Piece rate system as the name suggests refers to that system of wage payment in which companies pays its workers according to the number of units produced by the worker irrespective of the time taken by the worker for completing the task or unit. In order to understand more about this concept more one should look at the advantages and disadvantages of piece rate system –
Advantages of Piece Rate System
Increases Efficiency of Workers
The biggest advantage of this system of wage payment is that it increases the efficiency of the workers because when workers know that they will be getting paid according to number of units produced they will be wasting less time and use all their time and effort in producing more number of units so that they get paid well which in turn will result in more output from the factory.
Talented Workers get Paid Well
Another merit of piece rate system is that workers who are more efficient are paid more, unlike time rate system where all workers are paid equally irrespective of units produced by them. Hence for example if worker A is producing 10 units and worker B is producing 5 units and company is paying $5 per unit than worker A will get $100 while worker B will get $50. In simple words, talent gets rewarded in this system of wage payment which is not the case with the time rate system of wage payment.
Less Monitoring or Supervision
In this system of wage payment since workers know that they will get paid only if they produce there is no need for any supervision which is the case with time rate system where supervisor has to monitor regularly that whether workers are working or not as workers are not self-motivated as they know that they just have to spend time in factory and they will get paid.
Disadvantages of Piece Rate System
Compromise on Quality
The biggest disadvantage of piece rate system is that due to workers striving to produce more units so as to get more wages may result in them compromising on the quality of output which in the long term can be very damaging as far as goodwill of the company is concerned.
Harder to Calculate
In case of time rate system workers are paid according to time which is much easier to calculate as opposed this system where payment is made on the basis of units produced by workers as it has many practical difficulties. Hence for example, if some worker produces many units but all are of substandard quality than how his or her payment will be made or unlike time rate system where a biometric system can be installed in this method one cannot implement such system and so on.
Insecurity among Workers
Another problem with this system of wage payment is that it leads to insecurity among workers because as long as production is going there is no issue as workers will get paid according to output produced by them but moment production in the company stops it will leave workers jobless as according to this method workers will get wages only when they work to produce units.
As one can see from the above that piece rate system of wage payment has advantages as well as disadvantages and that is the reason why the company should carefully analyze both the negative and positive sides of this system of wage payment and then only take the decision whether to implement this system or not.