METHODS OF WAGE COMPUTATION

METHODS OF WAGE COMPUTATION

v FLAT TIME RATES

These are hourly, daily or weekly rates of pay which are paid to workers    irrespective of their output during the time worked. Workers are paid overtime if time worked exceeds normal working time.

v INCENTIVE WAGE SYSTEMS

Incentive wage systems are the methods of remuneration whereby wages earned by the workers vary with their output.

Ø Incentive wage systems based on piece rates

Earned Wages = piece rate × pieces produced

·       Straight piece rates

In straight piece rate system, a same rate per piece is paid to all workers.

·       Piece rates with guaranteed time rates

In this system of wage computation, a standard output is set for all workers. If actual output of a worker is greater than standard output, that worker is paid according to piece rate. But if, for any reason, output of a worker remains less than standard output, the worker is paid a guaranteed time wage.

·       Differential Piece rates

According to this system, there are different piece rates for different levels of productivity such that higher piece rates are paid in case of higher productivity. Following are the two examples of differential piece rate system:

o   Taylor’s Differential piece rate system:

A standard production level is set at first. There are two piece rates under this system. A higher piece rate (i.e. 120%) of standard piece rate is paid to worker who achieves the standard production level and a lower piece rate (i.e. 80%) is paid to a worker who fails to achieve the standard production level. The minimum wages are not guaranteed to workers.  

o   Merrick Differential Piece rate system (Multiple piece rate system)

This system is a modification to the Taylor’s differential piece rate system. In this system, there are three piece rates according to the efficiency level of workers. If output of a workers remains below 83%, normal piece rate is paid to the worker. If output is greater than 83% but below 100% , worker is paid 10% above the normal piece rate (i.e. 110% of normal piece rate). If output of a worker is greater than 100%, worker is paid 120% of normal piece rate (i.e. 20% above normal piece rate).

Ø Incentive wage systems based on time rates

In these systems, a standard time is set for a specific job/task and workers are paid for the time saved (Standard time – actual time taken) in doing the job/task. Following are some examples of these types of systems:

·       100% Premium system:

In this system, workers are paid 100% for the time saved in doing the given task.

·       Helsey Premium Plan/ Split bonus plan/ 50:50 Plan:

In this system, workers are paid 50% of time saved in addition to the guaranteed time wages.

Total Earnings = Guaranteed Time Wages + Bonus of 50% of time saved

OR

Total Earnings = (Time taken × Time rate) + 50% (Standard time –time taken) time rate

·       Helsey-Weir Scheme:

This system is same as Helsey Premium Plan except that under this scheme 30% of time saved is paid as bonus in addition to guaranteed time wages.

·       Rowan Plan:

In this plan the standard time for the completion of a job and the rate per hour is fixed. If a worker completes the task in more time than standard time fixed for the task, then he is paid according to the time rate, i.e. time taken multiplied by the rate per hour.

And if the worker completes the task in less than the standard time, he is paid a bonus along with the time wages. A bonus is the percentage of worker’s time rate. This means, the bonus/premium is calculated on the percentage of wages earned for working on a job. This percentage is equivalent to the proportion of the time saved to the standard time. Numerically,

Bonus = Time Saved/ Standard Time × time wages

Total Earnings = (time taken × hourly rate) + (time saved/standard time × time taken× time rate)