade unions are often antagonistic to piece, rates as this form of wage payment encourages rivalry among workers and labour unions.

(vi) Excessive speeding of work may result in frequent wear and tear of plant and machinery and frequent replacement.

(vii) Faculty production planning and control, intermittent order and absence of other production facilities prevent the workers from making high wages and consequently workers may adopt a hostile attitude of the management.

3. Balance or Debt Rate:

This is a combination of time and piece rates. The worker is guaranteed an hourly or a day rate with an alternative piece rate. If the earnings of a worker calculated at the piece rate exceed the amount which he would have earned if paid on time basis, he gets credit for the balance, i.e. the excess piece rate earnings over the time rate earnings.

If his piece rate earnings are equal to his time rate earnings, the question of excess payment does not arise, where piece rate earnings are less than time rate earnings, he is paid on the basis of the time rate; but the excess which he is paid is carried forward as debt against him to be recovered from any future balance of piece work earnings over time work earnings. This system presupposes the fixation of time and piece rates on a scientific basis.

The obvious merit of this system is that an efficient worker has an opportunity to increase his wages. At the same time, workers of ordinary ability, by getting the guaranteed time wage, are given a sufficient incentive to attain the same standard, even though the excess paid to them is later deducted from their future credit balance.


Systems of Wage Payment – Minimum Wage, Fair Wage, Living Wage, Time Rate Wage

There are mainly following systems/ methods of wages payment:

System # 1. Minimum Wage:

The practice of regulating minimum wage emerged around the turn of the last century in Australia and New Zealand, as a prelude for preventing and settling industrial disputes. Experiments were also carried out for eliminating ‘sweating’.

There are three types of minimum wages namely- (a) minimum wage as per the provisions in the Minimum Wages Act, 1948 for the given scheduled employments, (b) minimum wage payable to an unskilled artisan in an organized industry, in pursuance of wage settlement, (c) ‘need-based’ wage fixed as per the norms given by the 15th Session of the Indian Labor Conference. The basic minimum wage is the bare subsistence wage. A fair wage is above the basic minimum wage and the living wage is higher than the fair wage.

The minimum wage is not fixed and varies from organization to organization, from state to state in India, as per the wages fixed by each state. It also varies from country to country. As per the definition given by the International Labour Organization (ILO), there are three criteria for deciding the minimum wage, viz.- (a) the needs of workers, (b) capacity of the employers to pay, and (c) the wage payable for identical jobs elsewhere in the state/country, as per the standard of living of the place.

The Committee on Fair Wage (1948) observed that a number of factors are involved in fixing the minimum wage. It observes that in a foreign country living wage is in effect the foundation of the minimum wage. In the case of India, since the national income is low, the law of the land has not fixed the minimum wage corresponding to the living wage abroad.

As such, the committee advised that while fixing the minimum wage, one must, of necessity, keep in mind to maintain the efficiency of the artisans. The wage cannot, therefore, be considered merely as a payment for the sustenance of life.

Hence, the minimum wage should be such as to allow for covering expenditure on medical assistance and other amenities for a worker, so as to keep him healthy to deliver his best and maintain efficiency at work.

Need Based Minimum Wage:

The ILC had its historic session in 1957 at Nainital, in which it had for the first time made efforts to decide the content of the minimum wage for workers in industries that are as follows

In pursuance of the concept of minimum wage, the ILC had held that minimum wage is ‘need-based’. It has to provide for the minimum human needs of the industrial worker. The ILC committee outlined the norms mentioned below and also recommended that these norms should be helpful to all wage fixing authorities, including the minimum wage committees, adjudicators and the wage boards.

(a) For one wage earner, a standard working class family consisting of three consumption units is to be taken into consideration, while calculating the minimum wage, excluding the wage earnings of children, women and adolescents.

(b) Food requirements (minimum) are to be calculated based on intake of 2,700 calories per head.

(c) Clothing needs are to be decided at 18 yards per capita consumption per annum, 72 yards on average, for covering a worker’s family of four.

(d) As for housing needs, the norms are to be based on the minimum rent chargeable by the government in any area(s) under the subsidized industrial housing scheme for low -income group employees.

(e) As regards the constitution of the expenditure on fuel, light and other miscellaneous sub­jects, it ought to be 20 per cent of the total minimum wage.

One of the main difficulties in implementing the norms/formula of the need-based minimum wage was in giving monetary content to the physical units mentioned above. The Second Pay Commission had also studied these norms. Incidentally, the National Commission on Labour had also studied these norms and found that the wage boards, had by and large, considered the employers’ capacity to pay while fixing the minimum wage for a given industry.

The wage fixed by the wage boards though, was low but fair. In fact, the need-based minimum wage is also a fair wage but is higher than the minimum wage in some industries. The Third Pay Commission had also tried to fix need-based minimum wage for the central government staff as per the recommendations/norms of the ILC.

Statutory Minimum Wage:

The statutory minimum wage had its origin in the awards given by industrial tribunals and judicial awards given by the respective courts. The minimum wage, fair wage and living wage were introduced in the Report of the Committee on Fair Wages.

