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Payment systems |
Time rates
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A worker is paid a fixed amount, per hour, week or month.
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It is likely that an overtime rate is set for work that occurs outside normal hours. Workers are commonly paid time-and-a-half for work at nights and double-time for work at weekends or bank holidays.
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Time rates are easy to calculate and provides the worker with a predictable income. However, as the worker is paid the same amount regardless of how much work he does, it may not provide an incentive to work.
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Piece rates
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The employee is paid according to the work done. For example, a bricklayer is paid according to the number of bricks laid; a sales representative is paid a commission.
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Piece rates may relate output more closely to effort, but does not provide the employee with a predictable income. Also, the employee may neglect other essential work if there is no payment attached to it.
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Incentive schemes
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Some employers try to combine the benefits of both time rates and piece rates by providing incentive schemes. They pay a basic wage, but give workers the opportunity to earn more by achieving bonuses of one form or another. A bonus is an extra payment to a worker who achieves a specific target. Profit-related pay provides workers with a share in company profits. Merit payments are payments to workers deemed by management to have performed well. Sometimes bonuses are provided in the form of fringe benefits, such as company cars or holidays.
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Measured day work
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This is a system of payment in which employees are paid a fixed amount based on the understanding that they maintain a certain level of performance. It provides employees with more stable earnings, but can be less flexible than other systems.
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Profit sharing
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In profit sharing the employees are paid a bonus that is related to the profits of the company. The aim of profit sharing schemes is to encourage employees to identify with the company, an incentive to work harder, and to make employees aware of the implications of costs.
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Performance related pay
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In performance related pay the bonus the employee receives is not directly related to the profits of the company, but rather to the performance of the individual measured against some attainment target.
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