Definition: Taylor’s Differential Piece-Rate System was introduced by F.W. Taylor, who believed that the workers should be paid on the basis of their degree of efficiencies. Under this method, with the help of Time and Motion Study, the standard time for the completion of a job is fixed on the basis of which the performance of the workers is evaluated.
Taylor’s differential piece-rate system posits that the worker who exceeds the standard output within the stipulated time must be paid a high rate for high production. On the other hand, the worker is paid a low rate if he fails to reach the level of output within the standard time. Thus, there are two piece-rates, one who reach the standard output or exceeds it, is paid 120 percent of the piece rate. While the one who fails to reach the standard level of output, is paid 80 percent of the piece-rate. The minimum wages of the worker are not guaranteed.
This system can be further understood through the example given below:
Standard Output = 200 units
Rate per unit = Rs 10 paise
Case (1): Output = 220 units
Earnings = 220 x (120/200) x 0.1 = Rs 13.20
Case (2): Output = 180 units
Earnings = 180 x (80/200) x 0.1 = Rs 7.20
It is clear from the above example that the worker is paid a higher rate (Rs 13.20) for high production (220 units) and low rate (Rs 7.20) for low production (180 units). Thus, Taylor’s differential piece rate system works on the principle that the inefficient worker must be paid at a low piece-rate for low production such that he is left with no other option but to leave the organization.