The premium plan is also called the incentive wage system and bonus plan system.
Time and piece wages system have their own advantage and disadvantage.
Due to the disadvantages of the time and piece wage system, this incentive wage system has been developed.
It is developed to provide financial benefits to skilled workers.
Workers are separated as skilled and unskilled. Some common features of this system are:
Time wages are guaranteed
As production increase, labour remuneration also increases; but not in proportion to output.
As for efficiency increase, wage cost per unit reduces.
Keep in Mind (KIM)
Halsey premium plan, Rowan premium plan, Taylor system and Gantt task system are not in syllabus of 10+2 level. |
These plans are given only understanding for incentive plan. |
These plans are studied at the Bachelor level. |
This plan has been introduced by F.H. Halsey an American engineer in 1891.
This scheme provides workers hourly wage for the time taken to do work plus 50% (0.5 or ½) bonus time saved at an hourly rate.
The remaining 50% of the bonus is left for other workers.
Standard time is prefixed for every job or work.
Basic wages |
= |
Time taken x Wage rate |
|||
Bonus |
= |
50% (Standard time – Time taken) x Wage rate |
|||
Or |
= |
½(Time saved) x Wage rate |
|||
|
|
||||
Wages with premium plan |
= |
Basic wages |
+ |
Bonus |
|
Or |
= |
Time taken x Wage rate |
+ |
50 % (Standard time – Time taken) x Wage rate |
|
|
= |
(TT x WR) |
+ |
0.5 (ST – TT) x WR |
|
Keep in Mind (KIM)
The bonus calculation limit is 30% to 70%. In other words, 40% or 60% is also possible if given in the question. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3A
The extracted data are given related to labour:
Standard time fixed for production |
50 hours |
Time spend by worker |
40 hours |
Wage rate per hour |
Rs 40 |
Required: (1) Bonus under Halsey plan; (2) Total wages under Halsey plan
[Answer: Bonus = Rs 200; Total wage = Rs 1,800]
Solution:
Bonus under Halsey plan
Bonus |
= 50% (Standard time – Time taken) x Wage rate |
|
= 0.5 (50 – 40) 40 |
|
= 0.5 x 10 x 40 |
|
= Rs 200 |
Total wages under Halsey plan
Total wage/earning |
= |
Basic wages + Bonus |
|
= |
(Time taken x Wage rate) + Bonus |
|
= |
(40 hours x Rs 40) + Rs 200 |
|
= |
1,600 + 200 |
|
= |
Rs 1,800 |
Alternative,
Wages under premium plan |
= Time taken x Wage rate + 50 % (Standard time – Time taken) x Wage rate |
Or |
= (TT x WR) + 0.5 (ST – TT) x WR |
|
= (40 hours x Rs 40) + 0.5 (50 – 40 hours) Rs 40 |
|
= 1,600 + 0.5 x 10 x 40 |
|
= 1,600 + 200 |
|
= Rs 1,800 |
#####
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This plan is introduced by David Rowan in 1901 A.D.
Under this system, a basic wage is guaranteed for the actual time attended by the workers.
Standard time is preset for the task or work.
Bonus is allowed to the worker if he/she completes work before standard time.
Basic wages |
= Time taken x Wage rate |
Bonus |
= (Standard time – Time taken) ÷ Standard time x Time taken x Wage rate |
Or |
= (Time saved ÷ Standard time) x Time taken x Wage rate |
Wages with premium plan
Wages |
= Basic wages |
+ |
Bonus |
Or |
= Time taken x Wage rate |
+ |
(Time saved ÷ Standard time) x Time taken x Wage rate |
|
= (TT x WR) |
+ |
(TS ÷ ST) x TT x WR |
Keep in Mind (KIM)
Actual remuneration = Basic wage = Time taken x Wage rate per hour |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3B
The extracted data are given below:
Standard working hours in a week |
48 hours |
Worker took time to complete work |
40 hours |
Wage rate per hour |
Rs 36 |
Required: (1) Basic wage under Rowan system; (2) Bonus under Rowan system;
(3) Total wages earned under Rowan plan
[Answer: (1) Rs 1,440; (2) Rs 240; (3) Rs 1,680]
Solution:
Basic wages under Rowan system
Basic wages |
= Time taken x Wage rate |
|
= 40 hours x Rs 36 |
|
= Rs 1,440 |
Bonus under Rowan system
Bonus |
= [(Standard time – Time taken) ÷ Standard time] |
x Time taken x Wage rate |
|
= [(48 – 40) ÷ 48] |
x 40 hours x Rs 36 |
|
= 8 ÷ 48 |
x 1440 |
|
= Rs 240 |
|
Total wages earned under Rowan plan
Total wage earned |
= Basic wage + Bonus |
|
= Rs 1,440 + Rs 240 |
|
= Rs 1,680 |
Fredrick W. Taylor is known as the father of scientific management. He recommended wages for a lower rate of 83% and a higher rate of 125% for standard time.
This system was designed to differentiate between skilled and unskilled workers.
The skilled worker receives a higher rate.
Unskilled woeker receives lower rate.
