Wage Payment Systems

The system of wage payment is the method adopted by organizations to remunerate workers. It is the way of giving financial compensation to the workers for the time and effort invested by them in converting materials into finished products. It indicates the basis of making payment to the workers, which may be either on time basis or output basis. The selection of the system depends on the type and nature of the concern and its products.

The different methods of wage payments are as follows :

1. Time Wage System

Time wage system is the oldest method of wage payment. The “Time” is made a basis for determining wages of a person. The wages are paid according to the time spent by workers irrespective of his out put of work done. The wage rates are fixed for an hour, a day, a week or a month. The time spent at work is recorded and wages are paid according to it. For example, a wage rate of 20 $ per day is fixed in a factory. Two workers A and B attend work for 27 and 24 days respectively. The wages as per time wage system will be 540 $ and 480 $ for A and B respectively. This method of wage payment does not give weight age to the quantity of goods produced by the workers. The supervisor may ensure that workers do not waste their time and the quality of goods is also maintained. There are no hard and fast rules for fixing rates of wages. These may be decided according to the level of the past, higher positions may be paid higher rates and vice-verse.

Wages are calculated in Time Wage method as follows :

Earnings = T x R

Where T stands for time spent and R is the rate of pay.

Time wage system is suitable under following situations:

  1. When productivity of an employee cannot be measured or counted.
  2. Where quality of products is more important than the quantity.
  3. Where individual employees do not have any control over production.
  4. Where close supervision of work is possible.
  5. Where work delays are frequent and beyond the control of workers.

Merits of time wage system:

  • Simplicity : The method of wage payment is very simple. The workers will not find any difficulty in calculating the wages. The time spent by a person multiplied by the rate will calculate his wages.
  • Security : Workers are guaranteed minimum wages for the time spent by them. There is no link between wages and output, wages are paid irrespective of output. They are not supposed to complete a particular task for getting their wages. They are sure to get certain wages at the end of a specified period.
  • Better quality of goods : When workers are assured of wages on time basis, they will improve the quality of goods. If wages are related to output then workers may think for increasing production without bothering about quality of goods. In this method workers will concentrate on producing better quality goods. In certain situations only time wage system will be suitable. If some art goods are produced then this method will be more suitable.
  • Support of trade unions : This method is acceptable to trade unions because it does not distinguish between workers on the basis of their performance. Any method which gives different wage rates or wages based on output is generally opposed by unions.
  • Beneficial for beginners/freshers : Time wage rate system is good for the beginners because they may not be able to reach a particular level of production in the beginning.
  • Less wastage’s : The workers will not be in a hurry to push through production. The materials and equipment will be properly handled without wastage.

Demerits of time wage system:

  • No incentive for efficiency : The method does not distinguish between efficient and inefficient workers. The payment of wages is related to time and not output. Thus, the method gives no incentive for producing more. Efficient workers may start following inefficient persons because rates of pay are the same. Rates of wages fixed in this method are also low because these are fixed by taking into account to output of dullest workers.
  • Wastage of time : Workers may while away their time because they will not be following a target of production. Efficient workers may also follow slow workers because there is no distinction between them.
  • Low production : Since wage are not related to output, workers may be producing at slower rate. The responsibility for increasing production may mostly lie on supervisors. Because of low production overhead expenses per unit will go up.
  • Difficulty to determine labor cost : Because wages are not related to output, employees find it difficult in determining labour cost per unit. The output will go on varying from time to time while wages will remain almost the same. Production planning and control will be difficult in the absence of a relationship between wages and output.
  • More supervision required : Under this system workers are not offered incentives for production. To get more work from them there will be a need for greater supervision. More supervision may be needed top maintain proper quality of goods also. In wage system supervision coast goes up to a great extent.
  • Employer-Employee trouble : When all employees, irrespective of their merit are treated equally there is likely to be a trouble between management and workers. Those employees who are not satisfied with this method may start disobeying order from their superiors.