Time Rate System Pay Advantages and Disadvantages - Wisestep (2024)

Most of the time some employees of the company get confused about their payment method and priorities and because of that, there is a possibility that the employee may confront the employers in a negative manner.

When it comes to the payment system of the company, the employer needs to realize that paying what the employees have really earned is what they deserve, being the employer’s first and foremost priority.

What is Time Rate or Time Wage System?

Time rate or time wage system is one of the payment systems or wage measuring method which companies usually adopts when paying an employee.

This wage measuring system is one of the essential features of any business. The company needs to look into the matters of the wage or salary rates, which should be given the employees of the company.

1. Time spent on the work:

While calculating the total amount of salary whether it is hourly, weekly or monthly, the employer needs to be aware of the attendance list of the employee.

Here the employer needs to register every single information about the employee working hours. And at the time of salary calculation, the employer will consider those total working hours or time spent on the work of the particular employee.

Therefore, the total amount of time spent on the given work will help the employer while making the salary of their employees.

2. Fixed-rate per unit of work:

One of the important constraints that need to be considered while calculating the actual total salary of the employee, the employer must fix a fixed rate per unit of work.

In this fixed rate per unit of work, the employer decides a fixed rate or price for the employee for the work he/she can deliver.

Most commonly this kind of payment is called wages and it is necessary to fix a certain amount for the work which an employee delivers within a specified period of time.

3. Total Output:

The total output of the work is nothing but the total output of work delivered by the employee at the end of a specific period of time.

While calculating the total salary or wage amount of the employee, the employer needs to look into the work which has been delivered by the employees.

This total output will help the employee to consider the employee’s working ability and the quality of the work delivered by the employee.

4. The number of production unit:

While calculating the wages of the employees, the company need to keep the accurate track of all the employee number of production unit per day. Because this number of production units help to know the actual quality of the production of each and every employee.

This helps to calculate the final total wage for that employee as per their quality of production units.

Time Rate System Formula:

In company, the employer need to follow a certain level of specific time rate system formula where the main constraint is that the employer should consider the total time spent on the work by the employee. And while creating formulas there are two different methods that the employer utilizes and one of them is.

Time rate system:

This time rate system calculation is based on the working hours of the employee, that is the amount of time spent on the work along with the amount of work delivered within the specific period of time.

And the actual formula that helps to calculate the total amount by using this time rate system formula is

Formula: Wages= Total hours worked X Wages rate per hour.

Examples ofTime Rate System:

These examples will provide a clear picture of these time rate systems. These time rate systems provide an accurate calculation of the wages of the employees. And it helps the employer of the company to keep track of their salary expenses as well.

Example 1:

An employee works for Rs. 20 an hour and he spends a total of around 400 hrs in a month of 30 days at work. What would be his salary?

Calculation under time rate system.
Total hours worked = 400 hrs, wage per hour = 20
Wages= Total hours worked X Wages rate per hour.
Wages = 400*20 = 8000.
Therefore, the employee receives a salary of 8000/- on a monthly basis.

Chief Features of Time Wage Payment Methods:

  • Very popular and easy form of payment.
  • Helpful in the payroll function
  • All the calculations are quite simple
  • There will be no irregularity or uncertainty regarding income or wages
  • Can concentrate more on the work as the income will be regular

Conditions Favouring Time Wage Payment Methods:

  • When the output or result cannot be assessed or measured
  • The work may get delayed depending upon the industry you are working for.
  • When the quality of work is given preference
  • When workers having an idea regarding the output quantity (especially in: automation or computerized sector)
  • When employees are freshers and are in training period for the respected job.
  • When trying to reduce the risk of errors or accidents depending upon the work speed

Importance of Time Wage Payment Methods:

  • The worth of the employee can be assessed
  • Quality work is given more importance when compared to quantity work.
  • High level of monitoring of work can be achieved
  • Delays and risks of accidents are high and are out of control.
  • No single employee will have control over the whole output

Advantages and Disadvantages of Time Rate System:

There are several advantages and disadvantages of the time rate systems, and these advantages and disadvantages create differentiation for the purpose of the company benefits.

Advantages of the Time Rate System:

1. Simple formulation:

The calculation and nature of the time rate system are very easy and simple to understand. It is one of the methods that can be understood by all the employers of the company.

Its measurement and the calculation of this wage system provide the actual picture about the overall time rate system.

Therefore, as it is mentioned earlier, it is easy and simple to understand and formulate in the company.

2. Easy access:

This time rate system is very easy to access and that is because of its brief and clear detailed information. The details collected and maintained through this time rate system are very economical.

