As per my opinion below details will help you to understand the calculation of Piece rate mechanism
What is Piece Rate or Piece Wage System?
This system is also known as payment by results. When wages are paid on that basis of the output of the workers without considering the- time taken in performing work, it is termed as piece wage.
Thus under this system, the workers are paid on basis of quantity of work done, i.e., per unit of output, per article, per job, commodity, etc. For computing total remuneration of workers, a pre-determined rate unit of output is multiplied by the total units produced. The rate is fixed with the of time and motion studies. The formula for wage computation under this system is:
Wages = Number of units produced x Rate of wage per unit
For example, a worker produces 8 units in one day and the rate of wages per unit is 10. The total wages for the day would be: 8 x Rs. 10 = Rs. 80
Suitability of Piece Rate System
Piece rate system of payment of wages is considered suitable:
(i) Where the quantity of work done can be precisely measured and standardized.
(ii) Where the work is of repetitive nature.
(iii) Where it is possible to fix a fair and acceptable piece rate.
(iv) Where the productivity is closely related to skill and efforts.
(v) Where the quality of goods can be controlled.
(vi) Where time cards are maintained for ensuring regularity and punctuality of workers and uninterrupted flow of production.
(vii) Where materials, tools and machines are pettily available to cope with the possible increase in production.
Important advantages of the piece rate system are:
Fairness - Under this system, the reward is related to effort. Efficient workers are rewarded and inefficient workers are penalised.
Increase in productivity - More work is turned out in a shorter period of time. Since there is a direct incentive to work, there is always a tendency on the part of the worker to produce more by adopting correct procedure and techniques of production.
Decreased cost of production - Increase in production results in lower costs due to the reduction in fixed cost and overhead cost per unit of production.
Easy determination of quotation price - The employer is able to know the exact labour cost per unit. This will help to make quotations confidently and accurately.
Less Supervision - As compared with the time rate system, the supervision costs under this system are not high, because the workers are to be paid on the bases of performance. The very attraction of greater reward for greater effort drives them to work hard.
Reduction of Idle time - The quantum of idle time is minimised as workers know that they will not be paid for idle time. Thus it persuades them not to waste their time.
Minimisation of loss due to breakage - The workers handle the machines, toes and implements with great care which helps in minimisation of loss resulting from breakage. They know that the breakage will reduce their output which results in reduced wages.
Some important disadvantages of the system are given below:
(i) Difficulty in fixation of standard piece rate - Setting of a standard rate involves a lot of difficulties and a considerable amount of expend' has to be incurred. If high piece rate is established, it is very difficult reduce it subsequently.
(ii) Ignores quality - As more output means more wages, the workers always in a hurry to produce more. This results in production of' standard items, high rate of rejection and ultimately increased c, production per unit.
(iii) Insecurity - The system does not provide guarantee of minimum of wages to the workers. They feel in secured since they would get wages during the period when their efficiency may get reduced factors beyond their control. Thus, at times, workers may be earning even below the subsistence level.
(iv) Conflict - The system may lead to conflict between the managemen'1the workers, if the output is low due to some fault of the management, as, bad quality of raw material, frequent break-downs of machinery/ failure, etc.
(v) Expensive control systems - Management is compelled to intern expensive control systems of supervision and inspection for maintained of quality of output.
(vi) Speeding - Workers may speed up the work to produce more which cause great injury to their health, speeding also causes undue wastage raw materials and very and tear to machines.
(vii) Effect on production schedule - Workers may work at a seed for a day, earn more wages and then absent themselves for a few days, w may affect the uniform flow of production and the production such may be disturbed.
(viii) Increased cost of production - Cost of production may increase due to more wastage of materials, high cost of supervision and inspection, and wear and tear of machines.
(ix) Frustration among less efficient workers - The system will frustrate the less efficient workers and their efficiency may further decrease because of discontentment.'
