Cost Accounting · Employee Costs

Methods of Wage Payment and Incentive Schemes in Cost Accounting

Updated 10 October 2026 · Fact-checked

Wage payment methods decide how a worker's earnings are calculated. Time rate pays for hours worked. Piece rate pays for units produced. Incentive schemes such as Halsey, Rowan, Taylor, Merrick, Emerson and Gantt reward output or time saved. To solve a problem, find standard output or time, measure efficiency, then apply the scheme's formula.

Understand Methods of Wage Payment and Incentive Schemes

A business must pay its workers in some way. The method chosen affects labour cost per unit, worker morale and output. There are two basic methods: pay for time, or pay for output.

Under the time rate system, earnings = hours worked × rate per hour. The worker is paid the same whether output is high or low. It suits work where quality matters more than speed, or where output cannot be measured. Its weakness is that it gives no reward for extra effort.

Under the piece rate system, earnings = units produced × rate per unit. Pay moves directly with output, so labour cost per unit stays fixed. Many firms add a guaranteed minimum wage so a worker is not left with nothing when output is low.

Incentive schemes try to combine both ideas. There are two groups. Premium bonus plans (Halsey, Rowan) start from time wages and add a bonus for time saved against a standard time. Differential piece rate plans (Taylor, Merrick, Emerson, Gantt) change the rate per unit according to the worker's efficiency, where efficiency = actual output ÷ standard output × 100.

The key difference between Halsey and Rowan: Halsey gives a fixed share of time saved (usually 50%) as bonus. Rowan gives a bonus that depends on the proportion of time saved, so it rises more slowly as savings grow. Rowan therefore protects the employer against loose standards, because earnings can never double.

Key rules to remember

Time rate earnings: Earnings = Hours worked × Rate per hour; Paid regardless of output. Overtime or guaranteed minimum may apply if the question says so.
Piece rate earnings: Earnings = Units produced × Rate per unit; If a minimum guaranteed wage is given, the worker gets the higher of the two.
Efficiency: Efficiency % = Actual output ÷ Standard output × 100 (or Standard time for actual output ÷ Time taken × 100); Used to pick the rate band in Taylor, Merrick, Emerson and Gantt.
Halsey premium plan: Earnings = (T × R) + 50% × (S − T) × R; S = standard time, T = time taken, R = hourly rate. The 50% share is the usual default. Use the share given in the question.
Rowan plan: Earnings = (T × R) + [(S − T) ÷ S × T × R]; Bonus = time saved ÷ standard time × time wages. Divide by standard time S, not by time taken.
Taylor differential piece rate: Below standard: 80% of piece rate on all units. At or above standard: 120% of piece rate on all units.; Applied to all units produced, not just the extra units.
Merrick multiple piece rate: Up to 83% efficiency: normal piece rate. Above 83% up to 100%: 110% of piece rate. Above 100%: 120% of piece rate.; Applied to all units. Check the band limits in the question, since textbooks differ slightly at the boundaries.
Emerson efficiency plan: Up to 66⅔% efficiency: time wages only. Above 66⅔% to 100%: bonus rises step by step, reaching 20% of time wages at 100%. Above 100%: 20% plus 1% for every 1% increase in efficiency.; Bonus is a percentage of time wages. Use the bonus table given in the question for efficiency between 66⅔% and 100%.
Gantt task and bonus plan: Below standard: guaranteed time wages. At standard: time wages plus 20% bonus. Above standard: 120% of piece rate on all output.; The 20% figure is the usual textbook value. Follow the question if it differs.

How to solve Methods of Wage Payment and Incentive Schemes questions

Use the same sequence for any wage or incentive question. It keeps you from mixing up standard time, actual time and rates.

1Identify the scheme named in the question and write its formula or rate bands at the top of your answer.
2List the data: hourly rate or piece rate, standard output or standard time, actual output or time taken, and any guaranteed wage.
3Convert everything to the same basis. If output is given, work out standard time for the actual output, or efficiency %, before using a formula.
4Calculate time wages (T × R) or piece wages (units × rate) first. Most schemes build on this figure.
5Apply the scheme: add the Halsey or Rowan bonus, or pick the Taylor, Merrick, Emerson or Gantt band from efficiency and apply its rate to all units.
6Compare with any guaranteed minimum wage and take the higher figure if the question requires it.
7Finish with what is asked: total earnings, earnings per hour, labour cost per unit, or a comparison between schemes. Show each as a separate line.

Quickest way: Time saved first, then bonus

When to use it: Use this for Halsey and Rowan comparison questions where you must show earnings under both plans.

Write S, T, R and time saved (S − T) in one line.
Work out time wages T × R once. Both plans start from this figure.
Halsey bonus = half of (S − T) × R. Rowan bonus = (S − T) ÷ S × time wages.
Add the bonus to time wages. Divide by T to get earnings per hour as a quick check: Rowan per-hour earnings should be higher when under half the standard time is saved, and lower when over half is saved.
For efficiency-band schemes, work out efficiency % first and pick the band before touching the rate.

