In the case of manufacturing firms who have factories for the production of goods the biggest dilemma is whether to pay workers working in the factory according to time or according to output. Time rate system is one of the systems for wage payment according to which workers are paid according to the time spent by them in the factory premises. In order to understand this concept better one should look at the advantages and disadvantages of time rate system –
Advantages of Time Rate System
Workers work Full Time
The biggest benefit of this system of wage payment is that workers will be present in the factory for full time because if they are absent than their wages will be deducted and when the worker is there in the factory he or she will have to work which in turn will improve the productivity of the company.
Ease of Calculation
Another merit of this system is that it is easy to calculate wages in this system because suppose the company has fixed wages of $24 for 8 hours of work that implies that worker is getting $3 for 1 hour and if the worker has worked for 5 hours than he or she will get $15. In simple words there is no need for the company to follow the cumbersome process of counting the produce by workers and then paying according to produce a company can easily install a biometric system for attendance.
Assurance to Workers
Workers feel more secure under this system because there is no pressure on workers to complete the production as they are getting paid according to time and not according to number of units they make and when there is no hurry than workers can concentrate more on quality rather than quantity which in turn will lead to workers producing quality products which in turn will improve the goodwill of the company in the market.
Disadvantages of Time Rate System
Increases Inefficiency
The biggest problem with time rate system is that there is a risk that it will lead to inefficiency because when workers know that they will be getting paid according to time spent in the factory than they will work slowly without worrying about the number of units produced which in turn will result in lower output from the factory.
All Workers are Paid Equally
Another limitation of this system is that it does not segregate good workers from bad workers as all workers are paid equally for the time spent by workers in the factory. Hence suppose worker A is producing 10 units in an hour and worker B is producing 5 units in a hour than according to this system of wage payment both workers will be paid equally which in a way will be injustice to worker A and he or she will be demotivated to work hard as even after producing double the number of units he or she is getting same pay as worker B.
Costly
Another problem with this method is that it can prove to be costly for the company as compared to piece rate system of wage payment because under this system company has to pay wages to the workers for time spent by workers in the factory even if production is not happening in full swing.
As one can see from the above that time rate system of wage payment has advantages as well as disadvantages and that is the reason why a 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.