Study Notes

Time-based pay

AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

Time rates are used when employees are paid for the amount of time they spend at work.

The usual form of time rate is the weekly wage or monthly salary. Usually the time rate is fixed in relation to a standard working week (e.g. 35 hours per week). The employment contract for a time-rate employee will also stipulate the amount of paid leave that the employee can take each year (e.g. 5 weeks paid holiday).

Time worked over this standard is known as overtime. Overtime is generally paid at a higher rate than the standard time-rate – reflecting the element of sacrifice by an employee. However, many employees who are paid a monthly salary do not get paid overtime. This is usually the case for managerial positions where it is generally accepted that the hours worked need to be sufficient to fulfil the role required.

The main advantages of time-rate pay are:

  • Time rates are simple for a business to calculate and administer
  • They are suitable for businesses that wish to employ staff to provide general roles (e.g. financial management, administration, maintenance) where employee productivity is not easy to measure
  • It is easy to understand from an employee's perspective
  • The employee can budget personal finance with some certainty
  • Makes it easier for the employer to plan and budget for employee costs (e.g. payroll costs will be a function of overall headcount rather than estimated output)

The main disadvantages of time-rate pay are:

  • Does little to encourage greater productivity – there is no incentive to achieve greater output

Time-rate payroll costs have a tendency to creep upwards (e.g. due to inflation-related pay rises and employee promotion

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