In other words, it is one of the simple methods of understanding the total wages of the employees of the company. It makes records maintenance, affordable and clear. Therefore, it is one of the economic methods of calculating wages under time rate systems.

3. Production quality:

As per the information provided by different sources of the production unit, the company performs better with these time rate systems.

Eventually, the production quality will increase and the employer monitors all the production units without any mistakes.

Therefore, because of this time rate system, the quality of production gets improved and it favours the overall development of the company.

4. Fixed wage:

Even when it comes to a salary expense calculation, the company earns better profits because of its fixed rate of price.

The time rate systems incorporate fixed-wage systems because of which the company using it confirms a fixed rate of price per day.

And this fixed rate per price helps to increase the profits of the company as its only a small amount of profit returns.

5. Improves equality among employees:

Because of the time rate system, the employees of the company may feel equal within themselves.

Most of the time several companies face a certain kind of union problems and if the company incorporates these time rate system policy, then the possibility of inequality issue will be considerably less among the employees of the company.

Therefore, all the employees of the company experience equality among them.

Disadvantages of Time Rate Systems:

1. It ignores efficiency:

As per the formulation of this time rate system, the actual focus of this time rate system is on the part of the production where the employee works according to the specific number of time and production.

Most importantly the work delivered by the employees will be based on their total daily production output. And it is obvious that it completely ignores the efficiency of its employees, because of which deserving employee feels unappreciated for their work.

2. Loss of skilled workers:

As explained above, the company works according to the specific production rate and it totally ignores the efficiency of its employees and because of that, the employees of the company decide to leave the company. This is one of the disadvantages of this time rate system.

Therefore, the company suffers a loss of their skilled workers because of the time rate system methods of wage calculations.

3. Inefficiency:

The workers and the employees of the company eventually understand that the company expects a certain level of production from them not the quality of work from them. This kind of ignorance creates inefficiency among the employees of the company.

Therefore, all the employees of the company decide to work as per their specific production expectation and they try to not bring efficiency in their work because their efficiency will not reward them for their excellent work delivery.

4. Conflicts of thinking:

Most of the time the company incorporates some kind of rules and regulations in the company without consulting their employees of the company.

And when it comes to the wage system and salary system, then the employees of the company will definitely have some conflicts of thinking.

This conflict of thinking creates a communication difference between the employees and the employers of the company which is not at all good for the company development.

5. Cost of production:

As the company prefers its employees to provide a specified number of productions and the employees of the company meet their daily production unit, then there is a possibility that the company might increase the production output. This increment in production output leads to the increment of cost of production.

Therefore, this can affect the company effectively because of this time rate system of the wage calculations.

6. Increased supervision cost:

When it comes to the cost of supervision the company may end up being in trouble because of these time rate systems. Therefore, the company needs to cut back its supervision cost so that they can regain the position of the company.

And to make that happen, the company needs to cut back from the time rate systems so that they can reduce the cost of supervision eventually.


And the bottom line is that all this information about a different type of wage systems provide the overall knowledge about the actual working behaviour of the company. It provides accurate information about the company wage systems, especially when it comes to Time rate systems the company expects certain kind of benefits from its wage systems.

Therefore, it is one of the best options to choose a time rate wage system. And to know more about time rate system one needs to understand all the above-mentioned details.

Time Rate System Pay Advantages and Disadvantages - Wisestep (2024)


What is time wage system advantages and disadvantages? ›

No Incentive for efficiency:

This method does not distinguish between efficient and inefficient workers. The payment of wages is related to time and not output. Thus, the method gives no incentive for more production. Efficient workers may start to follow inefficient persons because rates of pay are same.

What are the advantages of time rate system of payment? ›

The main advantages of time-rate pay are: Time rates are simple for a business to calculate and administer. They are suitable for businesses that wish to employ staff to provide general roles (e.g. financial management, administration, maintenance) where employee productivity is not easy to measure.

What are the disadvantages of time rate system? ›

Loss of skilled workers:

As explained above, the company works according to the specific production rate and it totally ignores the efficiency of its employees and because of that, the employees of the company decide to leave the company. This is one of the disadvantages of this time rate system.

What are some advantages and disadvantages of the piecework system? ›

This way, you can determine if this is a system you're willing to work with.
  • Advantage: Time Efficient. ...
  • Advantage: Production Efficient. ...
  • Advantage: Cost Accountable. ...
  • Disadvantage: Hindered Production. ...
  • Disadvantage: Sick or Injured Workers. ...
  • Disadvantage: Reduced Quality.

