Published by MBA Skool Team, Last Updated: December 23, 2015
What is Straight Piece Rate System?
Straight Piece Rate System is a type of wage system which is known as payment by result. In this method of giving wages, wage is offered based on employees output (efficiency of the worker) rather than the time involved in doing the work i.e. here the employees are paid based on the quantity of work that they perform. Here the remuneration is based on the no. of units produced multiplied with the wage rate (which is fixed according to the industry standards). It is one of the most simple method of payment of wages.
The formula for the same is as follows:
Straight Piece Rate = No. of units produced x Wage rate per unit
In a nail manufacturing company the no. of units of nail produced by worker A is 67 and the wage rate being Rs. 20/unit, hence the wage of labour A is Rs. 1340.
Advantages of such system:
1. Since the wages are paid based on workers efficiency hence an efficient worker gets paid for his hard work, i.e. workers performance is directly related to the wage he gets. A fair and equitable distribution of wages takes place.
2. There exists a direct relation between the amount of work done and wages and hence the part time worker’s productivity is increased as they want to do more work in less time so as to maximize their wages.
3. The profitability related to work increases as an increase in production leads to reduction in fixed expenses.
4. Since the workers are not paid for the time when aren’t working and hence there is an overall reduction in the idle time.
Disadvantages of such system:
1. Since the focus is on quantity as there is a direct correlation between the wage rate and performance quality may get affected as workers are always in a hurry to finish off the work as such without any emphasis on the quality.
2. As the work type and culture is different in different industry and hence standardization of wage rate becomes very difficult.
3. This type of system may lead to a conflict between the management and the employees as sometimes due to management’s wrongdoing the quality of raw material may be bad and hence it may effect the employees performance.
4. The employees who aren’t that efficient may feel agitated as they are being paid less.
Hence, this concludes the definition of Straight 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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