Business

Study Notes

Piece-rate pay

Level:
GCSE, AS
Board:
AQA, Edexcel, OCR, IB

Piece-rate pay gives a payment for each item produced – it is therefore the easiest way for a business to ensure that employees are paid for the amount of work they do. Piece-rate pay is also sometimes referred to as a "payment by results system".

Piece-rate pay encourages effort, but, it is argued, often at the expense of quality. From the employee's perspective, there are some problems. What happens if production machinery breaks down? What happens if there is a problem with the delivery of raw materials that slows production? These factors are outside of the employee's control – but could potentially affect their pay.

The answer to these problems is that piece-rate pay systems tend, in reality, to have two elements:

  • A basic pay element – this is fixed (time-based)
  • An output-related element (piece-rate). Often the piece-rate element is only triggered by the business exceeding a target output in a defined period of time

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