Methods of Remunerating Labour


Meaning Remunerating Labour

Remunerating Labour refers to compensation or benefits paid by organization to its group of employees in exchange for services rendered. It is simply defined as reward received by employees for their work and services towards the organization. Remunerating Labour not only includes the base salary but also comprise of bonuses, overtime pay, commissions or any other sort of financial benefit availed by employees from their employer. It is, therefore, the overall amount that worker receive from his company for performing the assigned role. The amount of Remunerating Labour varies from person to person and is dependent on numerous factors like job position, employees value, skills and qualification, company business model and general state of economy. It is the important factor for employee’s satisfaction and mainly considered by them while joining a job in any organization.

There are generally 2 major forms of Remunerating Labour: Direct and Indirect Remunerating Labour. Direct Remunerating Labour are received straightforward by employees from their employer such as their salaries, wages, allowances, bonuses etc. Whereas, indirect Remunerating Labour are all those benefits that are not received straightforward. These include flexible working hours, health and life insurance, retirement benefits, vacation days, leave policy and many more. Every company must ensure adequate Remunerating Labour policy for its workers in order to retain talent in long run and maintain continuity of its activities.  

Methods of Remunerating Labour

There are various methods of renumeration of labour that are discussed in points given below: – 

Time or Day rate system

Time or Date rate system is most simple and prevalent method of remunerating labour these days. Under this system, the employees are paid on hour, day, week or monthly basis. The basis of remunerating labour payment is number of hours worked by worker but not his/her level of production. It is a dispute free method of remunerating labour where there is no conflict among employer and employees. Workers know in advance what they are going to be paid as all basis of payments are fixed from the very beginning. 

Time rate renumeration system provide assurance to workers about payment of wages that does not get affected by reduction in personal efficiency arising out of accidents, sickness or fatigue from external activities. In addition to this, workers do not suffer from wages loss due to breakdown of machinery, plant or unavailability of resources for performing operation. The quality of work also gets enhanced as they are not required to hurry up for getting things done.  

This method of renumeration also carries disadvantages along with benefits provided. First and foremost, one is employers need to bear the losses because of lazy, slow and sluggish workers as they are paid regularly irrespective of their output. The system tends to bring higher cost of production for business enterprises and requires strict supervision for reaching desired production. All workers can’t perform efficiently in absence of well-qualified and strict foreman. 

Straight piece work rate system

Straight piece work rate system is an improvement over the time rate system of labour renumeration. It is more suitable for employees performing same routine jobs or producing similar type of products on continuous basis. This system is found to be efficient, economical and easy as already introduced by many employers in India. 

Prior to application of straight piece work rate system, it is required to conduct careful time study where different types of workmen are observed for time taken by them in job completion. The standard time of job completion by employees of distinct calibres is found out and then wage rate per job is decided in such manner that each employee can get at least minimum wage. Workers with high skills and enthusiasm are free to earn more via putting in more efforts.

Combining piece-work rate and time rate system

Many organizations apply renumeration system which is combination of both time rate and piece-work rate system. In such system, workers get minimum weekly wages that are fixed and are paid irrespective of their performance level during the week, provided he/she has worked for full required working hours in week. If worker is off for some time period during the week, then wages will be deducted proportionately. There are 48 working hours in week and suppose if employee has worked only for 40 hours, then he will be paid 5/6 of his regular weekly wages. Therefore, the payment is based on system of time rate.

Straight piece work rate system offers incentives that induce workers to produce more and more. The organization is also able to reduce overhead cost of production by deriving large output from workers. However, this renumeration system have limitations too: – requiring regular quality check, cautious fixing of piece rate and increase expenses as entire benefit out of extra payment goes to worker.   

Incentives and profit sharing

Incentives refers to compensation paid to workers in accordance with their performance and productivity. It is performance-based compensation, higher the productivity of employee then higher will be compensation paid. Incentives are either directly or indirectly linked with profitability and productivity of business enterprise, and is composed of all plans involving extra pay to workers for extra performance in addition to their regular wages. 

This incentive plan serves as a managerial device for enhancing the productivity of workers. In another words, it is a method of sharing gains in productivity with worker via offering them rewards for their increased output level. The wage incentive plans are mainly designed to improve productivity and attain efficient utilization of both human and material resources of business enterprise.

Incentives motivate the workers for putting more efforts voluntarily resulting in increasing their output level. Workers are generally not willing to exert themselves to produce with their full capacity unless something extra is paid in monetary terms. Therefore, incentive is some kind of monetary reward that is linked with worker’s performance, ultimately resulting increase in wages with corresponding increase in output. 

Profit sharing system, on the other hand, has been introduced by employer to provide share in company’s profit to employees over their normal wages. It is effective way for motivating workers within organization towards higher performance as they will be getting extra for additional output. Profit sharing is advantageous to business in many ways. Firstly, it leads to establishment of better co-operation among employees and employer. Secondly, it reduces the need of supervisors that saves cost of supervision. Also, under this system, workers interest lies within the company profitability due to which they all work more honestly and harmoniously leading to higher productivity. 

However, profit sharing system also suffer from few limitations like ascertaining the profit share of each worker will become difficult unless profit earned is large. Workers may become non-interested knowing the profit distribution will normally take place once during the year. In addition to this, individual efficiency get escape from management notice as efficiency of individual worker is of no value to the group.

Bonus System

Bonus system is another most widely used method of worker renumeration. It is implemented in continuous process and assembly lines where in order to accomplish the job, the efforts of group workers are needed. Assessing the productivity of individual worker gets impractical, in case, if large group of workers are employed on job therefore it is necessary to pay group bonus for retaining incentive payment idea. 

There are generally 2 payment methods under this system, that are as discussed below: – 

a. Collective Bonus System: Collective bonus system is extra salary paid for one or more months to employees in case if business earn handsome profit during the year. The system is more utilized in big industrial concerns. If company generates good amount of profits, then bonus amount will be declared after six months or at year end and is payable to employees in service at time of declaration.

b. Group Bonus System: Under this system, a separate fixed bonus is provided to each section or department on per unit time/per unit job basis, if standard time is saved or level of production reaches or exceed pre-decided quantity. 

This bonus is divided among foreman and workmen of section/department in accordance with proportion agreed before-hand. Bonus are provided to foreman that are mainly carries responsibility of raising output level and avoiding material wastage. 

Bonus renumeration system improve the mutual cooperation in between workers thereby enhancing team work. Workers know they will be getting extra pay in the form of bonuses, if organization earn higher profits and that motivates them for improving their performance level. Therefore, this system assist organization in raising its overall productivity along with improving discipline and industrial relation within it.