Unit 4, Payment

8/13/2019 Unit 4, Payment

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INTRODUCING TO BUSINESS CONCEPTUNIT 4: PAY

Prepared by: Lecturer, Ouch Phanhavisoth


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PAY

1. What is Pay?

- To give money or other compensation to in exchange for goods orservices.

- Give (someone) money that is due for work done, goods received, or adebt incurred.

2. Why is pay important?

- People feel strongly about it (Encouragement, Motivation, inspiration.etc.)

- Pay is the subject of important business legislation (e.g. nationalminimum wage ; equal opportunities)

- It helps attract reliable employees with the skills the business needsfor success

- Pay also helps retain employees rather than them leave andperhaps join a competitor


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COST

There are two types of cost:1. Fixed cost:

- business expenses that are not dependent on the level of

goods or services produced by the business.- A cost that does not change with an increase or decrease in

the amount of goods or services produced.

2. Variable cost:

- are expenses that change in proportion to the activity of abusiness. Variable cost is the sum of costs over all units produced.

- Variable costs are those costs that vary depending on acompany's production volume; they rise as production increases and

fall as production decreases


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GENERAL CONCEPTS OF PAYMENT

There are three concepts of payment:

1. Method of payment/Payment system

2. Employee payment/Salary, Wage

3. Pricing strategies


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METHODS OF PAYMENT/PAYMENT SYSTEM


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WHICH METHOD ARE THE MOST POPULAR?


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CASH


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ADVANTAGES AND DISADVANTAGES OF CASH

Advantages Disadvantages

Payment is made straightaway Cash has to be counted

Ideal for small purchase Has to be lock away for security

Convenient Can be stolen


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CHEQUES


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ADVANTAGES AND DISADVANTAGES OF CHEQUES


Safer than cash Take time to clear

Better for large amounts It can bounce

Only person that is signed can cash it Error can result in bank refusing cheques


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KEY DIFFERENT BETWEEN TWO KIND OF BANK CARDS

1. Debit Cards: Deposit the money into the bankaccount then pay or withdraw

2. Credit Cards: Doesnt have to deposit, you justborrow from the bank then return the money

that you paid to the bank weekly, monthly orannually


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DEBIT CARDS


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ADVANTAGES AND DISADVANTAGES OF DEBIT CARDS


Guaranteed payment Takes 3 days for the money to be received

Can be use for mail order or onlinepurchases

A fee must be paid to the bank

No need to carry cash and safer than cash Danger of fraud


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CREDIT CARDS


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ADVANTAGES AND DISADVANTAGES OF CREDIT CARDS


Cash backIt forms of borrowing so MUST be use

sensibly

Enable card holders to borrow money High interest rate so expensive ways toborrow

Guaranteed payment Take 3 days for the money to be received

Can be used for mail orders or onlinepurchases A fee must be paid to the bank

Credit Card benefit Some businesses charge for acceptingcredit card


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BACS


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CREDIT TRANSFERS

These are used for large transfers of money ona regular basis from one account to another,particular wages


Fewer security problems as no cashinvolved

The bank needs notice before releasingwage of large amount of people

Records keep through bank statements

They need check before being process.Cheaper and quicker than writing out lotsof cheques


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DIRECT DEBIT


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THE ADVANTAGES AND DISADVANTAGES OF DIRECT DEBIT


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STANDING ORDER


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EMPLOYEE PAYMENT/SALARY/WAGE

how much to pay?Paying to the staffs or employees is very difficult toestimate in order to match or suitable with their

knowledge, skill, experience and performance.Although, there are 5 keys to evaluate how much topay for the employees:

Job evaluation

Fairness

Negotiated pay rates

Market rates

Individual performance


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cont)

1. Job evaluation: this is usually the mostimportant factor. What is involved in the jobbeing paid? How does it compare with similar

jobs?2. Fairness : pay needs to be perceived and beseen to match the level of work

3. Negotiated pay rates the rate of pay mayhave been determined elsewhere and thebusiness needs to ensure that it complies with

these rates.


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(CONT)

4. Market rates : another important influence particularly where there is a standard pattern ofsupply and demand in the relevant labourmarket. If a business tries to pay below themarket rate then it will probably have difficultyin recruiting and retaining suitable staff

5. Individual performance increasingly,businesses include an element of performance -related reward in their pay structures.


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MANAGING PEOPLE - METHODS OF PAY

There are 6 methods of pay:

1. Time rate pay

2. Piece rate pay

3. Commission

4. Performance related pay

5. Fringe benefits

6. Profit sharing

7. Total benefit package


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TIME-RATE PAY

- Time rates are used when employees are paid for theamount of time they spend at work. This is the mostcommon method of payment in the UK.

