Higher Business Management

Labour Payment Systems

Payment Systems

• Piece Rate• Hourly (Time) Rate• Flat Rate (Salary)• Commission• Overtime• Bonus Rate

Piece Rate• Workers are paid per item they produce• Often used in factories• The more a worker produces the higher

the rate of pay• Often acts as an incentive for

employees to work hard• Supervision is required so that workers

do not sacrifice quality for quantity

Time Rate• Workers are paid by the hour (e.g. £5

per hour)• Often used in the service sector• It is simple to calculate for the

employer and rewards the employee for the time spent at work

• No incentive to produce quality work

Flat Rate

• Workers are paid a set salary per annum• This is split into 12 equal payments• Managers, supervisors and office staff

are usually paid this method (and teachers)

• It gives employees a guaranteed monthly income – security

• Doesn’t reward staff for an increased high level of effort

Commission• Workers are paid a percentage of the

products’ sales value• Car salespersons and double-glazing

sales representatives usually use this method

• Either added on to a basic pay or as the sole income

• Used as an incentive to motivate staff to sell more

• Supervisors must ensure everything is sold by the book…

Overtime

• When employees work a set amount of hours, overtime may be offered

• Employees will be paid more for this overtime

• Time and a half• Double time• Bank holidays, Sundays…

Bonus Rate• Workers are paid a basic rate with

additional payments for targets being met• This could be for agreed time-keeping,

productivity or efficiency• A bonus is added on to their normal pay

Questions

• Some organisations use a flat rate system to pay employees. Describe 2 other types of payment systems.

(4 marks)

• Distinguish between the following:– Piece rate and time rate– Flat rate and overtime– Bonus rate and commission

(3 marks)

Other Payment Methods• Performance Related Pay

- directly related to the output of each worker, usually in achievement of targets

• Profit Sharing Schemes- staff are given a share of the annual profits- in some cases the share of profits is paid in the form of free shares which gives the employees part-ownership of the organisation

• Share Save/Options Schemes- employees save a regular amount each month for a set period (usually 5 years) which they then turn their savings into shares to keep or sell at a profit- a successful method of payment which creates loyalty and motivation

• Fringe Benefits- any payments other than wages and salaries- includes private medical insurance, subsidised meals, company cars…

Employee Objectives

Employees want their pay to:

• Reward them for the work done• To be seen as a recognition of their

value to the organisation• To give them purchasing power• Be achieved through basic earnings

rather than relying on overtime, etc

Employer ObjectivesEmployers have a number of objectives they want to achieve when devising payment systems for their employees:

• Motivation- many believe that workers are motivated by

money, and this is reflected in the number of employers who use performance related methods of payment• Cost

- employers want to keep the cost of labour as low as possible• Prestige

- employers want a good reputation of ‘good payers’. This improves their ability to recruit and retain staff

Questions

1. Arnold Clark are considering ways of financially rewarding sales staff. Explain 3 payment methods which they could implement.

(3 marks)

2. Describe possible objectives an employee might have regarding pay.

(3 marks)

3. Compare these objectives with those of an employer.

(2 marks)

Solution

1. Arnold Clark are considering ways of financially rewarding sales staff. Explain 3 payment methods which they could implement.

(3 marks)

• They could use commission. Workers are paid a percentage of the products’ sales value This would be suitable as it would motivate staff to sell more as they rely on commission to earn money.

• They could use a bonus scheme. Workers must achieve pre-agreed sales targets to earn the bonus. This would encourage staff to sell more which would increase the company’s turnover and profits.

• ?

Solution

2(a)

Solution

2(b)