Most of the time some employees of the company get confused about their payment method and priorities and because of that there is a possibility that the employee may confront the employers in a negative manner. When it comes to the payment system of the company, the employer needs to realize that paying what the employees have really earned is what they deserve, being the employer’s first and foremost priority.
What is Time Rate or Time Wage System?
Time rate and time wage system are one of the payment systems of the different type of companies in which it adopts certain and different type of wage measuring methods. These wage measuring systems are one of the essential feature of any business. The company needs to look into the matters of the wage or salary rates, which should be given the employees of the company.
Constraints that are considered while calculating time rate or time wage system are,
1. Time spent on the work: While calculating the total amount of salary whether it is hourly, weekly or monthly, the employer need to be aware of the attendance list of the employee. In which the employer can register every single information about the employee working hours. And at the time of salary calculation, the employer will consider those total working hours or time spent on the work of the particular employee. Therefore, the total amount of time spent on the given work will help the employer while making the salary of their employees.
2. Fixed rate per unit of work: One of the important constraints that needs to be considered while calculation the actual total salary of the employee, the employer must fix a fixed rate per unit of work. In this fixed rate per unit of work, the employer decides a fixed rate or price for the employee for the work he / she can deliver. Most commonly these kind of payment is called as wages and it is necessary to fix a certain amount for the work which an employee delivers within a specified period of time.
3. Total Output: The total output of the work is nothing but the total output of work delivered by the employee at the end of a specific period of time. While calculating the total salary or wage amount of the employee, the employer need to look into the work which has been delivered by the employees. This total output will help the employee to consider the employee’s working ability and the quality of the work delivered by the employee.
4. Number of production unit: While calculating the wages of the employees the company need to keep the accurate track of all the employee number of production unit per day. Because this number of production units help to know the actual quality of the production of each and every employee. This helps to calculate the final total wage for that employee as per their quality of production units.
Time Rate System Formula:
In company, the employer need to follow a certain level of specific time rate system formula where the main constraint is that the employer should consider the total time spent on the work by the employee. And while creating formulas there are two different methods that the employer utilizes and that is
Wages = Time spent * Wage rate per unit of time.
1. Time rate system: This time rate system calculation is based on the working hours of the employee, that is the amount of time spent on the work along with the amount of work delivered within the specific period of time. And the actual formula that helps to calculate the total amount by using this time rate system formula is
Formula – Wages= rate per unit multiplied by the number of units produced [wages= rate per unit * No. of units produced].
2. Piece rate system time rate system: The time wage system is such a process of calculating salary of the employees where the amount of salary or wage will be calculated hourly, weekly or monthly along with a fixed rate of price for the certain work. This type of system provides solution for the calculation of total salary or wage of the employees. And the actual formula is,
Formula – wages= number of hours worked multiplied by rate per hour piece rate system. And that is [wages = No. of hours worked * Rate per unit piece rate system].
Examples of Time Rate System:
These examples will provide a clear picture about these time rate systems. These time rate systems provide an accurate calculation of wages of the employees. And it helps the employer of the company to keep track of their salary expenses as well.
Example 1: Let’s assume there is a company ABC private limited company and it has 5 workers in the company. Daily these workers work over 8 hours a day and their production per day is total 48 units. And they receive a fixed rate of price for their work i.e 100. These workers are instructed to complete the target within a specified time and lets say the specified time is one day. Therefore, the employer needs to see that the workers should work daily as per their working hours so that they can complete day to day work.
Calculation under time rate system.
No. of workers = 5, total No. of units produced = 48 and their rate per unit = 100
Wage = rate per unit * No. of production
Wages = 100*48 = 4800.
Therefore, each employee receives a salary of 4800/- on a monthly basis.
Example 2: There is a company called XYZ limited, and 10 workers work in that company. Their daily rate per unit is 200. And they produce a total number of 10 products on a daily basis. The employers have instructed the workers to deliver exact given number of products by the end of each day and they certainly monitor their work behavior. Now lets calculate their wages using the time rate system.
Calculation under time rate system.
