Piece wages - what is it and where should it be applied?

In many companies, workers are paid piecework wages. But what is it, when is it established and what rules for its payment are provided for in the Labor Code of Russia?

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If the company has established a piecework form of remuneration, when calculating earnings you will need to adhere to special rules.

After all, there are several types of such payment, different working conditions, and tariff rates. Let's figure out what provisions of legislative documents address the issue of piecework wages.

What is nominal salary

The term "nominal wage" is used to refer to the fixed financial reward that a worker receives for fulfilling his obligations. As a rule, the calculation of the value of this indicator is based on the quantity of manufactured products or services provided. In those areas where it is difficult to make such calculations, all calculations are based on the number of hours spent on work. The concept of nominal wages also includes additional payments in the form of bonuses and other incentives. According to the established rules, the amount of earnings of each worker must be recorded in the local acts of the company. This can be either an employment contract or a payslip.

According to experts in the field of economic theory, this type of income can be divided into two separate types. Accrued earnings are the total amount of money due to the employee for fulfilling professional obligations. The salary paid is the amount of money the employee receives. In order to calculate this indicator, it is necessary to subtract tax deductions and other mandatory contributions to extra-budgetary funds from accrued earnings. Currently, most companies use the following payroll calculation systems:

Piece-rate method - in this case, the amount of earnings depends on the amount of labor resources expended by the employee over a certain time period. Typically, calculations are based on the number of goods manufactured.
Fixed salary - when using this method, the company's management fixes the amount of financial remuneration in the local documents of the enterprise.
Time-based system - in the case of this method, when drawing up calculations, the total amount of time spent on fulfilling labor obligations is taken into account. When making calculations, a special tariff schedule is used.
Piece-time system - this payment option is a kind of merger of the two methods described above. An employee who has exceeded the established norm has the right to count on receiving additional remuneration.
Chord method - this technique is used when a shift work schedule is used in production. Financial rewards are given to workers after completing one of the stages of production or after completing all assigned tasks.
Time-based - this method involves the accrual of additional funds when taking into account the implementation of the production plan for a certain time period.
Mixed view - this system is the result of combining all of the above methods for compiling calculations.

Today in economic theory there are two types of wages - real and nominal wages

Time-based form of remuneration

There are two forms of remuneration: time-based and piece-rate, which in turn are divided into several forms.

Time-based form of remuneration.
- Simple time payment. This type of payment is made for a certain amount of unworked time and does not depend on the quantitative characteristics of the work. It is calculated by multiplying the hourly or daily rate by the number of hours or days worked. If the employee has a salary, then wages are calculated based on the time worked based on the monthly salary.
Piece wages.
- Direct piecework wages. Carried out on the basis of established piece rates per unit of products or work produced by the employee. This form of remuneration also takes into account the qualifications of the employee.
Piece-progressive form of remuneration. The essence of this form of remuneration is to increase payment for the production of products or work in excess of the established norm.
Indirect piecework form of remuneration. Produced for workers in auxiliary production as a percentage of the wages of workers in main production (adjusters, assemblers, assistant foremen, etc.).
In practice, mixed forms of remuneration are often used. This applies, first of all, to workers combining several positions at one enterprise.
Accordal payment. It is used to calculate payment for a set of works or the production of a certain volume of products or work, and not for a specific production operation.

Finished works on a similar topic

Do not confuse the concepts of “payment system” and “form of payment” - they are not identical, although in the literature they replace each other.

https://youtu.be/HN719RFtIcE

A system is a set of rules for remuneration. Form is one of these rules.

Art. 131 of the Labor Code of the Russian Federation establishes two forms in which labor can be paid:

Cash – made in rubles.
Non-monetary - in kind - paid in any material or immaterial form not prohibited by law. The size of the natural part is no more than 15% of the person’s entire salary.

Time-based SOT is used at those enterprises where there is no need or opportunity to normalize production. Employees' job functions do not include the production of goods or services, so it is optimal to pay wages for time, and not for the amount of work. Almost all administrative and economic personnel “sit” on this COT. Payment will be made based on the employee’s qualifications and actual time worked in the accounting period.

With a simple time-based wage, the time worked in the period is paid. Periods can be recognized as: hours, days, months and variations of these periods.

With a bonus, a bonus for the quality of work is added to the salary for time, calculated as a percentage of the salary at the rate. The bonus may be one-time or applied on an ongoing basis.

With a salary, the employee has the right to count on a monthly salary in the amount as established in the employment contract. Upon achieving a certain qualification (determined subjectively by the employer), the salary may be increased.

The organization of remuneration represents all activities that should reward an employee for his work.

This takes into account the number of hours spent or the final result, as well as the quality of work. The organization of wages in Russia is influenced by:

wage system;
form of payment;
labor rationing.

The payment system has already been mentioned above: the company chooses what is closer to its structure and type of production. It is beneficial for small enterprises to make calculations based on a tariff-free system in order to motivate all employees to effectively carry out their work activities. Large companies more often resort to a tariff system.

