Labour Remuneration Schemes s1n3u

Labour Remuneration Schemes Labour cost ranks second in importance (first being the material cost) in the total cost of production. Labour cost represents human contribution. From the point of view of sensitivity of the various elements of cost, labour cost is the most sensitive, because it relates the human behaviour. Control of labour cost, therefore, requires a completely different approach from those required for control of other elements of cost. For the purpose of control of labour cost, the study of the behaviour, measurement of performance, analysis of the results, time and motion study, control on the attendance and departure, human approach in all matters, are essential. There are several alternative of remunerating labour, each with a different associated cost. They may be classified into the following types of payment: • • • • •

Salaries Time rate i e on the basis of time worked Piece rate i e on the basis of output Individual/ bonus scheme Group bonus scheme

Salaries: Salaried employees receive an annual salary paid monthly. It is usually expected that they will perform the job they contracted to do however long it takes them and so they do not normally claim overtime for long hours worked. However many firms pay their managers bonuses and these are often performance related. Time rate: Workers on the time rate paid according to the number of hours they have work done at an agreed rate per hour. There is no incentive on the part of workers by this method. Both skilled and unskilled workers are paid at same level. Time rate is a simple system to operate and workers understand it and feel that it compensates them fairly. The total wages is calculated by the following formula: Earnings= Hours worked x Rate per hour E = HW x RH Classification of Time rate method: 1) Flat Time Rate: it is the most common method to pay workers at the rate prevailing in the market using above formula. By this approach it is difficult to attract any efficient workers. 2) High Day Rate: the workers are paid at a higher rate than that prevailing in the market by paying higher wages may be adopted which tries to combine time rate with an output based bonus. It may appear that production cost may be increased. However that increased cost would be compensated through efficiency in production by attracting the skilled workers.

1

3) Measured Day Work: Workers are also paid at higher rate by this approach, but with condition that the output must be reached to a certain minimum level. Piece Rate: This is an output based method of payment whereby the worker is paid an agreed rate per unit produced or per operation carried out. We may state this concept in of the following formula: Earnings = Numbers of units x Rate per unit E = NU x RU It is also simple to calculate and easy to understand. It addition workers get incentive for higher output. It has however a limitation that the product quality may deteriorate for lack of proper supervision. Product cost can be increased for additional supervision cost. Bonus Scheme: Bonus Scheme is involve paying a flat time rate per hour plus a bonus for achieving a given output level. This bonus scheme is based on the individual skill and it is applied along with time rate method. In paying the bonus consideration should be also be given so that range of overheads cost does not increase. Classification of Bonus Scheme: 1) Halsey Scheme: the feature of this scheme is that the worker given a fixed percentage of time saved as a bonus. In Halsey scheme it is 50 percent. The formula is: Earnings = (Hours worked) x (Rate per hour) + ½ (Time Saved) x (Rate per hour) Earnings = (Hours worked) x (Rate per hour) + (50% on Time Saved) x (Rate per hour) E = HW x RH + 0.5 (TS) x RH 2) Halsey Weir Scheme: the feature of this scheme is that the worker is given a fixed percentage of the time saved as a bonus. In the Halsey Weir Scheme it is 30 per cent. Earnings = (Hours worked) x (Rate per hour) + (30% on Time Saved) x (Rate per Hour) 3) Rowan Scheme: by this scheme bonus is also paid on time saved. However it is calculated in a different way by using the following foumula: Time saved Bonus = . ………………… x Basic wages Time Allowed

2

Group Bonus Scheme: Bonus by this scheme is applicable on the group skill and it is used in production process where production efficiency depends on group skill. i) ii)

Rucker Plan: by this plan bonus will be payable at a certain decided percent on the added value of a period provided ratio of earnings to added value during the period is less than the ratio of base period. Scanlon Plan: by this method bonus is payable at a certain percentage on the sales value provided ratio of earning to sales value during a period is less than a base ratio

3