The piece rate system is of the following types:
(a) Straight Piece Rate:
This is the simplest and the most common type of piece rate system. Each operation, job or unit of production is termed as a piece. The wage rate fixed for each piece is called piece rate. The worker is paid wages on the basis of work done regardless of the time taken to perform the work. The wage of a worker is calculated by multiplying the number of units produced by him by the specified rate for each unit.
Wages = Number of units produced x Wage rate per unit
The piece rate is fixed with the help of work study. Standard time for each unit is ascertained first. Piece rate is then calculated with reference to hourly rate of wage. For example, if hourly rate of wage is Rs. 10 and the standard time per unit is 90 minutes,
(b) Piece Rate with Graduated Time Rate:
Under this system, workers are actually paid on the basis of output and if the piece rate wages fall below the time rate wages, the worker is paid on time rate basis.
The difference will be recovered from his wages when he earns more than the fixed wages. For example, in a manufacturing concern, the piece rate is Rs.4 per unit, the time rate is Rs.80 per day of 8 hours and the daily fixed work is 20 units.
If a worker manufactures 18 units in a day, the earns Rs.72 (Rs.4 x 18) on the basis of piece rate. But he will get Rs. 80 as his time wages which is Rs. 8 more than what he earns on piece rate basis and this amount of Rs.8 paid to him in excess will be recovered from his wages whenever his piece rate wages exceed the time rate wages.
But if the word manufactures 22 units in a day, he will get Rs.88 (Rs.4 x 22) on piece rate basis. This system has all the merits of both the time and piece rate systems and removes demerits of both. But it is a very complicated and difficult system for the workers understand.
(c) Differential Piece Rate System
Under the differential piece rate system, the payment of wages is made to labor on the basis of piece rates varying with the level of efficiency of workers.
The system provides for higher rewards to more efficient workers. Under this system, there is more than are piece rate to reward efficient workers and to encourage the less efficient workers to improve. Payment at normal piece rate is made for work performed with and up to the standard level of efficiency.
Payment is made at higher piece rate if the efficiency exceeds the standard. Higher piece rates are also applicable for still high efficiency. The system motivates the workers to increase productivity and earn higher wages. The system is complicated and expensive to operate and is difficult for the workers to understand.
SuitabilityóThe system of piece wage rate is suitable in following cases:
(1) Where the work is of standardised and repetitive character.
(2) Where there is an urgent need to increase production.
(3) Where units of output are measurable.
Taylorís Differential Piece-Rate System
Definition: Taylorís Differential Piece-Rate System was introduced by F.W. Taylor, who believed that the workers should be paid on the basis of their degree of efficiencies. Under this method, with the help of Time and Motion Study, the standard time for the completion of a job is fixed on the basis of which the performance of the workers is evaluated.
Taylorís differential piece-rate system posits that the worker who exceeds the standard output within the stipulated time must be paid a high rate for high production. On the other hand, the worker is paid a low rate if he fails to reach the level of output within the standard time. Thus, there are two piece-rates, one who reach the standard output or exceeds it, is paid 120 percent of the piece rate. While the one who fails to reach the standard level of output, is paid 80 percent of the piece-rate. The minimum wages of the worker are not guaranteed.
This system can be further understood through the example given below:
Standard Output = 200 units
Rate per unit = Rs 10 paise
Case (1): Output = 220 units
Earnings = 220 x (120/200) x 0.1 = Rs 13.20
Case (2): Output = 180 units
Earnings = 180 x (80/200) x 0.1 = Rs 7.20
It is clear from the above example that the worker is paid a higher rate (Rs 13.20) for high production (220 units) and low rate (Rs 7.20) for low production (180 units). Thus, Taylorís differential piece rate system works on the principle that the inefficient worker must be paid at a low piece-rate for low production such that he is left with no other option but to leave the organization.