- The usual form of time rate is the weeklywage or monthly salary . Usually the time rate is fixedin relation to a standard working days (e.g. 8 hours perday).

- Time worked over this standard is knownas overtime. Overtime is generally paid at a higherrate than the standard time rate reflecting theelement of sacrifice by an employee.


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THE MAIN ADVANTAGES OF TIME-RATE PAY

1. Time rates are simple for a business to calculateand administer.

2. They are suitable for businesses that wish to

employ staff to provide general roles (e.g. financialmanagement, administration, maintenance) whereemployee productivity is not easy to measure

3. The employee can budget personal finance withsome certainty


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THE MAIN DISADVANTAGES OF TIME-RATE PAY/TIME-BASED WAGE

1. Does little to encourage greater productivity there is no incentive to achieve greater output.

2. A time-based wage requires the employee towork a set number of hours per week in order toearn her monthly income.


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PIECE-RATE PAY

- Piece-rate pay gives a payment for each itemproduced it is therefore the easiest way for abusiness to ensure that employees are paid for

the amount of work they do.

- Piece-rate pay is also sometimes referred to asa payment by results system


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(CONT)

- What is Payment by result?

Payment by Results (PbR) is the practice ofpaying providers or workers for delivering goods orservices after agreed results have been achieved.

- Two types of payment on result:

1. Straight piecework

2. Differential piecework


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STRAIGHT PIECEWORK

The wages of the worker depend upon hisoutput and rate of each unit of output; it is infact independent of the time taken by him.


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DIFFERENTIAL PIECEWORK

payment for each piece of work completed,determined by the total number of piecesproduced over a period, with extra bonuspayments for work completed more quickly


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DISADVANTAGES OF PIECE-RATE PAY

Question?????????????

1. What happens if production machinerybreaks down?

2. What happens if there is a problem withthe delivery of raw materials that slowsproduction?


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COMMISSION

- Commission is a payment made toemployees based on the value of salesachieved.

- Commission is, therefore, a form of incentive pay .

- Commission, like piece-rates, is a reward forvalue of work achieved. In most cases, theemployee is paid a flat percentage of the valueof the good or service that is sold.


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ADVANTAGES OF COMMISSION

1. Higher Pay Opportunity

- When you work on commission you are paid based onwhat you sell, so if you have a good work and

performance, you make good money, if you make abad work and performance you don't get much.

- The nice part of commission is that if you aremotivated and a good salesperson you can makereally good money.

- The more sales, the higher the pay.


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(CONT)

2. Freedom

- Sales professionals have more freedom tooperate than their co-workers in clericalpositions.

- Entry-level sales, such as call centers andtelemarketers, don't have this type of freedom.


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(CONT)

3. Productivity

- For employers, paying commission is anincentive to motivate employees to producemore. Employees are motivated to put in moreeffort to increase their income.

- You don't waste money paying staff membersthat do not produce.


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DISADVANTAGES OF COMMISSION

- The negative is that sometimes sales are hard tocome by and you never have a steady income,from week to week your pay may go up and down,

and that's hard for a married or family person.- Commission pay has a way of weeding out those

who don't have the talent for sales. If the salesperson isn't capable of earning a living wage fromher sales, then she will quit and move along to asalaried position.


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PERFORMANCE RELATED PAY

- Performance related pay is money paid to someonerelating to how well one works.

- Performance-related pay is a financial reward to

employees whose work is considered to have reacheda required standard, and/or above average.

- This standards-based system is used for evaluatingemployees and setting salaries by many employers.they are paid more for selling more, and lowperformers do not earn enough to make keeping the

job worthwhile even if they manage to keep the job.


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(CONT)

- In addition to motivating the rewarded behavior,standards-based methods can provide a levelof standardization in employee evaluations,

which can reduce misjudgment and make theemployer's expectations clear.

- example: For example, an employer might set a

minimum standard of sewing clothes 1200sets a month for each persons in a simple data-entry job, and reassign or replace employees

who cannot perform at that level.


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ADVANTAGES OF PERFORMANCE RATE PAY

- motivating and retaining key talent

- getting unmotivated individuals to improveproductivity


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DISADVANTAGES OF PERFORMANCE RATE PAY

- The performance of a complex job as a whole is oftenreduced to a simple, often single measure of performancesuch as profit, without considering other factors that makeup overall performance.

- performance related pay can be disadvantageous in that itcan create the potential for rifts among employees if theyfeel they are being treated unfairly or unequally if there arenot strict and clear stipulations in place for the system.

- employees may only be inclined to perform work that ismeasured in their performance appraisal.

- employees are not as motivated by monetary incentives

as employers once thought.


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FRINGE BENEFITS

- Fringe benefits are financial benefits that are not paid outdirectly in cash.