Labor rationing is a clearly calculated system that allows you to determine the necessary time costs to perform a particular type of activity. For example, how much time is spent on manufacturing one part, how many parts can be reproduced per hour by one employee, etc.

In this case, it is important to take into account the conditions, including logistical ones, of a particular enterprise. If we are talking about office work, then the calculation is made for the result of intellectual activity, which must also be measurable.

We invite you to read: How many days can wages be delayed by law in 2020?

The form of payment can be time-based, piece-rate, or mixed.

Time-based is payments calculated in accordance with the employee’s time spent. The salary is based on special tariff scales, which take into account the level of qualifications of individual employees and the amount of salary depending on the position and profession.

Piece payment is based on the specific result of the work. This form of salary is often found in the field of trade and in various sales at the corporate level, when the employer needs to encourage the employee to perform his duties as efficiently as possible.

It is often resorted to when temporary employees are hired to carry out small work (car repairs, conducting educational trainings, etc.). It may be more profitable for management to pay for the actual work itself than for the number of hours spent on it.

The mixed remuneration system includes characteristics of two other types simultaneously.

Real salary: the essence of the concept

Real wages are the total amount of financial resources required to purchase goods from the consumer basket in order to ensure a normal standard of living. This category also includes services that are used by all citizens of our country. In simple terms, real wages are the total amount of money that a worker receives for fulfilling his obligations. This money is spent on food purchases, medicines, vacations and utility bills.

The indicator in question is used to display the level of well-being of a country or individual citizens.

Real earnings may be lower or higher than current prices for goods and services necessary to ensure human life. It is important to note that the price level is a dynamic indicator that regularly changes its value. As a rule, this figure is constantly growing. From this we can conclude that the real wages of our compatriots are lower than the norm under consideration.

What is real wage

This is the amount of material goods, products or services that a person can receive for the amount of nominal earnings. If for a certain time the nominal wage remains unchanged, and the inflation rate has increased over the same period, this means a decrease in real wages, which reduces the purchasing power of the employee and worsens his financial situation.

The calculation of real wages directly depends on the economic situation in the country or region, especially on the level of inflation and rising consumer prices. It is closely related to nominal earnings. This value reliably reflects the ability of people to satisfy their material needs through nominal remuneration.

Comparison of real and nominal wages

Real and nominal wages are two economic indicators that have common features. Despite the similarity of these indicators, each of them has unique features. In order to better understand the significance of these instruments in the modern economy, it is necessary to consider their relationship.

Similarities

Both indicators under consideration clearly demonstrate the cost of labor resources . When making calculations, the currency used is that used by the company's management when issuing funds to employees. It is important to note that these types of earnings cannot be equal to each other . This is explained by the fact that contributions to the state budget are made from the employee’s earnings. The employer includes these costs in the cost of providing financial remuneration to employees.

Differences

Having considered the similarities between real and nominal wages, it is necessary to move on to talking about their differences. The first indicator is tied to the cost of services and goods from the consumer basket. The second indicator is used to indicate the total amount of money earned by the specialist. It is important to note that when calculating this amount, tax deductions and the current inflation rate are not taken into account. This means that the size of this value may not correspond to the current state of the market. Summarizing all of the above, we can conclude that real earnings are based on the total number of goods that an employee can buy with the money received. Nominal earnings are used to reflect the cost of specific jobs.

Nominal salary is the amount accrued to the employee as payment for labor

Relationship

In order to calculate the real salary, it is necessary to subtract contributions to the state budget from nominal earnings. As a rule, company management makes such calculations taking into account all production costs. Many entrepreneurs who invest large financial resources in maintaining their business seek to save on staff salaries. Many of these businessmen rarely ask themselves whether the level of earnings satisfies all the needs of the company's employees.

Advantages and disadvantages of the system

Advantages for the employer:

The employee has a personal interest in increasing productivity.
His agreement to this form of payment clearly indicates his readiness to really work, and not receive money for sitting at his workplace.
If productivity declines, the blame and some of the costs fall on the employee.
He can be controlled less, since he himself is interested in working more.
Reducing the risks and losses that an employer incurs when hiring people who are not interested in working.

Benefits for the employee:

Salary depends entirely on the quality and speed of work. Everyone receives as much as he earned, which leaves no room for the injustice that sometimes occurs in the case of time wages, when both the one who worked hard and the one who only pretended to be active receive the same amount.
Almost anyone can get a job with piecework wages, regardless of his reputation, appearance and age, since it rarely involves the need to interact with people, and the employer does not care who exactly will produce for him.

However, there are also significant drawbacks.
Disadvantages for the employer:

The need to control product quality, which may make savings on other forms of control pointless.
The possibility of falsification and fraud on the part of the employee is a deterioration in product quality, neglect of safety rules and production technology.
Possibility of overuse of materials (especially by inexperienced employees) with a high percentage of defects.
Personnel turnover caused by the fact that people rarely stay in jobs with piecework wages - there are still no prospects for development, just as there is no corporate spirit.
Difficulties in identifying indicators that can be judged clearly and fairly (arise in all areas where it is impossible to simply count the parts produced).
The need to draw up production standards that will establish precise criteria by which high-quality products produced would be distinguished from low-quality products. Consequently, we need official documents and standardization specialists who will evaluate the standards and, if necessary, revise them.