What is an advantage and disadvantage to salary pay? ›

salary pros and cons, hourly jobs can offer a more reliable work-life balance since they assign you a set number of hours to work. However, salaried jobs most often provide paid time off or vacation days , whereas many hourly jobs do not.

What are the two basic disadvantages of wage employee? ›

Because of the absence of an employment contract, people who earn wages have low job security. Employers can stop working with them once they've achieved their purpose. Also, in an economic crisis, employees who earn wages are usually primarily affected by downsizing efforts.

What is the time wage rate system? ›

The time rate system is that system of wage payment in which the workers are paid on the basis of time spent by them in the factory. Under this system, the workers and employees are paid wages on the basis of the time they have worked rather than the volume of output they have produced.

What do you mean by time rate wage system? ›

When wages are decided on a time rate basis, the quantity of goods produced by a worker is not considered but he is paid wages on the basis of time spent by him in the factory. The time rate of wages can be determined per hour, per week or per month. This system of wages is prevalent in most of the industries.

What are the advantages and disadvantages of electronic payment system? ›

In conclusion, virtual payments offer many advantages, including convenience, security, and reduced costs. However, there are several disadvantages to consider, such as technical issues, security risks, and limited consumer protection.

What are the advantages and disadvantages of labor? ›

Advantages And Disadvantages
There is great cooperation among the laborers to complete the task.Huge dependence on other labor forces and machines.
It reduces the work overlapping during the process as each completes it on time.The exploitation of labor by capitalists to produce more items.
5 more rows

What are the advantages and disadvantages of bonuses? ›

  • What's it: A bonus is compensation beyond the regular salary paid by the company to employees or management, usually once a year. ...
  • Motivating factor. ...
  • Reduce turnover. ...
  • Attract quality new employees. ...
  • Clearer targets. ...
  • Additional cost. ...
  • Disappointed if there is no bonus. ...
  • Not always effective.
Apr 17, 2022

What is the difference between time rate system and piece rate system? ›

Time rate system is a method of wage payment to workers based on time spent by them for the production of output. Piece rate system is a method of wage payment to workers based on the quantity of output they have produced.

Why is time consuming a disadvantage? ›

If things take less effort than usual, then time consumption leads to inertia. Managing time to improve life, because time management means spending time in the right places and on the right things, but sometimes the obsession with doing things right makes your life stagnate.

What are the disadvantages of high day rate system? ›

2.3 Disadvantages of High Day Rate System

High rates of payment could interrupt the job structure competition amongst employers for those who pay low are forced to increase their salaries even when their level of production is low so as to retain workers. Compromise to quality output.

What is a disadvantage of pay for performance? ›

It may demotivate low-performing workers

If not conducted correctly, pay increases based on performance may affect your low-performing workers negatively. They may see themselves as incapable of reaching such incentives, and their effort may suffer.

What are the disadvantages of payroll? ›

What are the disadvantages of using a payroll service?
  • Delays in the payment of salaries. The failure to provide employees with their salaries on time is a significant issue when outsourcing payroll. ...
  • Increase in expenses. ...
  • Data accessibility. ...
  • Loss of Control. ...
  • Risks to confidential information. ...
  • Coordination challenges.

What are the pros and cons of hourly work and the pros and cons of salary work? ›

Salaried jobs usually come with more security, flexibility, and status. However, hourly workers are eligible to make time-and-a-half pay for working more than 40 hours per week.

What are the disadvantages of hourly wages? ›

Disadvantages of Hourly Rate Wage:
  • Number of hours worked by the employees: ...
  • No guaranteed salary per month: ...
  • Lesser amount of extra work time: ...
  • Wages are lost when an employee is absent due to medical reasons: ...
  • Hour rate wage earners cannot determine their monthly payroll:

What are three advantages and disadvantages of being an employee? ›

Pros and cons of being an employee
  • You will not worry about not getting paid next month. ...
  • Employee benefits. ...
  • Separating life and work. ...
  • Not fulfilling your potential. ...
  • Making someone else rich. ...
  • Boredom. ...
  • Starting a company is not easy. ...
  • You will not make it with your first business idea.
Mar 6, 2018

What is one advantage and one disadvantage of being an hourly employee? ›

Benefits of Employee Salaried or Hourly with Pros and Cons
BenefitsMay or may not be included (it depends)
ScheduleThey generally have a fixed schedule
Employer IncentiveAvoid having to pay employee overtime (keep it to a 40 hour work week)
Nature of WorkGet paid to perform a specific duty
2 more rows
Mar 22, 2019

What is the time rate basis? ›

Time Rate System is otherwise called as Time Work, Day Work, Day Wages and Day Rate. It is the oldest method of remuneration. A worker is paid wages on the basis of number of hours engaged in the production activities. The output of the worker is not considered for payment of wages.

