System of Wage Payment

In cost accounting, when we study about labor cost, we have to study two main topics one is system of wage payment and other is wage incentive plans. We are covering both the topic. But in this content, we starts to explain from system of wage payment because all wage incentive plans can also be classified within these two wide categories. Now, understand about how to pay labor?

Laborers are paid with two systems. Both system can be used but same labor can not be paid with both system.

1. Time Wage System or Time Rate System :

Under this system, laborers get wage on the basis of time which is utilized in organisation. This wages may be charged on per hour, per day, per month or per year basis. There is no relation or quantity of output and wages in this method. In India's industry, this method is most popular. Its other name is day wages system or time wok system.

We can calculate wages with following formula

Total Wages = Time taken X Rate

For Example

A worker produced 10000 articles in 7600 hours. His hourly wage rate is Rs. 2 /- . Calculate the wage of the worker when he is paid on the basis of time.

Solution :

Applying the formula, we get :

Wage = T.T. X R

= 7600 X 2 = Rs. 15200

2. Piece Wage System or Work Rate System :

Under this method or system, laborers can get the wages on the basis of their work done. No time element will be used for calculation of wages. Rate is also on the basis of quantity or unit produced. Under this, method, laborer tries to best for producing the products fastly for getting more wages. This method is also called payment by result.

formula

Total Wages = Unit Produced X Rate per unit


For Example :

2500 units were produced by a worker in 1200 hrs. Rate of production is Rs. 3 /- per unit. Calculate the wage of the worker if he is paid according piece rate method.

Solution :

By applying formula, we get :

Wages = units produced X rate per unit

 = 2500 X 3 = Rs. 7500