Labour cost: remuneration methods, incentive plans, idle time and labour turnover

1. Methods of remuneration

1. Time rate: wages = hours worked × rate. Simple and certain; suits work where quality matters or output cannot be measured; gives no incentive.
2. Piece rate: wages = units × rate per unit. Rewards output; may hurt quality and needs inspection. Variants: straight piece rate, piece rate with a guaranteed time wage, and differential piece rates.
3. Premium bonus plans: time wages plus a bonus for time saved against a standard time (Halsey, Rowan).
4. Differential piece rates: a higher rate for efficient workers (Taylor, Merrick, Gantt).
5. Group bonus and profit sharing: bonus shared by a team, or a share of profits.
6. Non-monetary incentives: security of service, training, recognition, housing, medical facilities, promotion.

2. Premium plans: Halsey and Rowan

With S = standard time, T = time taken, R = rate per hour:

• Halsey: earnings = T × R + 50% × (S − T) × R. The worker gets half the time saved.
• Rowan: earnings = T × R + [(S − T) / S] × T × R. The bonus is the proportion of time saved applied to time wages. Rowan pays more than Halsey until half the standard time is saved; at exactly half they are equal; beyond that Halsey pays more.

Solved (January 2026, B.Com). Standard 18 hours, time taken 12, rate 75 paise.

The January 2025 version (standard 30 hours, taken 20, Re. 1 an hour plus dearness allowance of 50 paise per hour worked) gives time rate 20 + 10 = Rs. 30; Halsey 20 + 5 + 10 = Rs. 35; Rowan 20 + 6.67 + 10 = Rs. 36.67. Dearness allowance is paid on hours worked and is not part of the bonus.

3. Differential piece rates

• Taylor (F. W. Taylor, the founder of scientific management): two piece rates, a low rate (say 80% of the normal piece rate) for output below standard and a high rate (say 120%) for output at or above standard. No guaranteed minimum.
• Merrick (multiple piece rate): normal piece rate up to 83⅓% efficiency; 110% of it from 83⅓% to 100%; 120% above 100%. Kinder to the learner.
• Gantt (task and bonus): below standard, time wages are guaranteed; at standard, time wages plus a bonus of 20% of time wages; above standard, a high piece rate (120%) on the whole output.

Solved (January 2026, B.Com). Standard 100 units an hour, Rs. 10 an hour, so the piece rate is 10 paise and standard output for an 8-hour day is 800. Worker X makes 600 (below standard): 600 × 0.08 = Rs. 48. Worker Y makes 1,450 (above standard): 1,450 × 0.12 = Rs. 174.

Solved (January 2026, B.Com, 100 marks). Time rate Rs. 30 an hour, standard 6 units an hour, 8-hour day: standard output 48, piece rate 30 / 6 = Rs. 5; low rate Rs. 4; high rate Rs. 6; Merrick middle rate Rs. 5.50; time wage for the day Rs. 240.

Workings: Taylor 39 × 4, 45 × 4, 48 × 6, 50 × 6. Merrick 39 × 5 (below 83⅓%), 45 × 5.50 and 48 × 5.50 (83⅓% to 100%), 50 × 6. Gantt: Chatur and Rancho get the guaranteed Rs. 240; Raju 240 + 20% = 288; Farhan 50 × 6 = 300. The paper says “for a week” but gives a day’s output; state the assumption, and multiply by the working days if a week is wanted.

4. Idle time and overtime

Idle time is time paid for but not worked. Normal idle time (tea breaks, change of shift, waiting for the next job) is inevitable and is absorbed by inflating the hourly rate or charged to factory overheads. Abnormal idle time (power failure, machine breakdown, strikes, shortage of material) is charged to costing profit and loss. It is recorded on idle time cards with causes, so that responsibility can be fixed.

Overtime is work beyond normal hours, paid at a premium (the Code on Wages, 2019, in force with the other Labour Codes from 21 November 2025, requires overtime at twice the normal rate). The basic wage for the overtime hours is direct labour; the premium goes to the job only if overtime was worked at the customer’s request, to factory overheads if due to general pressure of work, and to costing profit and loss if due to abnormal causes.

5. Labour turnover

Labour turnover is the rate at which workers leave and are replaced in a period. Measured by:

• Separation method: workers separated / average number on roll × 100.
• Replacement method: workers replaced / average number × 100.
• Flux method: (separations + replacements) / average number × 100.

Causes: avoidable (low pay, poor conditions, bad supervision, no prospects) and unavoidable (retirement, death, marriage, illness, discharge for misconduct). Costs: preventive costs (welfare, personnel department) and replacement costs (recruitment, training, lower output and more scrap while new workers learn). Remedies: fair wages and incentives, job security, grievance procedures, exit interviews to find avoidable causes.

How this is examined

The remuneration essay is the 10-mark Unit III question; write the six methods, then explain two incentive plans (Halsey and Rowan are safest) with formulas and a two-line example. Problems: always find the piece rate and standard output first, compute efficiency for each worker, then apply the plan. Labour turnover, idle time and overtime are the usual 6-mark short notes.