A guaranteed minimum wage will make them not to suffer loss of earnings when production is low through no fault of their own.
Where an employee makes several different types of product, a standard time allowance make it possible to add up the units to arrive at a total of piecework hours for payment purposes.
Differential piecework schemes offer an incentive to employees to increase their output by paying higher rates for increased levels of production.
What is conversion cost?
Summary of piecework schemes a) They enjoy fluctuating popularity. b) They are occasionally used by employers as a means of increasing pay levels.
c) They are often seen to drive employees to work too hard to earn a satisfactory wage.
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[2006-Dec-44] An organization operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based rate of pay which is based on $20 per hour for an eight hour working day. Three minutes is the standard time allowed per unit of output. Piecework is paid at the rate of $18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employee's gross pay for that day? A. $128 B. $144 C. $160 D. $180
Answer: D
Example:
The following levels of output produced in one day: Normal working day 8 hours 12 / 42
Hourly rate of pay (time ?5.50 per hour basis) Standard time allowed to 3 minutes produce one unit Piecework rate ?0.10 per standard minute Premium bonus 75% of time saved, in addition to hourly pay Required: For the following levels of output produced in one day:
a) 80 units; b) 120 units; c) 210 units; Calculate earnings based on:
1) Piecework, where earnings are guaranteed at 80% of time-based pay,
2) Hourly pay with premium bonus. 2.4 Bonus/incentive schemes
The characteristics of bonus/incentive schemes. a) Employees are paid more for their efficiency. b) The profits arising from productivity improvements are shared between employer and employee.
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c) Morale of employees is likely to improve since they are seen to receive extra reward for extra effort.
The conditions required to operate successfully for a bonus/incentive scheme.
a) Its objectives should be clearly stated and attainable by the employees. b) The rules and conditions of the scheme should be easy to understand.
c) It must win the full acceptance of everyone concerned. d) It should be seen to be fair to employees and employers.
e) The bonus should ideally be paid soon after the extra effort has been made by the employees.
f) Allowances should be made for external factors outside the employees' control which reduce their productivity (machine breakdowns, material shortages).
g) Only those employees who make the extra effort should be rewarded. h) The scheme must be properly communicated to employees.
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2.4.1 High day-rate system
A high day-rate system is a system where employees are paid a high hourly wage rate in the expectation that they will work more efficiently than similar employees on a lower hourly rate in a different company.
Example:
If an employee would make 100 units in a 40 hour week if he were paid $2 per hour, but he were paid $2.50 per hour, if output is 120 units. Production overhead is added to cost at the rate of $2 per direct labour hour, costs per unit of output would be lower with the efficiency rising.
The advantages of high day-rate system
a) It is simple to calculate and easy to understand. b) It guarantees the employee a consistently high wage.
The disadvantages of such schemes are as follows.
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