Concept And Meaning Of Wage Payment System. Its Importance And Essential Characteristics

Concept And Meaning Of Wage Payment System , Its Importance And Essential Characteristics

The system of wage payment is the method adopted by manufacturing concerns to remunerate workers. It is the way of giving financial compensation to the workers for the time and effort invested by them in converting materials into finished products. It indicates the basis of making payment to the workers, which may be either on time basis or output basis. The selection of the system depends on the type and nature of the concern and its products. The wage payment systems can be divided into two main systems as follows.

1. Piece rate system

2. Time rate system

Importance Of Wage Payment System

The amount of wages paid to the workers is one of the major elements of cost. It has a great bearing on the cost of production and profitability of the concern. Hence, every concern is required to adopt a fair system of wage payment.

The importance of wage payment system can be summarized as follows:

• Wage payment system facilitates the preparation of wage plan for future.
• Wage payment system helps to determine the cost of production and the profitability of the organization.
• Wage payment system determines the amount of earning of the workers and their living standards.
• Wage payment system affects the interest and attitude of the workers.
• Wage payment system determines the level of satisfaction of the workers and affects the rate of labor turnover.
• Wage payment system helps in recruiting skilled, experienced and trained workers.
• Wage payment system helps to increase the productivity and goodwill of the organization.

Essential Characteristics Of A Good Wage Payment System

A sound system of wage payment is one that satisfies employer and employee by fulfilling following criteria.

• Wage payment system should be fair and justifiable to the workers and organization.
• Wage payment system should help in maximizing workers' satisfaction and minimizing labor turnover.
• Wage payment system should assure minimum guaranteed wages to all workers.
• Wage payment system should assure equal pay for equal work.
• Wage payment system should provide more wages to efficient and skilled workers.
• Wage payment system should follow government policy and trade union's norms.
• Wage payment system should be simple and understandable to all the workers.
• Wage payment system should help in improving performance and productivity of the workers.
• Wage payment system should be flexible enough to suit the needs of the organization.