Straight Piece Rate System of wage payment
The earnings of the worker are calculated on the basis of the number of pieces produced by him/her. The volume of time spent by the concerned worker is not taken into account for the purpose of calculation of earnings.
Under the straight piece rate system, each operation, job or unit of production is termed as piece. The piece rate is fixed after conducting time study and motion study very carefully. The earnings of the worker is high if the output of the concerned worker is high and vice versa.
In other words, efficiency of worker is recognized in straight piece rate system of wage payment method. Therefore, the earnings of efficient worker are always high. Moreover, this system stimulates the inefficient and slow worker to improve their efficiency and increase their speed in production activities.
The following formula is followed to calculate the earnings of the worker.
Earnings = No. of Units Produced x Rate Per Unit
Suitability of Piece Rate System
The piece rate system is high useful in the following circumstances.
1. Units of output are measurable.
2. There must be a clear-cut relationship between employee effort and level of output.
3. The job may be standardized.
4. There is a regular flow of work.
5. There is no breakdown of machine. If so, it may occur very rare.
6. Quality of output is not getting any importance.
7. There is no need of close supervision.
8. There is no possibility of close supervision.
9. The cost per unit is fixed well in advance.
Advantages of Piece Rate System
The following are the advantages of piece rate system.
1. The employer does not pay anything more than the level of output.
2. Efficient workers are earning more amounts of wages. Hence, all the workers are interested to increase their efficiency.
3. Since the wages are linked with output, the workers interested to increase the output.
4. Since the output is increased, cost per unit of production is very low which leads to increase in profit.
5. The calculation of cost per unit of labour cost is very easy.
6. It provides a sound basis for introduction of standard costing system.
Disadvantages of Piece Rate System
The following are some of the disadvantages of piece rate system.
1. The fixation of piece rate is very difficult task.
2. The introduction of new production method or technology involves the fixation of new piece rate.
3. Quality of the output is not maintained. It leads to decrease in profit and sales.
4. It is impossible to reward employees for seniority.
5. A charge in the piece rate decreases the confidence of the worker over this system.