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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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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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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.