What is Time and Piece Rate System of Wage Payment? (Definition)

Time rate system and Piece rate system are the types or the systems of Wage payment. They are very different from each other. Here is the definition...

Time Rate system

In the Time rate system, the wage is paid to the workers on the basis of time spent by them in the organization. The time may be calculated in terms of per hour, day, week, or monthly basis with no reference to output. The time rate system of wage payment is very simple and easy to understand. Every worker having a simple knowledge of math can easily calculate the number of wages. In a time rate system, workers are not hurrying to produce more quantity as the wage is paid on time spent not on the basis of the number of units produced. Therefore, workers can show their skill and efficiency to improve the quality of products. There is also the minimum possibility of wastage of materials, tools, and machinery. Earning of workers under the time rate system is calculated by multiplying the time taken by the time rate.

Wage(w) = Time taken * Time rate

The above formula is used to calculate wages under the time rate system.

Piece Rate System

In the piece rate system, the wage is payable to the workers on the basis of their production units or jobs completed. In this system, the quantity of work done is taken into account for payment of wage, and no consideration is given to the time taken by the workers to complete the job or to produce units. The workers are paid on the basis of their output units therefore, they are themselves involved in producing more output units. In this system, the determination of labor cost per unit is easy as it is calculated on the basis of output units. It simplifies the measurement of labor cost per unit of output. But in this system, workers mostly feel insecure in earning wages. There is no provision of minimum wages to workers and temporary causes may affect their earnings. Workers cannot estimate their earnings as health or other conditions may not be well at all times. It is difficult to maintain the quality of work because workers try to maximize the quantity of output. Wages earned by the workers can be calculated by using the following formula:

Wage earned (W) = Number of units produced (O) * Rate per unit (R)

Time Rate system is known as wages given by calculating the time like hours.

Piece Rate System is known as wages given by looking performance like sales and also some jobs.

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