The need-based minimum wage was introduced in the Resolution of the 15th Session of the Indian Labor Conference held in July 1957. Contents of these levels of wages are elastic in nature and as such cannot be explained in exact words. They are subject to change from time to time and country to country. A subsistence wage in one country may be far too below the subsistence level in another and likewise, it applies to fair wage and the living wage.

In other words, a fair wage in one nation can be considered to be a living wage in another, depending upon the economic condition in different countries. Similarly, a living wage in one country may not be more than a fair wage in another.

System # 2. Fair Wage:

According to Pigou, a fair wage is fair once it is equal to the rate payable to identical workmen in an identical trade, in the neighbourhood.

Broadly, a fair wage is equivalent to the existing rate for identical jobs all over the country in general for all trades as per the Indian National Trade Union Congress (INTUC), a fair wage is higher than the minimum wage and closing in on the living wage and approximating to need-based minimum wage.

The Committee on Fair Wage had also advocated that the fair wage is in between the minimum wage and the living wage. But the Committee also specified two limits to the wage. The higher limit depends upon the employer’s capacity to pay and the lower one will be the minimum wage.

The Committee also recommended that the ceiling on the employer’s capacity to pay depends upon following factors:

a. Economic conditions of the economy and the future prospects

b. Labour productivity.

c. The existing wage-rates in local neighbouring organizations.

d. Identical trade, etc.,

e. The level of national income

f. Place of the organization in the country, etc.

System # 3. Living Wage:

Justice Higgins of the Australian Commonwealth Court of Conciliation in the Harvester Case has defined living wage as one that is appropriate to meet the normal needs of an average worker living in a civilized society. Living wage is one that provides not only for most essential items like cloth and food, but also takes care of what he termed as frugal comforts, in terms of the present standard of living. It should be enough to ensure a worker food, shelter, and frugal comfort and provide for future needs.

A living wage is one which is, (a) sufficient to purchase the minimum needs of a typical family, (b) sufficient to pay for satisfactory basic budgetary needs of the family, and (c) it should compare with the living wage already existing.

In terms of the Directive Principles of State Policy of the Indian Constitution, the state is responsible to secure living wages to all workers.

The concept of ‘Living wage’ is not static. It should help workmen to be able to maintain high level of industrial efficiency, as also enable them to take care of their family with all facilities, which are needed for good health; and be able to discharge their duties effectively as good citizens. The principle is enumerated in the case of Hindustan Times vs. their workers.

The Union Government has been keen to review wages and salaries of its employees at regular intervals and Pay Commissions have been appointed to look into the subject. The Third and the Fourth Pay Commissions had recommended in their reports, that excepting the case of the mega private and PSU organizations, the actual wage levels had fallen short of the need-based minimum wage that was recommended by the 15th Indian Labor Conference. Hence, the subject deserves a review in the larger context of the economy.

System # 4. Time Rate:

This is the oldest and the most common method of fixing wages. Under this system, workers are paid according to the work done during a certain period of time, at the rate of so much per hour, per day, per week, per fortnight or per month or any other fixed period of time. The essential point is that the production of a worker is not taken into consideration in fixing the wages; he is paid at the settled rate as soon as the time contracted for is spent.

Merits:

The merits of the system are:

(i) It is simple, for the amount earned by a worker can be easily calculated.

(ii) As there is no time limit for the execution of a job, workmen are not in a hurry to finish it and this may mean that they will pay attention to the quality of their work.

(iii) As all the workmen employed for doing a particular kind of work receive the same wages, ill-will and jealousy among them are avoided.

(iv) Due to the slow and steady pace of the worker, there is no rough handling of machinery, which is a distinct advantage for the employer.

(v) It is the only system that can be used profitably where the output of an individual workman or groups of employees cannot be readily measured.

(vi) The day or time wage provides a regular and stable income to the worker and he can, therefore, adjust his budget accordingly.

(vii) This system is favoured by organised labour, for it makes for solidarity among the workers of a particular class.

(viii) It requires less administrative attention than others because the very basis of the time wage contract is good faith and mutual confidence between the parties.

Demerits:

The main drawbacks of this system are:

(i) It does not take into account the fact that men are of different abilities and that if all the persons are paid equally, better workmen will have no incentive to work harder and better. They will therefore be drawn down to the level of the least efficient workman.

Halsey observes- “Matters naturally settle down to an easy-going pace in which the workmen have little interest in their work and the employer pays extravagantly for his product” Taylor says- “The men are paid according to the position which they fill and not according to their character, energy, skill and reliability.”

(ii) The labour charges for a particular job do not remain constant. This puts the authorities in a difficult position in the matter of quoting rates for a particular piece of work.

(iii) As there is not specific demand on the worker that a piece of work needs to be completed in a given period of time, there is always the possibility of a systematic evasion of work by workmen.

(iv) This system permits many a man to work at a task for which he has neither taste nor ability, when he might make his mark in some other job.

(v) As the employer does not know the amount of work-that will be put in by each worker, the total expenditure on wages for turning out a certain piece of work cannot be adequately assessed.

(vi) As no record of an individual worker’s output is maintained, it becomes difficult for the employer to determine his relative efficiency for purposes of promotion.