- Examples of these include:

Company cars

Discounted season tickets

Health insurance

Pensions

Holiday and other entitlements to take time off workChildcare provision

Staff uniforms

Staff discounts

-


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ADVANTAGES OF FRINGE BENEFIT


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DISADVANTAGES OF FRINGE BENEFIT


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PROFIT SHARING

- Profit sharing refers to any system wherebyemployees receive a proportion of businessprofits.

- Profit sharing is generally accepted as havingmany advantages, providing that all employeesare able to participate.


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ADVANTAGES OF PROFIT SHARING

- Creates a direct link between pay andperformance.

- Creates a sense of team spirit- helps removethem and us barrier between managers andworkers if all employees involved.

- May improve employees loyalty to company


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DISADVANTAGES OF PROFIT SHARING

- The salaries of the individual employees go upequally, not on the basis according to theirperformance.

- The focus of the employee may be on the profitrather than on quality.

- Unfair standards working and ratings system

- amaged relationship

- Emerging biases


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TOTAL BENEFIT PACKAGE

- Total benefit package sometime refers as TotalCompensation Package and its important toconsider employee benefit package.

- Clearly, a successful benefits strategy can playa major role in recruiting and retention efforts,as well as improving employee attitudes (and

well-being) and driving strong business results.- There are many types of Total Benefit Package

such as:


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TYPE OF TOTAL BENEFIT PACKAGE

1. Medical insurance

2. Life and long-term

3. Disability insurance

4. Leave benefits (Vocation or Holiday)

5. Children benefit

6. Retirement benefits

7. Education Assistance and Scholarship Programs

Those are extremely important- and valuable-parts ofthe total compensation package.


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ADVANTAGES OF TOTAL BENEFIT PACKAGE

- Effective employee benefits strategies raiseproductivity.

- Increase employee retention.

- encourage working performance, motivation,and productivity.

- Employers and employees share theresponsibility for providing benefits.

- Employees choose benefits to meet theirneeds, and value these benefits more highly.


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DISADVANTAGES OF TOTAL BENEFIT PACKAGE

- Organization pressure

- High cost

- Doesnt suitable for the employees in somecircumstance.

- The choices made may cause problems both toemployers and employees.

- Weekend the relationship between employersand employees


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PRICING

- Is an important signal of a products orservices value to customers.

- Price sends important signals to customers:Quality, prestige, uniqueness, and others.

- Common small business mistake: Chargingprices that are too low and failing to recognize

extra value, service, quality, and other benefitsthey offer.


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KEY THINGS TO DETERMINE YOUR VALUE

- What does it cost to produce? its very importantto consider finished produced when you aredetermining the value of a product. For a service,

you may look at the time and what it costs in timeto perform the service.

- How unique is it? Is this a product or service thatpeople can buy from competitors? Are thecompetitors cheaper than you? What is theadvantage of your product or service comparedwith the competition?


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(CONT)

- How quickly do your buyers need what you are selling?Who would pay extra to have things overnight? Now,speed is an ever increasing component to a product orservice's value. speed is sometimes extremelyimportant to clients and they will pay extra for it.

- Is this a one-time deal or something that will continueon into the future? Are you trying to establish a

relationship with the consumer to continue withproducts or services? Do you sell a printer for lessbecause you will make money selling ink into thefuture?


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(CONT)

The right price for a product or service dependson the value it provides for a customer.


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COMPETITION AND PRICING

- Must take into account competitors prices, butit is not always necessary to match or beatthem.

- Key is to differentiate a companys productsand services.

- Price wars often eradicate companies profits

and scar an industry for years.- Best strategy: Stay out of a price war!


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PRICING TECHNIQUE

A pricing technique in which a company setsdifferent prices on the same products andservices for different customers using the

information that it collects about its customers.


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TYPES OF PRICING TECHNIQUE

1. Odd pricing / Psychological Illusion: This is asimple strategy to encourage customers placeorders, raise the chances of people purchase.

2. Price lining: Price lining, also referred to asproduct line pricing, is a marketing processwherein products or services within a specific

group are set at different price points. (eg. caroptions, Nokia series)

3. A me too pricing policy


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(CONT)

4. Bundling: a marketing strategy that involvesoffering several products for sale as onecombined product. This strategy is very common

in the software business (for example: bundlea word processor, a spreadsheet, anda database into a single office suite)

5. Byproduct pricing: The by-product of anyprocess, instead of being discarded, is sold at acheaper price, often for a difference process.


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(CONT)

6. Captive produce pricing: Setting a price forproducts that must be used along with a mainproduct, such as blades for a razor and film for a

camera.7. Discount: A deduction from the usual cost ofsomething. For example, you may have a product

in your inventory that has not been selling asplanned. You can create a discount for thatproduct and promote it to customers who you

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Unit 4, Payment