Disadvantages for the employee:

Possible fluctuations in wages.
Possibility of errors when calculating wages and failure to take into account any factor independent of the employee.
Increased likelihood of injury due to haste and resulting neglect of safety precautions.
The likelihood of a rate reduction if the production level is too high.

With the right approach and in the right place, this kind of pay can be the best solution. But only if both the employer and the employee correctly assess their possible risks.

To learn how to motivate staff with such a calculation system, watch the following video:

https://youtu.be/hO3mORfNEOQ

Applicability of concepts in economics

Real wages are an indicator used in calculating the level of purchasing power. The amount of purchasing power is closely related to the consumer price index. The dynamics of PPI growth leads to a decrease in purchasing power. One of the responsibilities of the authorities is to use various measures to increase the PPI level in order to reduce the inflation rate. It is the difference between real and nominal earnings that reflects the current level of inflation. The ratio between the current salary and the amount of earnings for the previous year, multiplied by one hundred, allows us to determine the index of nominal earnings. When calculating real earnings, the above indicator must be divided by the consumer price index, and the resulting result multiplied by one hundred.

The lack of growth in nominal earnings with rising inflation leads to a decrease in the purchasing power of citizens. In such a situation, a person’s earnings will not be enough to buy basic necessities. It is important to note that regularly rising inflation levels lead to a decrease in real earnings. In this situation, the growing dynamics of the volume of nominal earnings is of secondary importance, since the state seeks to artificially increase the earnings of the working population. For this purpose, forced indexing methods are used. As practice shows, the use of such measures leads to a decrease in the degree of satisfaction of citizens with their social status.

Based on the above, we can conclude that in a stable economy, an increase in nominal earnings indicates an increase in the well-being of the country’s residents. In this case, minor fluctuations in the price index will not have a strong impact on living standards. In some situations, such fluctuations encourage the management of manufacturing companies to increase their nominal wages. According to financial experts, a high level of nominal value of labor costs is not evidence of high wages. Experts cite the early nineties and last century as an example. During the default, most citizens earned several million rubles. However, most compatriots could not spend their money to ensure a normal standard of living due to a shortage of marketable products.

Real wages characterize the purchasing power of nominal wages

Main influencing factors

Nominal wages are an economic indicator, the value of which depends on many different factors . Among them, the personal contribution of the worker to the production process should be highlighted. When making calculations, it is necessary to take into account both the result of labor activity and the qualifications of the specialist involved in performing a specific production task. When making calculations, you need to take into account the complexity of working conditions. Intensive work in hazardous work should be paid at a higher rate compared to standard working conditions.

When making calculations, the time required to implement the plan, as well as the minimum wage, are taken into account. The minimum wage is used to determine the minimum nominal wage. The value of this parameter is established by government agencies. As mentioned above, the nominal salary includes not only the actual remuneration due to the employee, but also incentive payments. An employer making such calculations must take into account both the specific remuneration system and all bonuses due to the employee. Real wages also depend on many factors, including:

The amount of tax burden. An increase in the amount of tax payments and mandatory contributions to extra-budgetary funds leads to a decrease in real wages. In addition to paying personal income tax, the company's management must pay the unified social tax. This tax takes away a large portion of the employee's earnings.
Current cost of services and consumer goods . The growth of this indicator is the reason for the depreciation of banknotes received by the worker.
Increase in utility bills . This category of expenses for ordinary citizens increases annually, which leads to the “loss” of most of the funds earned.
Changing dynamics of demand for specific specialists. An increase in the demand for a certain specialty in the absence of qualified personnel leads to an increase in the level of earnings of specialists.
Indexation of earnings. This factor has an impact on the size of the real salary of employees of budgetary organizations. Management of private companies rarely increase tariff rates and salaries for their staff.

When making calculations, you need to take into account the duration of delays in the issuance of funds. As a rule, in this case, the company’s management calculates and takes into account the earnings of employees in statistics long before the actual disbursement of funds. When considering the factors influencing the amount of real earnings of workers, it is necessary to mention various types of discrimination. As practice shows, many women receive significantly less money in comparison with men holding a similar position. Many “private traders” use gray and black schemes to pay migrants.

During perestroika, many employers used a barter wage system. This system involves issuing a portion of earnings in the form of company products. This approach to employee remuneration has a negative impact on the state budget. The negative impact is explained by the fact that it is impossible to pay taxes on such a salary. Many financial analysts do not exclude the possibility that with a growing financial crisis, the impact of this factor may increase significantly. Based on all of the above, we can conclude that in modern economic conditions, the indicators under consideration have a large number of differences, despite their dependence on each other.

The size of real wages reflects the volume of goods and services that can be purchased with money received in the form of wages

https://youtu.be/cCYH13jne7Q