• The piece rate system is a method of remunerating workers according to the number of units produced or jobs completed.
  • It pays wages at a fixed piece rate for each unit of output produced, and the wages payable to the employee are calculated using the formula: Wages = Output x Piece Rate or Wages = Units produced x Piece Rate.
  • A payment is made to a worker for each unit that the worker has produced.
  • Workers’ wages depend on the quantity they have produced.
  • It does not consider the time spent by workers in producing each unit.
  • The system remunerates workers according to the number of units produced or jobs completed.
  • It pays wages at a fixed piece rate for each unit of output produced.
  • Encourages workers to increase output.
  • Encourages greater effort and faster working.
  • Reduces idle time.
  • Gives incentives to workers to find faster means of accomplishing given tasks/jobs.
  • Makes costing easier as the labour production cost per unit is known in advance.
  • Makes financial planning easier.
  • Requires less supervision thus reducing the cost of supervision.
  • Reduces fixed cost per unit due to higher output.

Advantages:

  • It encourages workers to increase output, leading to greater productivity.
  • It encourages greater effort and faster working, reducing idle time.
  • It gives incentives to workers to find faster means of accomplishing given tasks/jobs.
  • It makes costing and financial planning easier, as the labour production cost per unit is known in advance.
  • It requires less supervision, reducing the cost of supervision.
  • It reduces the fixed cost per unit due to higher output.

Disadvantages:

  • The system emphasizes quantity over quality, leading to lower-quality output.
  • It is difficult or impossible to calculate when workers do not have a measurable output, such as teachers and security guards.
  • It is not suitable where workers have no control over the pace of production, such as on an assembly line where a fast worker may be held back by slower colleagues.
  • It increases quality inspection costs.
  • It might result in products of different standards being produced by various workers.
  • It can adversely affect workers’ health, especially if they are working too fast or too long.

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