METHODS OF WAGE

PAYMENTS

By :-
KONIKA VOHRA
 INTRODUCTION
Wage policy is an important aspect of the personnel
management . It is the monetary compensation which
inspire the people to work ,because money satisfies
the human needs . Though ,there are number of
reasons which motivate the people to work ,yet the
monetary rewards for the services rendered remain
the most potent reason for engaging them in work .
Different wages are given to the workers for different
jobs .so the wage determination is the difficult as well
as important task of the personnel management .
 MEANING AND DEFINITION
OF WAGES

Wages means what a worker gets from employer in return , for

the services rendered to him . The adequate payment of wages
without any discrimination to employee keep their morale
high .Wages includes both monetary and non- monetary
benefits.
“Wages is a sum money paid by the
employers to their employees for rendering
to the services under a contract.”
- Benham
 Wages Vs. Salaries
The compensation paid to the
workers for putting in the
physical efforts in the process
of production is termed as
wages.
While the fixed remuneration
paid to managerial,
supervisory and clerical staff
for a definite period for the
services rendered is known as
salaries .
METHODS OF WAGE
PAYMENTS
Time Rate Or Time Wage
System

Piece Rate Or Piece Wage

System

Incentive Plans Of Wage

Payments
 Time Rate Or Time
Wage System
The system in which the wages are paid on the basis of time,is
known as time rate or time wage system .
It is an oldest system of wage payment and the wages are paid
on the predetermined time i.e. hourly, daily, weekly, monthly .
The wages are paid to the workers , on the basis of time for
which they work in the organization.
The output of the workers is immaterial for the purpose of
calculating of wages .
Under this method the performance of the workers is observed
and the efficient ones are promoted and inefficient ones are
discharged .
To be contd…….
The rate of wages may be revised from time to time
on the basis of cost of living index or according to the
agreement between the workers and the employers.
It is also called as time rate plan .
The wages under this can be calculated as follows-
Total wages =
No. of hours /days worked * Rate per hour/ day
 EXAMPLE

Suppose that a worker is paid at

the rate of rs. 9 per hour and he
has spent 200 hours at work
during a particular month. His
wages for the month will be rs.
1800 .
 Suitability Of Time rate Wage System

Quality of work is more important than output.

Supervision of work can be easily done.
It is difficult to measure to output .
specialists are required to performs the job.
The work is not standardized.
Frequent changes take place in nature of job .
Delays and interruptions in work can not be
avoided.
The value of output cannot be increased beyond a
certain limit.
 ADVANTAGES
Simple
Security
Beneficial To Fresher's
Quality Production
Acceptable To Unions
Proper Handling Of
Machines And Tools
Satisfactory
Reduces Clerical Work
Equality of Wages
 DISADVANTAGES
Lack Of Initiative
Unscientific
Difficult To Determine Cost
Greater Need For Supervision
Lengthening Of The Work
Process
Employer –Employee Conflict
Too Much Security
 PIECE RATE OR PIECE
WAGE SYSTEM
The system in which the workers are paid wages on the basis of their
output is known as piece rate or piece wage system.
It is also an older system of wage payment .
The wages are calculated exactly in proportion to the physical output
of the workers .
In this system ,the workers are hired to work and not to spend time .
The amout of wages of the worker depends upon the amount of work
done by him .

The wages of workers in piece rate system are

calculated as follows :-
Total Wages = Units Produced * Rate Of Unit
Kinds Of Piece Rate Wage System

Straight Piece Rate

Increasing Piece Rate
Decreasing Piece Rate
Suitability Of Piece Rate Wage System

Work is standerdised .
Quality is not important .
Output can be measured exactly.
Work is repetitive nature.
Competitive conditions exist and cost control
is essential .
Speed is very important .
Employee’s efforts and output establish clear
relationships.
Advantages Of Piece Rate Wage System
Incentive for higher production
Increase in productivity
Economy
Easy estimation of cost
Lesser supervision
Cordial employer –employee
relations
Keep the workers busy
Disadvantages Of Piece Rate Wage System