Merrick Differential Piece-Rate System
Definition: The Merrick Differential Piece-Rate System is a modification of Taylorís differential piece-rate system in which three piece-rates are used to distinguish between the beginners, the average workers, and the superior workers, against two piece-rates in Taylorís system.
The worker is paid the straight price rate up to 83% of the standard output, 10 % above the normal rate for producing between 83% Ė 100% and 20% above the normal rate for producing more than 100% of the standard output. Here also, the minimum wages of the worker are not guaranteed.
The Merrick Differential Piece-Rate System can be illustrated by the example given below:
Standard Output = 200 units
Piece-rate = 10 paise
Case (1): Output = 160 units
Efficiency = 160/200 x 100 = 80%
Since the efficiency is less than 83%, the worker is paid only the basic rate, i.e. 10 paise. Thus, earnings will be Rs 8 (80 x 0.1).
Case (2): Output= 180 units
Efficiency = 180/200 x 100 = 90%
As the efficiency is more than 83% but less than 100 percent, 10% above the normal rate is paid to the worker. Thus,
Earnings = 90 x 110/100 x 0.1 = Rs 9.9
Case (3): Output = 220 units
Efficiency = 220/200 x 100 = 110%
As the efficiency is 110%, 20% above the normal rate is paid to the worker. Thus,
Earnings = 110 x 120/100 x 0.1 = Rs 13.30
Note: Under Merrick differential piece-rate system the workers are not penalized for producing below the standard output up to 83%.
25th August 2017 From India, Pune
Thanks for your prompt reply but this was not my question. I am asking about the legality of Min. wage in case of pc. rate. For example in Punjab currently:
Monthly min. wage for tailor is Rs. 9245.12
Daily Min. wage is Rs. 356.01.
We make payment to workers ( including piece rate) on monthly basis.
Now my question is
whether we have to make payment :
1. monthly produced pcs X rate OR Monthly min. wage whichever is higher
2. we have to calculate payment on daily base i.e. daily production X rate OR Daily Min. wage which ever is higher.
( while answer, pls. keep in mind that we make payment to workers on monthly basis only.
26th August 2017 From India, Delhi
2. You have take into consideration the timing of the shift, as it should not be in violation of prescribed timing as per Indian Factories Act/ Shop Act of the particular State as applicable.
27th August 2017 From India, Thane
You are concern about the payment fulfilling the liability of Minimum Wages in case of piece rate payment. I am trying my best to give you some interpretation. So far my knowledge goes probably there is no such rule regarding this. My interpretation is mentioned below:-
1. Considering the employees are working 8 hours per day & working for the fullmonth i.e. full time employee.
2. You are paying on monthly basis and no.of pieces multiplied by piece rate in a month. If it is less than minimum wages of the month , please pay the minimum wages but if it is more than minimum wages please pay the actual i.e whichever is beneficial to the employee.
3. If any employee works for less than the working days and due no leave it is LOP, then calculate the no.of pieces produced in the month multiplied by the rate and compare it with those period minimum wages- pay which ever is higher.
If any others have better interpretation supporting by any rule/court verdicts etc., please suggest your opinion.
Thanks & Regards,
S K Bandyopadhyay(West Bengal)
USD HR Solutions
30th August 2017 From India, New Delhi
What rules say exactly???
2nd September 2017 From India, Delhi
So far my knowledge goes there is no specific rule regarding this. This is common sense interpretation. Auditors are usually legal back ground person. Please ask them if there is any rule.
As recommended by auditor to calculate on daily basis based on actual vs minimum wages and to pay which ever is higher is nothing but doing calculation in another way. To my opinion if it is beneficial to employees, you should go ahead. Now the mode of payment whether daily, weekly or monthly is the management decision nothing to do with your calculation method or any rule. You may discuss internally among the Management team to take a final call.
Thanks & Regards,
S K Bandyopadhyay ( West Bengal )
USD HR Solutions
+91 98310 81531
4th September 2017 From India, New Delhi