Cost and Management Accounting · Employee Cost and Direct Expenses

Methods of Wage Payment and Incentive Schemes for CA Inter

Updated 4 October 2026 · Fact-checked

Wage payment methods decide how a worker's earnings are calculated: by time (time rate), by output (piece rate), or by time plus a bonus for saving time or beating a standard (incentive plans like Halsey, Rowan, Taylor, Merrick, Emerson, Gantt). Find time saved or efficiency first, then apply the plan's formula.

Understand Methods of Wage Payment and Incentive Schemes

Every business must pay workers. There are two basic ways. In the time rate system you pay for hours worked, whatever the output. In the piece rate system you pay for units produced, whatever the hours. Time rate is simple and suits work where quality matters or output cannot be measured. Piece rate rewards effort but can hurt quality.

A pure time rate gives workers no reason to hurry. A pure piece rate gives no safety if the worker is slow for reasons beyond their control. Incentive plans sit between these two. They guarantee a time-based wage and add a reward for efficiency.

There are two families. Premium bonus plans (Halsey, Rowan) work on time. You set a time allowed for the job. If the worker finishes in less time, they get time wages for the time taken plus a bonus linked to the time saved. Differential piece rate plans (Taylor, Merrick, Emerson, Gantt) work on output. You set a standard output. The rate per piece or the bonus changes with the worker's efficiency.

Efficiency = actual output ÷ standard output × 100. Almost every differential plan is a table: find the efficiency, pick the band, apply that band's rate. Read the question carefully, because the bands and percentages are usually given in it.

From a cost view, incentive plans lower labour cost per unit when output rises, because fixed overheads are spread over more units. The worker also earns more. That is why both sides gain.

Key rules to remember

Time rate wages: Earnings = Hours worked × Rate per hour; Paid even if output is low. Overtime or idle time is treated separately.
Piece rate wages: Earnings = Units produced × Rate per unit; Often with a guaranteed minimum time wage. Pay only for good units if the question says rejects are not paid.
Time saved: Time saved = Time allowed − Time taken; Starting point for Halsey and Rowan. If it is zero or negative, there is no bonus.
Halsey premium plan: Earnings = (Time taken × Rate) + 50% × (Time saved × Rate); The bonus share is 50% unless the question gives another share (such as 30% or 33⅓%). The worker gets a fixed share of the time saved.
Rowan plan: Earnings = (Time taken × Rate) + (Time saved ÷ Time allowed) × (Time taken × Rate); Bonus is a fraction (time saved ÷ time allowed) of time wages, so it is always less than time wages. The bonus amount is maximum when time taken is half of time allowed (T = A ÷ 2). It falls if the worker saves more time than that, and it also falls as time taken moves closer to time allowed.
Efficiency: Efficiency % = Actual output ÷ Standard output × 100; Equivalent in time terms: Standard time for actual output ÷ Actual time taken × 100.
Taylor differential piece rate: Below standard: 80% of piece rate × all units. At or above standard: 120% of piece rate × all units; The 80% and 120% are commonly used in exam questions. Use the percentages given. The higher rate applies to all units, not only the excess.
Merrick multiple piece rate: Up to 83⅓% efficiency: ordinary piece rate. Above 83⅓% up to 100%: 110% of piece rate. Above 100%: 120% of piece rate; Three bands. The rate for the band applies to all units produced.
Emerson efficiency plan: Below 66⅔% efficiency: time rate only. From 66⅔% to 100%: graded bonus, rising to 20% of time wages at 100%. Above 100%: 20% plus 1% for every 1% above 100%; Bonus is on time wages. Use the graded table in the question for the middle band.
Gantt task and bonus plan: Below standard output: guaranteed time wage. At or above standard output: high piece rate (120% of the ordinary piece rate) on all output, with the rate set so that earnings at standard output equal 120% of time wages; Check the version and percentages stated in the question.

How to solve Methods of Wage Payment and Incentive Schemes questions

Use this order for any wage or incentive question. It keeps the working clean and earns step marks.