Common mistakes in Methods of Wage Payment and Incentive Schemes

Dividing by time taken instead of standard time in the Rowan formula.
Students remember a fraction with time saved on top and pick the wrong denominator.
Fix: Rowan bonus = time saved ÷ standard time × time wages. The denominator is always S.
Applying the Taylor or Merrick differential rate only to extra units above standard.
Students treat it like an overtime premium.
Fix: These schemes apply the chosen rate to all units produced by the worker in the period.
Forgetting to calculate standard time for actual output when output and time are both given.
Students jump to the formula without checking what S means.
Fix: If the question gives standard output per hour, S = actual output ÷ standard output per hour. Write this step out.
Using the wrong efficiency base, such as dividing standard output by actual output.
The ratio is turned upside down under time pressure.
Fix: Efficiency = actual ÷ standard × 100. A worker above standard must show more than 100%.
Ignoring the guaranteed minimum wage in piece rate questions.
The guarantee is hidden in a sentence at the end of the question.
Fix: Underline any guarantee in the question. Compare piece earnings with the guarantee and pay the higher.
Calculating Halsey with the bonus rate applied to time taken rather than time saved.
Mixing up T and S − T.
Fix: Halsey bonus is 50% × time saved × hourly rate. Write the three parts separately before multiplying.

Worked examples

Example 1

A worker is paid ₹60 per hour. The standard time for a job is 40 hours. The worker completes it in 30 hours. Calculate the total earnings and the effective earnings per hour under (a) the Halsey plan with 50% bonus and (b) the Rowan plan.

Show the solution

S = 40 hours, T = 30 hours, R = ₹60. Time saved = 40 − 30 = 10 hours.
Time wages = 30 × ₹60 = ₹1,800.
Halsey bonus = 50% × 10 × ₹60 = ₹300. Halsey earnings = ₹1,800 + ₹300 = ₹2,100.
Rowan bonus = (10 ÷ 40) × ₹1,800 = ₹450. Rowan earnings = ₹1,800 + ₹450 = ₹2,250.
Effective rate per hour: Halsey = ₹2,100 ÷ 30 = ₹70. Rowan = ₹2,250 ÷ 30 = ₹75.

Answer: Halsey: total earnings ₹2,100 (₹70 per hour). Rowan: total earnings ₹2,250 (₹75 per hour). Rowan pays more here because only a quarter of standard time is saved, which is under half.

Example 2

The piece rate is ₹12 per unit. Standard output is 50 units per day. Worker A produces 45 units and worker B produces 56 units in a day. Calculate the earnings of each under (a) straight piece rate, (b) Taylor's differential piece rate (80% and 120%) and (c) Merrick's multiple piece rate (normal up to 83%, 110% above 83% up to 100%, 120% above 100%).

Show the solution

Efficiency of A = 45 ÷ 50 × 100 = 90%. Efficiency of B = 56 ÷ 50 × 100 = 112%.
Straight piece rate: A = 45 × ₹12 = ₹540. B = 56 × ₹12 = ₹672.
Taylor: A is below standard, so the rate is 80% of ₹12 = ₹9.60. A earns 45 × ₹9.60 = ₹432.
Taylor: B is above standard, so the rate is 120% of ₹12 = ₹14.40. B earns 56 × ₹14.40 = ₹806.40.
Merrick: A at 90% falls in the 83% to 100% band, so the rate is 110% of ₹12 = ₹13.20. A earns 45 × ₹13.20 = ₹594.
Merrick: B at 112% is above 100%, so the rate is ₹14.40. B earns ₹806.40.

Answer: Straight piece rate: A ₹540, B ₹672. Taylor: A ₹432, B ₹806.40. Merrick: A ₹594, B ₹806.40. Taylor penalises a below-standard worker most heavily, and Merrick is kinder to workers just under standard.

Exam tips

Write the formula and the meaning of S, T and R first. Examiners give marks for the method even if arithmetic slips.
In comparison questions, show a small table of earnings under each scheme and add a one-line conclusion, such as which plan is better for the worker and which for the employer.
Check the efficiency band limits and bonus percentages stated in the question. Use those over any remembered textbook figure.
In Section A MCQs, expect a direct Halsey or Rowan calculation or a question on which plan limits the worker's bonus. Do the time wages first and test each option quickly.
If asked for labour cost per unit, divide total earnings by units produced as the last step.

Practice questions from Employee Costs

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.

CA 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 systems?

Under Halsey, the worker gets a fixed share, usually 50%, of the time saved as bonus. Under Rowan, the bonus is time saved divided by standard time, multiplied by time wages. Rowan's bonus grows more slowly as time saved rises, so earnings can never be double the time wages.

When do Halsey and Rowan give the same earnings?

They give the same bonus when the time taken is half the standard time, that is, time saved is 50% of standard, if Halsey uses a 50% share. Halsey bonus = 0.5 × (S − T) × R. Rowan bonus = (S − T) ÷ S × T × R. Setting them equal and cancelling (S − T) × R gives T ÷ S = 0.5. If less than half the standard time is saved, Rowan pays more. If more than half is saved, Halsey pays more.

How does Taylor's differential piece rate work?

Taylor uses two rates. A worker below standard output gets 80% of the piece rate on all units. A worker at or above standard gets 120% of the piece rate on all units. The sharp jump at the standard point strongly rewards reaching it.

How do I calculate earnings under piece rate and time rate?

For time rate, multiply hours worked by the hourly rate. For piece rate, multiply units produced by the rate per unit. If the question gives a guaranteed minimum wage, pay whichever is higher.