Labour productivity and remuneration methods

Productivity

Labour productivity = output / labour input, for example units per worker hour. Higher productivity lowers labour cost per unit. It can be improved by training, better machinery, better methods and incentive pay, but pushing output can damage quality and safety.

Pay methods

• Day work (time rate): hours worked x rate per hour, with an overtime premium for extra hours (e.g. time and a half). Simple, pay is predictable, quality is not rushed; but there is no reward for extra output, so supervision is needed.
• Piecework: units produced x rate per unit (straight piecework). Often with a guaranteed minimum weekly wage. A differential piece rate pays a higher rate for output above a target. Rewards effort; but quality may fall, output must be inspected and pay can vary.
• Individual bonus schemes reward time saved against a time allowed for the work, e.g. bonus = 50% x time saved x hourly rate (a Halsey-type scheme) or time taken/time allowed x time saved x rate (a Rowan-type scheme).
• Group bonus: a bonus is earned by a team and shared, encouraging teamwork where individual output cannot be measured; but hard workers may resent less productive colleagues.

The 2024 examiners' report noted definitions of day work and piecework lacked precision: state the basis and how pay is calculated.

Employee earnings and employer cost

• Gross pay (employee earnings) = basic pay + overtime + bonus.
• Net pay = gross pay - deductions such as income tax, employee's social security contributions and pension contributions.
• Employer cost = gross pay + employer's social security contributions + employer's pension contributions.

Use the rates the question gives; they vary by country.

Worker: 40 hours, 220 units, 12 minutes allowed per unit

Worked example

A worker is paid £12 an hour for 40 hours and produces 220 units. Time allowed is 12 minutes per unit; the bonus is 50% of time saved at the hourly rate. The employer pays contributions of 10% of gross pay. Find the gross pay and employer cost.

1. Time allowed = 220 x 12 / 60 = 44 hours; time saved = 4 hours.
2. Bonus = 0.5 x 4 x 12 = 24; gross pay = 480 + 24 = 504.
3. Employer cost = 504 x 1.10 = 554.40.

Answer: Gross pay £504; employer cost £554.40.

Check yourself

1. A worker is paid £14 an hour for a 38-hour week, with overtime at time and a half. She works 44 hours. Calculate her gross pay.
   Show answer

   £658. 38 x 14 = 532; 6 x 21 = 126; total 658.

2. A worker produces 460 units at a piece rate of £0.95 per unit, with a guaranteed minimum of £420 a week. Calculate the week's pay.
   Show answer

   £437.00. 460 x 0.95 = 437, which is above the minimum.

3. Piece rate is £1.20 per unit with a guaranteed minimum of £400 a week. A worker produces 310 units. Calculate the pay.
   Show answer

   £400. 310 x 1.20 = 372, below the guarantee, so £400 is paid.

4. Time allowed for a job is 30 hours; it is completed in 24 hours. The rate is £15 an hour and the bonus is 50% of time saved. Calculate the total pay.
   Show answer

   £405. Basic 360 + bonus 0.5 x 6 x 15 = 45; total 405.

5. Gross wages are £24,000 a month. The employer pays social security contributions of 12% and pension contributions of 5% of gross wages. Calculate the employer's total labour cost.
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   £28080. 24,000 x 1.17 = 28,080.

6. A team of 6 workers produced 3,240 units in a 40-hour week. Calculate labour productivity in units per worker hour.
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   13.5. 3,240 / 240 = 13.50.

7. Explain one disadvantage to a business of paying workers by piecework.
   Show answer

   Workers may rush to produce more units, so quality falls and more products have to be inspected or rejected.. Name the problem and its effect on the business.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (issue 2), Unit 1 and Appendices 6 to 8

Last updated 8 November 2026. Spotted a mistake? Tell us.