Written by The time rate system is a method of remuneration where workers are paid based on the hours worked.
It is a form of remuneration where the amount earned by a worker is based on the number of hours spent at his place of work and not on the number of goods produced.
The time-rate wage system is considered the oldest form of remuneration and it only considers the time spent in the workplace.
It measures pay based on the amount of time worked and is commonly used for hourly jobs.
Another name for the time rate system is Time work, Day rate, Day work or Day wages system.
In a time rate system, the employer determines an hourly rate for the employee’s work, and the employee’s wages are calculated based on the number of hours worked multiplied by the hourly rate.
The formula to calculate gross pay under the time-rate system is the number of hours worked multiplied by the rate per hour.
Example 1
As a factory worker, Tom was paid a rate of N150 per hour. Last Friday, he was able to produce 160 units in 8 hours. Calculate his total remuneration assuming he is remunerated on a time rate basis.
Suggested solution:
According to the time base formula, the gross wage is the hourly rate multiplied by hours worked.
In this case, he worked for 8 hours, with an hourly rate of N150. Hence gross pay is N150 x 8=N1200.
Hence, tom’s total remuneration is N1200.
Note: We ignore the number of units produced because wages are calculated on a time-rate basis, and not a piece-rate basis.
Example 2
I worked for 100 hours and produced 400 units of goods. My hourly wage rate is N6. Calculate my gross pay.
Suggested Solution:
The hourly wage rate is N6 and the hours worked is 100.
The gross pay will be N600.
When is the time rate system used?
The time rate system of remuneration is highly suitable in a situation where:
- Highly skilled workers and apprentices are working.
- the quality of goods produced is of extreme importance
- the speed of work is beyond the control of the workers.
- close supervision of works is possible
- output cannot be effectively measured
Advantages of the Time rate system
1. Simplicity: The time rate system is very simple and very easy to understand and calculate.
The amount of pay is simply determined by multiplying the hourly rate by the number of hours worked.
This straightforward calculation makes it easy for employees and employers to calculate how much they will earn and be paid based on the hours worked.
In fact, the simplicity of the time rate system ensures that the calculations of workers’ earnings do not create any suspicion in the minds of the worker.
2. Predictability: In the time rate, employees are paid based on the number of hours worked, regardless of the number of outputs produced.
This means that workers can expect to receive the same amount of gross wage, as long as they maintain the same hours of work.
As a result, workers’ incomes are guaranteed since gross wage is not dependent on the unit of goods produced.
3. Sense of unity: The time rate system creates a feeling of unity among workers because workers are not discriminated against on the basis of efficiency.
In a time-rate system, all employees are paid the same hourly rate or salary, regardless of their individual productivity or efficiency.
There is a sense of unity and equality in the organization, as everyone is being compensated for the same amount of time worked.
4. Superior quality of work: The quality of work produced in a time rate system tends to be higher since workers are not in a rush to complete a job or maximize their pay.
When workers are not under pressure to produce more units in less time, they devote more attention to the quality of their work, and, as a result, are able to produce better-quality goods and services.
Disadvantages or Limitations of the time-rate system
1. Slow work progress: Time-rate system may encourage workers to slow down their work progress deliberately.
This can happen because, under a time rate system, workers are paid based on the number of hours they work rather than the number of units produced
Therefore, if a worker can increase the amount of time it takes to complete a work, he can increase the amount of pay he receives.
So, a time-rate system encourages workers to slow down their pace of work so that they can increase the hours worked and increase their pay.
2. No incentive for efficiency: Time-rate system does not provide incentives to be efficient since workers are paid the same hourly rate no matter their contribution to production.
So, a worker that produces 100 units of goods in 8 hours and a worker that produces 60 units of goods in the same 8 hours will both receive N800 if the hourly rate is N100.
The time-rate system tends to be unfair as both efficient and inefficient workers are paid the same hourly rate.
More so, the time-rate system could weaken the morale of hardworking workers as they may become frustrated that they are not being recognized or rewarded for their extra efforts.
3. Production target may not be met: Time-rate system is usually associated with low production since workers have no incentive to work hard and be efficient.
Workers who produce more goods are paid the same hourly rate as those who produced few goods.
As a result, the production target set by the organization may not be meet.
4. Increased supervision costs: More often than not, a time-rate system usually comes with extra supervision costs.
Time-rate system means that workers are paid based on time spent on work, rather than by the units of goods produced.
Workers may deliberately slow the pace of work or perform other unproductive activities during working hours so as to increase the hours spent on work and maximize their pay.
Arising from this, there is a need for greater supervision of workers to avoid idle time and increase efficiency in the organization.
Hence, the organization incur extra supervision costs.
