Differential Piece-Rate System - Definition & Meaning

Published in Human Resources Terms by MBA Skool Team

What is Differential Piece-Rate System?

A differential piece-rate system is a method of wage payment in which after tests have set a standard time for any task assigned the worker gets a high piece rate for completing the job within the allotted time and lower piece rate for completing the job beyond the allotted time. F.W. Taylor gave a method of differential piece-rate system with the name Taylor’s differential piece-rate system as a part of the scientific management.

The simple underlying principle of this method is to reward the efficient worker and while penalize the worker not performing good. In Taylor’s method the organization has no space for the inefficient workers. In this the standard time for completion of the task is fixed with the help of time and motion study. If any worker completes his task within the time limit, he gets paid at a higher rate and if he fails to complete it within the time limit he gets paid at a lower rate.

Advantages of this method are as follows:-

1. Efficient workers receive good incentives.

2. This is a very simple method and the wages can be calculated easily.

3. This method reduces the overhead expense per unit.


Disadvantages are as follows:-

1. In this method, workers are punished with payments at lower rates,

2. The workers are not guaranteed any minimum wages, and they are insecure about their wages.

3. The health of the workers are affected adversely, as they put in more efforts to meet the standard time.


There is another type of differential piece-rate system made by Mr. Merrick, which is a modification of the Taylor’s method of piece-rate system. In this method, there is no imposition of punitive lower rate. Those who achieve a certain percentage or more efficiency are rewarded with higher differential rates, while the ones with lower efficiency are paid accordingly.

Advantages are as follows:-

1. Efficient workers are paid as per their performance.

2. There is a direct incentive to work.

3. Cost per unit is fixed, advance computation of labor cost in possible.


Disadvantages are as follows:-

1. There is a wide gap in slabs of piece rate system.

2. There is over emphasis in the high production rate.


Hence, this concludes the definition of Differential Piece-Rate System along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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