Piece Rate Pay Advantage and Disadvantages

A piece-rate pay system means that the worker is paid per unit of creation. Whether the
"unit of creation" is a clay pot or a piece of writing, a person is paid by individual output, no
matter how long it takes. Although at first glance working by piece-rate may seem easier,
the piece-rate pay system has advantages and disadvantages that you should consider.
This way, you can determine if this is a system you're willing to work with.

Advantage: Time Efficient

Paying a worker by output encourages the worker to manage time so as to

increase the output. This also warrants less supervision, as the worker is already
incentivized to work harder.

Advantage: Production Efficient 

When paid per piece, workers tend to develop and adhere to the most efficient
means of production. Workers have a vested interest in achieving the company’s
goals in the most efficient way possible, because they're achieving more both for
the company and for themselves.

Advantage: Cost Accountable

It's easier to calculate the cost per unit, because it's easier to factor in the cost of
labor. Calculate the time spent producing the product, which is the labor, and then
add materials and shipping, and you can see that it's easy to arrive at a transparent
manufacturing cost.

Disadvantage: Hindered Production

It's virtually impossible to predict how much product can be created within a set
time under this system, because the system doesn’t easily lend itself to regulating
and encouraging a production line.
Disadvantage: Sick or Injured Workers 

Working for piece-rate pay means that workers might come to work when they are
ill, thereby risking the health of their coworkers. This could shut down or seriously
reduce production output. Additionally, depending on the materials and equipment,
if workers are working too quickly in an attempt to produce more, workers could
potentially injure themselves, which could open up the company to liability.

Disadvantage: Reduced Quality 

When the focus is on quantity, the output the quality may suffer. Such a system
requires dedicated employees who are determined to learn their craft thoroughly
and then to increase the output. Employees are human, however, and it can be
difficult to work at a rapid pace over a long duration. This can mean that employees
may continue to work at a rapid pace but that production may produce items of
reduced quality.

Piece rate system has the following advantages:

1. Workers are paid according to their merits because distinction is
made between efficient and inefficient workers. An efficient
worker can earn more wages because wages are linked to
output. Thus, this method is an improvement on the time wage
system.

2. An inducement is given to the workers to increase their

production and as a result workers will try to adopt better
methods of production to increase their production to earn more
wages.

3. Increased production will reduce fixed expenses per unit and cost
of production will reduce, allowing a greater margin of profit to the
employer.
4. Idle time is not paid for as is the case under the time wage
system. Thus, idle time will be reduced to minimum.
5. The employer is able to know his exact labour cost per unit
which will help him in making quotations confidently.
6. Workers use their tools and machinery with a greater care
so that the production may not be held up on account of
their defective tools and machinery.
7. Less supervision is required because workers have the fear
of not earning wages if they do not work.