Low Quality
Insecurity To Workers
Wastage Of Resources
Health Hazard
Impractical
Disunity Among Workers
Low Wages For Beginners
Opposition By Trade Unions
 INCENTIVE PLANS OF
WAGE PAYMENT
The system of wage payment which combines the
merits of time and piece rate wage methods is
generally known as “Incentive Plans” . Incentive is
an inducement for the workers to work hard .
“Incentive means that which incites
or has a tendency to incite action .”

- George Terry
 The main purpose of the incentive plans is
to:-

Increase Productivity.

Decrease Costs.

Increase The Earning

Of The Personnel.
Conditions for Effective Incentives Plans
Plan is clearly communicated
Plan is understood
Rewards are easy to calculate
Employees participate in administering the plan
Employees believe they are being treated fairly
Employees believe they can trust the company
and that they have security
Rewards are awarded as soon as possible after the
desired performance.
 TYPES OF INCENTIVE PLANS
INCENTIVE
PLANS

INDIVIDUAL GROUP
INCENTIVE INCENTIVE
PLANS PLANS

1.PRIESTMAN’S
BASED ON PLAN
BASED ON TIME
PRODUCTIVITY 2.PROFIT
SHARING
INDIVIDUAL INCENTIVE PLAN

Based On Based on
Time productivity

Halsey Talylor
Plan Plan

Rowan Merrick
Plan Plan

Bedeaux Gantt
Plan plan

Emerson
Plan
INDIVIDUAL INCENTIVE PLAN
ON THE BASIS OF TIME
 HALSEY PLAN
Halsey premium plan is a simple combination of time and
speed based of payment.
Under this plan, a minimum time wage is guaranteed to
every worker.
A standard time is fixed for the completion of a job. If a
worker performs his job in less than the standard time ,he is
given bonus . But the is penalty for performing the job in
more than the standard time fixed.
The slow workers is paid the time wages and the efficient
worker is paid some bonus in addition to the time wages .
The bouns is in proportion of the wages which he could have
earned during the time saved .
 Calculation Of Wages Under Halsey
Premium Plan
Standard time (S) = 12 hours
Time taken by a work (T ) = 8 hours
Rate of wages (R ) = R.s. 9 per hour
Bonus ( P) = wages for 50% of the
time saved

Total wages (W) = T * R + 50% of (S-T) * R

= 8*9 + 50% * (12-8) * 9

= Rs.90
 ROWAN PLAN
The rowan plan is a modification of the HALSAY PLAN.
It also guarantees the minimum time wages and does not
penalized a slow worker .
A standard time is fixed for completion of a job and bonus is
paid to a worker on the basis of time saved .
Here , the bonus is that proportion of wages for the time
taken which the time saved bears to the standard time .
Efficiency is thus measured as,
Time Saved / Standard Time
As the time saved increases, time taken will be reduced and
as such the bonus would increases at a diminishing rate .
This will check over-speeding and overcome the major
drawback of HALSEY PLAN .
 Calculation Of Wages Under
Rowan Plan
Standard time (S) = 12 hours
Time taken by a work (T ) = 8 hours
Rate of wages (R ) = R.s. 9 per hour

Total wages (W) =

T * R + [T * R * Time Saved/Standard Time]

= 8*9 +[8*9* 4/12]

= Rs.96
EMERSON’S EFFICIENCY PLAN
In this plan, Emerson suggested guaranteed wage
payment to all worker on time rate basis.
In addition ,bonus or extra payment suggested to
those who proved be efficient .
For determining efficiently , standard output per unit
of time or standard time for the job is determined .
Efficiency is to be measured on the basis of
comparison of actual performance with the standard
fixed .
 Calculation Of Bonus Under
Emerson Plan
Efficiency Bonus
66 2/3% NIL
80% 4%
90% 10%
100% 20%

