Piece Wage System
Piece Wage System follows the policy of wage payment on the basis of the work completed by each worker. In other words, each worker earns wages, in the ratio of work done by him. Time has no relevance to wages in this system. The wage rates are previously fixed according to the nature of work which is known to each worker in advance. The wages under this system are determined using the following formula
Wages = Units Produced by the Worker × Wage Per Unit.
Merits of the Piece Wage System
Saving on Supervision Expenses
The policy of wage payment in this system favours efficient workers, hence each worker takes the initiative to work more and save time in order to earn more. Therefore there remains no need to incur supervision expenses by the employers.
Increase in Production
The incentive of higher wages for higher production makes the workers more efficient or productive; this results in an increase in production, and hence the firm gets more production in lesser time.
Remuneration According to Ability
Under this system, the workers are paid according to their ability and efficiency which motivates them to increase their ability and efficiency
No Wastage of Time
The workers themselves take the initiative to maximize their efficiency and waste no time in order to earn more, under this system. This leads to the best utilisation of time.
Knowledge of Comparative Ability
The units produced by each worker are kept separately to determine his wages. The ability and efficiency of each worker can also be determined easily, on the basis of units produced by him.
Demerits of the Piece Wage System
Depreciation in the Quality of Goods
To earn more profits, the workers increase the quantity of output but ignore the type and quality of. goods produced. This has a serious effect on the goodwill of the firm.
Wastage of Materials and Machines
To earn more and more wages workers carried out production at a very high pace. This results in waste of materials and damage to machines.
Unsuitable for Artistic Goods
This system is totally unsuitable for artistic goods because workers try to complete their work quickly and neglect the type and quality of the product.
Loss to Workers on Irregular Production
If for any reason, production stops, the workers do not get any wages for that period. This has a bad effect on the living standards of the workers.