System # 5. Piece Rate:

Under this system, workers are paid according to the amount of work done or the number of units completed, the rate of each unit being settled in advance, irrespective of the time taken to do the task.

This does not mean that a worker can take any time to complete a job because if his performance far exceeds the time which his employer expects he would take, the overhead charge for each unit of article will increase. There is indirect implication that a worker should not take more than the average time. If he consistently takes more time than the average time, he does it at the risk of losing his job.

Under this plan, a worker, working in given conditions and with given machinery, is paid exactly in proportion to his physical output. He is paid in direct promotion to his output, the actual amount of pay per unit of service being approximately equal to the marginal value of his service in assisting to produce that output.

This system is adopted generally in jobs of a repetitive nature, where tasks can be readily measured, inspected and counted. It is particularly suitable for standardised processes, and it appeals to skilled and efficient workers who can increase their earnings by working to their full capacity.

In weaving and spinning in the textile industry, the raising of local in the mines, the plucking of leaves in plantations, and in the shoe industry, this system can be very useful. But its application is difficult where different shifts are employed on the same work or where a great variety of different grades of workers are employed on different and immeasurable services, as in the gas and electricity industries.

A worker’s earnings can be calculated on the basis of the following formula:

WE = NR where WE is the worker’s earning, N stands for the number of pieces produced and R for the rate per piece.

Merits:

This system has many advantages:

(i) It pays the workman according to his efficiency as reflected in the amount of work turned out by him. It satisfies an industrious and efficient worker, for he finds that his efficiency is adequately rewarded. This gives him a direct stimulus to increase his production.

(ii) Supervision charges are not so heavy, for workers are not likely to while away their time since they know that their wages are dependent upon the amount of work turned out by them.

(iii) Being interested in the continuity of his work, a workman is likely to take greater care to prevent a breakdown in the machine or in the workshop. This is a point of considerable gain to the management, for it reduces plant maintenance charges.

(iv) As the direct labour cost per unit of production remains fixed and constant, calculation of costs while filling tenders and estimates becomes easier.

(v) Not only are output and wages increased, but the methods of production too are improved, for the worker demands materials free from defects and machinery in perfect running conditions.

(vi) The total unit cost of production comes down with a larger output because the fixed overhead burden can be distributed over a greater number of units.

Demerit:

The demerits of the system are:

(i) In spite of the advantages accruing to the management as well as to the workmen, the system is not particularly favoured by workers. The main reason for this is that the fixation piece rate by the employer is not done on a scientific basis.

In most cases, he determines the rate by the rule-of-thumb method, and when he finds that the workers, on an average, get higher wages compared to the wages of workers doing the same task on a day-rate basis, pressure is brought to bear upon the workers for a cut in the piece rate.

Halsey observes, “Cutting the piece price is simply killing the goose that lays the golden eggs. Nevertheless, the goose must be killed. Without it, the employer will continue to pay extravagantly for his work; with it he will stifle the rising ambition of his men.”

(ii) As the workers wish to perform their work at breakneck speed, they generally consume more power, overwork the machines, and do not try to avoid wastage of materials. This results in a high cost of production and lower profits.

(iii) There is a greater chance of deterioration in the quality of work owing to over-zealousness on the part of workers to increase production. This over-zealousness may tell upon their health, resulting in a loss of efficiency.

(iv) It encourages soldiering; and there “arises a system of hypocrisy and deceit, because to escape further cuts they begin to produce less and also regard their employers and their enemies, to be opposed in everything they want.”

(v) Excessive speeding of work may result in frequent wear and tear of plant and machinery and frequent replacement.

(vi) Trade unions are often opposed to this system, for it encourages rivalry among workers and endangers their solidarity in labour disputes.

System # 6. Balance or Debt Method:

This is a combination of time and piece rates. The worker is guaranteed an hourly or a day-rate with an alternative piece rate. If the earnings of a worker calculated at the piece rate exceed the amount which he would have earned if paid on time basis, he gets credit for the balance, i.e., the excess piece rate earnings over the time rate earnings.

If his piece rate earnings are equal to his time rate earnings, the question of excess payment does not arise. Where piece rate earnings are less than time rate earnings, he is paid on the basis of the time rate; but the excess which he is paid is carried forward as a debt against him to be recovered from any future balance of piece work earnings over time work earnings. This system presupposes the fixation of time and piece rates on a scientific basis.

Let us suppose that the piece rate for a unit of work is Re. 1.00 and the time rate is Rs. 0.37% an hour, the weekly work hours are 40 and the number of units to be completed during these 40 hours is 16.

It will be seen that the debit during the second week completely eliminated the credit of Re.1.00 obtained during the first week. The worker will be paid his guaranteed time rate, in this case Rs.15.00, in the first week and the same amount in the second week, although his earnings during the first week are Rs.16.00 and during the second week they are Rs.14.00. An adjustment will be made periodically to find out the balance to be paid to him.

The obvious merit of this system is that an efficient worker has an opportunity to increase his wages. At the same time, workers of ordinary ability, by getting the guaranteed time wage, are given a sufficient incentive to attain the same standard even though the excess paid to them is later deducted from their future credit balance.


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