How many types are there of time rate system? ›

Thus payment is made according to the time worked irrespective of the quantity of work done. There are five types of this system, each differing only in so far as the fixation of the rate is concerned.

What is guaranteed time rate? ›

Guaranteed time rate which is the minimum remuneration rate applicable to employees who had been working on piece rate till now if he is again employed on time rate.

What are the advantages of time basis? ›

What are the advantages of time-based wage? Less harmful to quality. As mentioned above, this pay system allows workers to focus on quality. They don't rush into work and chase quantity to get paid more.

What are the disadvantages of hourly wage? ›

Cons of hourly employees

If an hourly worker does work over 40 hours in a week, you are required to pay them overtime wages, which can become costly if the position requires a lot of overtime. In most states, overtime is paid at 1.5 times the worker's regular hourly wage, known as “time and a half.”

What is time wage system? ›

In this method, wages is paid on the basis of time spent by the worker irrespective of the output or work done. Wages may be fixed per hour or per day basis.

What are some of the disadvantages of the union wage advantage? ›

Understanding some of the disadvantages of union for employers will help you avoid conflicts and work better with an organized workforce.
  • Higher Labor Costs. ...
  • Members Can Legally Strike. ...
  • Decreased Human Resources Control. ...
  • More Lawsuits and Arbitrations. ...
  • Extra Accounting for Union Dues.

What are 3 advantages of using time wisely? ›

What are the benefits of managing time?
  • Less stress. Managing your time reduces your stress level and increases your confidence. ...
  • Better work-life balance. ...
  • More time freedom. ...
  • Greater focus. ...
  • Higher levels of productivity. ...
  • Less procrastination. ...
  • Things are simpler and easier. ...
  • Less distraction.

What are the advantages of good time management? ›

12 benefits of time management
  • Decreased stress. Learning to manage your time can reduce your stress levels. ...
  • Increased productivity. ...
  • Positive reputation. ...
  • More energy for free time. ...
  • Clear daily goals. ...
  • Improved focus. ...
  • Streamlined decision-making. ...
  • Reaching goals faster.
Sep 30, 2022

What are examples of benefit time? ›

benefit time means accrual time, including vacation time, sick time, personal time, and holiday time.

What is one advantage of hourly pay? ›

The biggest benefit to hourly wages is cost savings for employers. Employee compensation fluctuates with the amount of work they do, so you can adjust your costs based on revenue. Hourly employees can also be employed part-time, which may mean they don't expect benefits, such as health insurance and retirement plans.

What is the disadvantage of full time staff? ›

Disadvantages of full-time employment
  • Difficult to balance your personal life. Full-time employment can be rigorous, requiring your full commitment for most of the week (normally 40 hours from 9 am to 5 pm). ...
  • More prone to work-related stress. ...
  • Could make you more risk-averse. ...
  • Tendency to become stagnant.
Sep 30, 2022

What are the disadvantages of paid workers? ›

The disadvantages of being on salary for employees are that they don't get paid for overtime and can't earn more money by working more hours. This means they may have to put in more hours for far less pay than their counterparts who earn hourly wages.

What are the characteristics of the time wage system? ›

In the time wages system, a worker is paid for the time spent. The rate is fixed, and payment is made according to the time spent (mostly measured in hours) working. In this system, quality and quantity are usually compromised as workers get the payment as per the time spent and not the completion of production.

How do you calculate time rate? ›

Rate of change in position, or speed, is equal to distance traveled divided by time. To solve for time, divide the distance traveled by the rate. For example, if Cole drives his car 45 km per hour and travels a total of 225 km, then he traveled for 225/45 = 5 hours.

What are 3 disadvantages for the union? ›

Labor unions charge dues to pay the salaries of union leaders and workers during a strike. And unfortunately, some unions spend union dues on six-figure salaries for leaders and luxurious headquarters. Other drawbacks of labor union membership include less autonomy, workplace tension, and slower advancement.

What is union advantage and disadvantage? ›

Labor unions benefit their members by negotiating better pay, benefits, and working conditions. Critics maintain that union contracts make it more difficult for a company to fire unproductive employees, and that they increase long-term costs which decreases competitiveness.

What are five disadvantages of unions? ›

Here are some of the downsides of labor unions.
  • Unions do not provide representation for free. Unions aren't free. ...
  • Unions may pit workers against companies. ...
  • Union decisions may not always align with individual workers' wishes. ...
  • Unions can discourage individuality. ...
  • Unions can cause businesses to have to increase prices.
Feb 12, 2022


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