1Identify the plan named in the question and note its bands or percentages exactly as given.
2Write down the data: rate per hour or per piece, time allowed or standard output, time taken or actual output.
3For premium plans, compute time saved = time allowed − time taken. For differential plans, compute efficiency % = actual ÷ standard × 100.
4Check which band applies. Watch the boundary points (for example, exactly 100% efficiency).
5Apply the formula for that band. Show time wages and bonus (or rate and units) as separate lines.
6Add them to get total earnings. If a guaranteed minimum wage applies, compare and take the higher.
7If asked, compute effective rate per hour or labour cost per unit = earnings ÷ hours or units, and comment briefly.

Quickest way: Fast route for MCQs and written answers

When to use it: Use when you have under 8 minutes for a wage-plan question or one to two minutes for an MCQ.

For Halsey and Rowan, first find time saved and time wages (time taken × rate). Everything else is built on these two numbers.
Halsey bonus = half of time saved × rate. Rowan bonus = (saved ÷ allowed) × time wages. Compute only these two and add.
When time taken is exactly half of time allowed, Halsey (50%) and Rowan give the same earnings. Use this as a check.
For Rowan, check that the bonus is less than time wages. It equals the Halsey 50% bonus when time taken is half of time allowed.
For differential plans, compute efficiency first, then pick the rate band. Multiply the band rate by all units.
In MCQs, eliminate options that are less than time wages. A plan with a guarantee never pays below the time wage.
In written answers, show the formula, the substitution and the answer on separate lines. Method marks are given even if arithmetic slips.

Common mistakes in Methods of Wage Payment and Incentive Schemes

Using hours saved as hours allowed in the Rowan formula.
Students mix up the fraction and invert it.
Fix: Remember the fraction is time saved ÷ time allowed. Then multiply by time wages (time taken × rate).
Applying the Taylor or Merrick higher rate only to the extra units above standard.
It feels like overtime logic.
Fix: In these piece-rate plans the band rate applies to all units produced. Say so in your working.
Computing efficiency with time and output the wrong way round.
Both are ratios, so the numerator is easy to swap.
Fix: Efficiency = actual output ÷ standard output. In time terms, standard time for actual output ÷ actual time. Higher efficiency must mean a higher number.
Paying a bonus when time taken exceeds time allowed.
Students apply the formula and get a negative time saved.
Fix: If there is no time saved, there is no bonus. Pay time wages only, under both Halsey and Rowan.
Ignoring the bonus share given in the question for Halsey.
Students memorise 50% and use it automatically.
Fix: Underline the share in the question. Use 50% only when no other share is stated.
Mishandling boundary efficiency, such as exactly 100% or 83⅓%, in Merrick.
The band edges are not memorised.
Fix: Write the bands down before you start. Note which band includes the edge, and follow the question's wording if it states one.

Worked examples

Example 1

The time allowed for a job is 40 hours. A worker finishes it in 30 hours. The wage rate is ₹60 per hour. Calculate the earnings, and the effective rate per hour, under (a) time rate, (b) Halsey plan with 50% bonus and (c) Rowan plan.

Show the solution

Time saved = 40 − 30 = 10 hours.
Time wages = 30 × ₹60 = ₹1,800.
(a) Time rate: earnings = ₹1,800. Effective rate = ₹60 per hour.
(b) Halsey: bonus = 50% × 10 × ₹60 = ₹300. Earnings = ₹1,800 + ₹300 = ₹2,100. Effective rate = ₹2,100 ÷ 30 = ₹70 per hour.
(c) Rowan: bonus = (10 ÷ 40) × ₹1,800 = ₹450. Earnings = ₹1,800 + ₹450 = ₹2,250. Effective rate = ₹2,250 ÷ 30 = ₹75 per hour.
Rowan gives more than Halsey at 50% when time taken is more than half of time allowed (time taken ÷ time allowed > 0.5). Here 30 ÷ 40 = 75%. The Rowan bonus is 25% of time wages (10 ÷ 40 = 25%), which is 25% of ₹1,800 = ₹450. The Halsey bonus is only ₹300.

