The piece rate system is that system of wage payment in which the workers are paid on the basis of the units of output produced. Piece rate system does not consider the time spent by the workers. Piece rate system is the method of remunerating the workers according to the number of unit produced or job completed. It is also known as payment by result or output. Piece rate system pays wages at a fixed piece rate for each unit of output produced. The total wages earned by a worker is calculated by using the following formula.
Total Wages Earned= Total units of outputs produced x Wage rate per unit of output.
Total Wages Earned= Output x Piece Rate
Advantages Of Piece Rate System
The following are some important advantages of piece rate system of wage payment.
* Piece rate system pays wages according to the output produced by the workers. It encourages efficient workers.
* Piece rate system helps to reduce idle time.
* Piece rate system gives incentives to the workers to adopt a better method of production for increasing their production and earning.
* Piece rate system helps the management to determine the exact labor cost per unit for submitting quotation.
* Piece rate system reduces per unit cost of production due to increased volume of production.
* Piece rate system requires less supervision cost.
Disadvantages Of Piece Rate System
The following are the notable disadvantages of piece rate system
* Piece rate system does not help in producing quality output as the workers are concentrated more on quantity instead of quality.
* Piece rate system does not help for a uniform flow of production and makes difficult to regulate the production schedule.
* It is very difficult to fix an acceptable and reasonable piece rate for each item of output or job.
* Piece rate system adversely affect the workers' health as well.
* It requires extra supervision cost for quality output and effective use of materials, tools and equipment.