Efficiency below standard 100% |
= 83% of standard piece rate |
Efficiency equal standard 100% |
= 125% of standard piece rate |
Efficiency above standard 100% |
= 125% of standard piece rate or given rate |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3C
Extracted data are taken given below:
Standard time |
4 units per hour |
|
|
Standard rate |
Rs 32 per hour |
|
|
Working hours during a day |
8 hours |
|
|
Units produced by the worker during 7 days are: |
|||
Ms Rajani |
220 units |
|
|
Ms Beenu |
235 units |
|
|
Required: (a) Wage payable to workers under Taylor’s differential piece rate; (b) Effective hourly wage rate
[Answer: Rajani = Rs 1,460.80; Rs 26.09;
Beenu = Rs 2,350; Rs 41.96]
Solution:
Given and working note:
Wage rate per unit |
= Rs 32 ÷ 4 units |
= Rs 8 |
Standard output in 7 days |
= 8 hours x 4 units x 7 days |
= 224 units |
Working hours in 7 days |
= 7 days x 8 hours |
= 56 hours |
Ms. Rajani = 220 units
It is less than standard output; she will receive 83% of the piece rate.
Wage payable |
= Output x Wage rate per unit @ 83% |
|
= 220 units x Rs 8@83% |
|
= 220 units x Rs 6.64 |
|
= Rs 1,460.80 |
Effective hourly wage rate
= Rs 1,460.80 ÷ 56 hours
= Rs 26.09
Ms Beenu = 235 units
It is more than the standard output; she will receive 125% of the piece rate.
Wage payable |
= Output x Wage rate per unit @ 125% |
|
= 235 units x Rs 8@125% |
|
= 235 units x Rs 10 |
|
= Rs 2,350 |
Effective hourly wage rate
= Rs 2,350 ÷ 56 hours
= Rs 41.96
This is the combination of the Halsey and Rowan premium system.
Under this system, the minimum wage is guaranteed.
It protects average workers by providing time rate wages.
Efficient worker gets 20% bonus for standard work.
This system is also known as the progressive rate system.
Output below standard |
= Standard production x Piece rate |
Output equal standard |
= Production units x Time rate @ 120% |
Output above standard |
= Production units x Piece rate@120% [or given in the question] |
Keep in Mind (KIM)
If any worker produces less than standard output, he/she will receive minimum guarantee wages |
Total wage = Standard production x Piece rate |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3D
The extracted data is given below related to the Gantt task system:
Standard production per day |
80 units |
|
||
Standard working time per day |
8 hours |
|
||
Wage rate per hour |
Rs 28 |
|
||
Above standard output wage rate |
Rs 3.50 per unit |
|
||
Units produced by workers: |
||||
Anjana |
75 units |
|
||
Binita |
80 units |
|
||
Chanda |
90 units |
|
||
Required: Earning per day under Gantt task bonus scheme
[Answer: Anjana = Rs 224; Binita = Rs 269; Chanda = Rs 315]
Solution:
Given and working note:
Standard output per hour = 80 units ÷ 8 hours = 10 units
Standard piece rate per unit = Rs 28 ÷ 10 units = Rs 2.80
Anjana = 75 units
It is less than standard production. Bonus is not allowed. She will receive minimum guarantee wages.
Total earning |
= 80 units x Rs 2.80 |
|
= Rs 224 |
Binita = 80 units
It is equal to standard production. She will receive 20% bonus on piece rate.
Total earning |
= 80 units x Rs 2.80 @ 120% |
|
= 80 units x Rs 3.36 |
|
= Rs 268.8 or 269 |
Chanda = 90 units
It is more than standard production. She will receive Rs 3.50 per unit
Total earning |
= 90 units x Rs 3.50 |
|
= Rs 315 |
#####
PROBLEMS AND ANSWERS OF INCENTIVE WAGE PLAN |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3A
The following data is given below related to one working day:
The standard time for production 10 hours
Guaranteed time rate (wage rate) Rs 34 per hour
Total earning under Halsey plan Rs 323
Required: (under Halsey plan) (1) Time taken; (2) Time saved; (3) Bonus
[Answer: Time taken = 9 hours;
Time saved = 1 hour; Bonus = Rs 17]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3B
The extracted data related to Rowan plan are given below:
Standard time prefixed by company 10 hours
Actual time taken to complete work by worker 8 hours
Wage rate per hour Rs 30
Required: (1) Basic wages; (2) Bonus; (3) Total wages
[Answer: (1) Rs 240; (2) Rs 40; (3) Rs 280]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3C
The extracted data related to Taylor’s differential plan are given below:
Standard production per hour 10 units
Normal time rate per hour Rs 40
Below standard 83% of piece rate
Above standard 125% of piece rate
In 8 hours working day units produced by:
Worker A 70 units
Worker B 85 units
Required: (1) Piece rate; (2) Total earning of each worker under Taylor’s differential plan
[Answer: (1) Rs 4; (2) Rs 232.40 and Rs 425;
* Piece rate = Rs 40 ÷ 10 units = Rs 4]
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3D
The extracted data is given below related to the Gantt task system:
Standard production per day 80 units
Standard working time per day 8 hours
Wage rate per hour Rs 32
Above standard output wage rate per unit Rs 3.80
Units produced by workers:
A 75 units
B 80 units
C 100 units
Required: Earning per day under Gantt task bonus scheme
[Answer: A = Rs 240; B = Rs 307.20; C = Rs 380;
* Standard piece rate = Rs 32 ÷ 10 units = Rs 3.20]
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