No. of workers = 10, total No. of units produced = 10 and their rate per unit = 200
Wage = rate per unit * No. of production
Wages = 200*10 = 2000.
Therefore, each employee receives a salary of 2000/- on a monthly basis.
Advantages and Disadvantages of time rate system:
There are several advantages and disadvantages of the time rate systems, and these advantages and disadvantages create differentiation for the purpose of the company benefits.
Advantages of the Time Rate System:
1. Simple formulation: The calculation and nature of the time rate system are very easy and simple to understand. It is one of the methods that can be understood by all the employer’s of the company. Its measurement and the calculation of this wage system provide the actual picture about the overall time rate system. Therefore, as it is mentioned earlier, it is easy and simple to understand and formulate in the company.
2. Easy access: This time rate system is very easy to access and that is because of its brief and clear detailed information. The details collected and maintained through this time rate system are very economical. In other words, it is one of the simple method of understanding the total wages of the employees of the company. It makes records maintenance, affordable and clear. Therefore, it is one of the economical method of calculating wages under time rate systems.
3. Production quality: As per the information provided by different sources of production unit, the company performs better with these time rate systems. Eventually, the production quality will increase and the employer monitors all the production units without any mistakes. Therefore, because of this time rate system the quality of production gets improved and it favors the overall development of the company.
4. Fixed wage: Even when it comes to a salary expense calculation, the company earns better profits because of its fixed rate of price. The time rate systems incorporate fixed wage systems because of which the company using it confirms a fixed rate of price per day. And this fixed rate per price helps to increase the profits of the company as its only a small amount of profit returns.
5. Improves equality among employees: Because of the time rate system the employees of the company may feel equal within themselves. Most of the time several companies face a certain kind of union problems and if the company incorporates these time rate system policy, then the possibility of inequality issue will be considerably less among the employees of the company. Therefore, all the employees of the company experience equality among them.
Disadvantages of Time Rate Systems:
1. It ignores efficiency: As per the formulation of this time rate system, the actual focus of this time rate system is on the part of the production where the employee works according to the specific number of time and production. Most importantly the work delivered by the employees will be based on their total daily production output. And it is obvious that it completely ignores the efficiency of its employees, because of which deserving employee feels unappreciated for their work.
2. Loss of skilled workers: As explained above, the company works according to the specific production rate and it totally ignores the efficiency of its employees and because of that the employees of the company decide to leave the company. This is one of the disadvantages of this time rate system. Therefore, the company suffers loss of their skilled workers because of the time rate system methods of wage calculations.
3. Inefficiency: The workers and the employees of the company eventually understand that the company expects a certain level of production from them not the quality of work from them. This kind of ignorance creates inefficiency among the employees of the company. Therefore, all the employees of the company decide to work as per their specific production expectation and they try to not bring efficiency in their work because their efficiency will not reward them for their excellent work delivery.
4. Conflicts of thinking: Most of the time the company incorporates some kind of rules and regulations in the company without consulting their employees of the company. And when it comes to the wage system and salary system, then the employees of the company will definitely have some conflicts of thinking. This conflict of thinking creates a communication difference between the employees and the employers of the company which is not at all good for the company development.
5. Cost of production: As the company prefers their employees to provide a specified number of productions and the employees of the company meet their daily production unit, then there is a possibility that the company might increase the production output. This increment in production output leads to the increment of cost of production. Therefore, this can affect the company effectively because of these time rate system of the wage calculations.
6. Increased supervision cost: When it comes to the cost of supervision the company may end up being in trouble because of these time rate systems. Therefore, the company needs to cut back their supervision cost so that they can regain the position of the company. And to make that happen, the company needs to cut back from the time rate systems so that they can reduce the cost of supervision eventually.
And the bottom line is that all these information about different type of wage systems provide the overall knowledge about the actual working behavior of the company. It provides accurate information about the company wage systems, especially when it comes to Time rate systems the company expects certain kind of benefits from its wage systems. Therefore, it is one of the best option to choose a time rate wage system. And to know more about time rate system one need to understand all the above mentioned details.