Answer: Time rate ₹1,800 (₹60 per hour); Halsey ₹2,100 (₹70 per hour); Rowan ₹2,250 (₹75 per hour).

Example 2

Standard output is 160 units per day. The ordinary piece rate is ₹2 per unit. Worker A makes 120 units, Worker B makes 144 units and Worker C makes 192 units. Calculate each worker's earnings under (a) Taylor's differential piece rate (80% of piece rate below standard, 120% at or above standard) and (b) Merrick's multiple piece rate (ordinary rate up to 83⅓% efficiency, 110% above 83⅓% up to 100%, 120% above 100%).

Show the solution

Efficiency: A = 120 ÷ 160 = 75%. B = 144 ÷ 160 = 90%. C = 192 ÷ 160 = 120%.
(a) Taylor: A is below standard, so rate = 80% × ₹2 = ₹1.60. Earnings = 120 × ₹1.60 = ₹192.
Taylor: B is below standard, so rate is ₹1.60. Earnings = 144 × ₹1.60 = ₹230.40.
Taylor: C is above standard, so rate = 120% × ₹2 = ₹2.40. Earnings = 192 × ₹2.40 = ₹460.80.
(b) Merrick: A at 75% is within the ordinary band. Earnings = 120 × ₹2 = ₹240.
Merrick: B at 90% is in the 83⅓%–100% band. Rate = 110% × ₹2 = ₹2.20. Earnings = 144 × ₹2.20 = ₹316.80.
Merrick: C at 120% is above 100%. Rate = ₹2.40. Earnings = 192 × ₹2.40 = ₹460.80.

Answer: Taylor: A ₹192, B ₹230.40, C ₹460.80. Merrick: A ₹240, B ₹316.80, C ₹460.80.

Exam tips

Write the plan's bands or percentages at the top of your answer before any calculation. It shows method and prevents boundary errors.
Practise the Halsey versus Rowan comparison. Questions often ask which plan gives more to the worker or the firm, and the effective rate per hour is the clean way to show it.
Show time wages and bonus on separate lines. Even if one number is wrong, you still pick up marks for the other.
In MCQs, check the answer against a floor: earnings should not be below the time wage under Halsey or Rowan, or below the guaranteed wage under Emerson or Gantt.
If the question asks for labour cost per unit, divide total earnings by units produced. Do not forget it when the plan changes the rate for all units.

Practice questions from Employee Cost and Direct Expenses

Methods of Wage Payment and Incentive Schemes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateMethods of Wage Payment and Incentive Schemes

Methods of Wage Payment and Incentive Schemes: frequently asked questions

What is the difference between Halsey and Rowan plans?

Both give time wages plus a bonus for time saved. Halsey pays a fixed share (usually 50%) of the time saved at the hourly rate. Rowan pays a bonus equal to the fraction (time saved ÷ time allowed) of time wages, so the bonus is always less than time wages. The Rowan bonus amount is maximum when time taken is half of time allowed.

How do I calculate wages under Taylor's differential piece rate system?

Find efficiency by dividing actual output by standard output. If it is below 100%, pay all units at the lower rate (commonly 80% of the piece rate). If it is 100% or more, pay all units at the higher rate (commonly 120%). Use the percentages given in the question.

How does Merrick's system differ from Taylor's?

Taylor has two rates, one below and one at or above standard. Merrick has three bands, which treats workers a little more fairly because a worker just below standard still gets a better rate than a beginner.

When do Halsey and Rowan give the same earnings?

When the Halsey bonus share is 50% and time taken is exactly half the time allowed. Then time saved equals time taken, so the Rowan fraction is ½. The Rowan bonus is then ½ × time taken × rate, which equals the Halsey 50% bonus, so both give the same earnings.