METHODS OF PAYING EMPLOYEES
SALARY
Salaries are usually associated with "white-collar" workers such as office employees, managers, professionals, teachers and executives. Salaried employees are often paid semimonthly (e.g., on the 15th and last day of the month) or biweekly (e.g., every other Friday) and their salaries are often stated as a gross annual amount, such as "$96,990 per year." Since salaried employees earn a specified annual amount, it is likely that their gross pay for each pay period is the same recurring amount
Example: Jennifer Smith, employed by Excelsior Marketing Inc., receives an annual salary of $96,990 and is paid every two weeks (bi-weekly). Her pay for each pay period is calculated as follows:
$96,990/26 = $3,730.38
Therefore, Ms. Smith gross pay would be $3,730.38 for each of the 26 pay periods.
Example: Jennifer Smith, employed by Excelsior Marketing Inc., receives an annual salary of $96,990 and is paid every two weeks (bi-weekly). Her pay for each pay period is calculated as follows:
$96,990/26 = $3,730.38
Therefore, Ms. Smith gross pay would be $3,730.38 for each of the 26 pay periods.
HOURLY RATE
Hourly rate system is the simplest and oldest method of wage payment. According to this system, the workers are paid in accordance with the time spent on the job. The time may be on hourly, daily, weekly, biweekly or monthly basis. The work or production done by an employee is not taken into consideration.
For example:
If the worker is paid at the rate of $20 per hour and he works 37.50 hours during a week, the weekly payment is:
Weekly wages = (Number of hours worked during the week) x (Rate per hours) = 37.50 x $20 = $750 per week.
For example:
If the worker is paid at the rate of $20 per hour and he works 37.50 hours during a week, the weekly payment is:
Weekly wages = (Number of hours worked during the week) x (Rate per hours) = 37.50 x $20 = $750 per week.
ADVANTAGES
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DISADVANTAGES
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Piece Rate
Piece rate system is a system in which wages are paid in accordance with the number of units of work produced. This is independent of time spent on the job. A fixed rate of wage is paid for each piece of unit produced.
For example,
If a worker produces 100 pieces per day and he is paid at the rate of $3.75 per piece, the daily wage is 100 x $3.75 = $375.
Advantages:
DISADVANTAGES:
For example,
If a worker produces 100 pieces per day and he is paid at the rate of $3.75 per piece, the daily wage is 100 x $3.75 = $375.
Advantages:
- This system is simple in working and the workers can easily calculate their wages.
- This system helps in distinguishing efficient and inefficient workers.
- Strict supervision is not required in this system.
- This system is fair to employee and employer both.
- There will be no dispute for wages, as workers will be rewarded satisfactory for their work.
DISADVANTAGES:
- This system does not guarantee a fixed minimum wage to a worker.
- The quality of goods will be poor as workers try to speed up their work in order to produce more.
- There will be increase in wastage of materials.
- Workers intentionally ignore safety rules, inviting accidents.
- Workers neglect their health in order to put their maximum efforts.
- The wages of beginners will be less, as their output cannot be equal to the experienced workers.
COMBINATION OF HOURLY WAGE AND PIECE RATE
In this system, both time and product are taken into consideration. The minimum weekly wages are fixed for every worker, which are to be paid irrespective of his output during the week, provided he has worked for full working hours required in a week. The wages for the period of his absence are deducted from the total amount of his wages.
The piece rate system is also combined with time rate system as follows: A job card of each worker is maintained which clearly shows the number of jobs completed by the worker during a week. Payment for each job is fixed in advance. If the piece rate wages earned by the worker are more than time rate wages, the balance is paid to the worker. On the other hand, if piece rate wages are less than time rate wages, then the worker will have to compensate the same by making more pieces during next week.
ADVANTAGES:
The piece rate system is also combined with time rate system as follows: A job card of each worker is maintained which clearly shows the number of jobs completed by the worker during a week. Payment for each job is fixed in advance. If the piece rate wages earned by the worker are more than time rate wages, the balance is paid to the worker. On the other hand, if piece rate wages are less than time rate wages, then the worker will have to compensate the same by making more pieces during next week.
ADVANTAGES:
- This system provides incentives to workers to produce more,
- It is simple in its working and the workers can easily calculate their wages.
- It needs check on quality.
- It needs careful piece rate fixing.
- The entire benefit of extra payment goes to worker
METHODS OF REMUNERATION SALESPERSONS
There are three types of remunerating salesperson. They are salary, commission and salary plus commission. They are briefly explained as below.
SALARY
The salesperson will be paid the same amount every period irrespective of the work done.
Example: The salesperson earns $1,250 weekly.
ADVANTAGES
DISADVANTAGES
Example: The salesperson earns $1,250 weekly.
ADVANTAGES
- It is simple to calculate.
- Straight salary method gives secured feeling for the salesperson as he receives an assured payment.
- It provides them with stable income.
- There will be no scope for ill feelings among salesmen.
- The administration work involved is also considerably less.
DISADVANTAGES
- No formula is generally available for determining straight salary.
- It does not do justice to those who are really efficient and hard working.
- It will not motivate efficient salesmen to maintain the same level of performance.
- It enables even the less efficient salesmen to get payment on par with the efficient salesmen.
- As all the salesmen are paid the same salary, they may not work hard to enhance the firm’s sales. The sales may even begin to fall after some time.
COMMISSION
Salespersons who are paid straight commission get payment according to the amount of sales they made. This is in contrast to straight salary.
Example the salesperson receives 3% of bi-weekly sales
In January his sales were $65,000.
Biweekly commission =$65,000 x 3% =$1,950
ADVANTAGES
The following are the advantages of straight commission:
DISADVANTAGES
Example the salesperson receives 3% of bi-weekly sales
In January his sales were $65,000.
Biweekly commission =$65,000 x 3% =$1,950
ADVANTAGES
The following are the advantages of straight commission:
- It enables the efficient salesmen to earn more.
- It does justice to those who are hard working.
- It does not reward those who are less efficient and careless.
- It makes it possible for the firm to enhance sales, as efficient salesmen feel motivated.
- It helps to identify inefficient salesperson.
DISADVANTAGES
- Calculation of remuneration is not simple.
- It gives scope for ill feelings among salesmen.
- It may not assure stable income.
- Sometimes, due to unexpected circumstance, there may be fall in sales even though the salesman has put in his best effort. As a result, even the most efficient salesperson may end up getting low remuneration.
- It involves lot of administrative work.
SALARY PLUS COMMISSION
Under this method, a salesperson receives part of the remuneration as fixed salary every month. The other part will be paid in accordance with the volume of sales achieved by them.
Example: $750 bi-weekly wages, plus of 3% of biweekly sales
February biweekly sales: $35,000
Bi-weekly wages = ($750+($35,000 x 3%)) = $750+$1,050 =$1,800
This method gives the advantages of the first two methods discussed above. But the drawback of this scheme is that it is not easy to determine the fixed and the variable components of the salesperson’s remuneration. Moreover, the administration of such a method is tedious.
Example: $750 bi-weekly wages, plus of 3% of biweekly sales
February biweekly sales: $35,000
Bi-weekly wages = ($750+($35,000 x 3%)) = $750+$1,050 =$1,800
This method gives the advantages of the first two methods discussed above. But the drawback of this scheme is that it is not easy to determine the fixed and the variable components of the salesperson’s remuneration. Moreover, the administration of such a method is tedious.