At the efficiency of 66 2/3 % the worker is paid

daily wage –rate without any bonus . Bonus increases
in direct proportion to the increase in efficiency
beyond 100 % . It implies that there is 1% increases in
bonus with 1% increase in efficiency beyond 100% .
 BEDEAUX POINT PLAN
In this plan, the standard time and time taken for each task is
reduced to minutes and each minute is referred as a B point .
There is a standard unit known as B for all types of work in
factory .
The basic purpose of this plan is that no worker should be
penalized in terms of earning when he is shifted from one
department to other in same factory .
Under this plan , a workers receives only wages if he takes
more tome than the standard time . In case he saves time , the
benefit is divided between the workers and the employer in
the ratio of 3:1 . ( 75% -25%).
 Calculation Of Wages Under
Bedeaux Plan
Standard time (S) = 300 Bs ( 5 hours )
Time taken by a work (T ) = 240 Bs (4hours )
Rate of wages (R ) = R.s. 8 per hour
60 Bs = 1 hour

Total wages (W) = T * R + 75% of (S-T) * R

= 5*8 + 75% * ( 5- 4) * 8
= Rs.46
INDIVIDUAL INCENTIVE PLAN
BASED ON PRODUCTIVITY
 TAYLOR’S DIFFERENTIAL WAGES
PLAN
F. W .Taylor , he father of the scientific management ,
propounded the differential wage plan for determining the
remuneration of workers .
He believed that standard time can be fixed for standard task.
He suggested two piece rates .
If a worker does not perform the standard task within
standard time , he is paid lower piece rate . In case he does
the standard work within time . He is paid the higher piece
rate.
There is no provision of minimum wages in method .
The main objective of Taylor was to motivate the workers
for achieving the standard laid down.
 Calculation Of Wages Under
Taylor’s Plan
Example :-
The standard task is to produced 10 units in 8 hours . the piece
rate per uint is R.S. 5/- for the workers who achieve the set
standards and R .S. 4/- for those who does not reach the
standard .Let us suppose A produces 12 units in 8 hours , b
produces 9 units 8 hours . the total earnings would be -

Total earning of A = 12*5

= R.s. 60/-
Total earning of B = 9*4
= R.s. 36/-
 Merrick’s Multiple Piece Rate Plan
In this plan an attempt has been made to improve upon the Taylor ‘s
differential wage plan .
There are three piece rate in this plan instead of twoas in Taylor’s .
This plan divided the workers into three categories viz : beginners ,
average workers and first class workers.
The wages for these categories are determined as follow:
category of Performance of Wage rate
workers standard task
Below average Below 83% Basic piece rate
Average workers 83% - 100% 110% of basic piece
rate
First class workers Above 100% 120% of basic
piece rate
 Gantt's Task And Bonus Plan
This plan is also an attempt to remove the drawbacks of
Taylor ‘s differential wage plan.
Under this,a minimum wages are guaranteed to the
workers.
However, the efficient workers are paid bonus ranging
between 20-50 % as a fixed % of the time taken .
If a worker finishes his job within the standard time ,he
is paid bonus @ 20% of the time taken .
If the worker completes his task in less than the standard
time ,then he is paid at higher piece rate in respect of total
output .
GROUP INCENTIVE PLANS
 PRIESTMAN’S BONUS PLAN

This plan provides for

groups bonus instead of
individual bonus . In case
the enterprise is able to
achieve the standard
proportion or exceeds it,
then all the workers are paid
the increased bonus in
proportion to overall
increased in output .
 PROFIT SHARING SCHEME
The profit of an organization is only
the result of the efforts of the
management alone . The workers also
play a significant role in the earning of
profits . So the workers are entitled to
share the profits of the organization .
The share in the profits is determined
according to the agreement between
the management and the workers .
Thus the workers get share in profits
in addition to the normal
remuneration.