Author: Jim Riley Last updated: Sunday 23 September, 2012
Financial motivation - time-rate pay
Time rates are used when employees are paid for the amount
of time they spend at work. This is the most common method of payment in
The usual form of time rate is the weekly wage or monthly
salary. Usually the time rate is fixed in relation to a standard working
The employment contract for a time-rate employee will also
stipulate the amount of paid leave that the employee can take each year (e.g.
Time worked over this standard is known as overtime. Overtime
is generally paid at a higher rate than the standard time-rate – reflecting
the element of sacrifice by an employee. However, many employees who are
a monthly salary do not get paid overtime. This is usually the case for managerial
positions where it is generally accepted that the hours worked need to be
sufficient to fulfil the role required.
The main advantages of time-rate pay
Time rates are simple for a business to calculate and administer
They are suitable for businesses that wish to employ staff to provide general
roles (e.g. financial management, administration, maintenance) where employee
productivity is not easy to measure
It is easy to understand from an employee’s perspective
The employee can budget personal finance with some certainty
Makes it easier for the employer to plan and budget for employee costs (e.g.
payroll costs will be a function of overall headcount rather than estimated
The main disadvantages of time-rate pay are:
Does little to encourage greater productivity – there is no incentive
to achieve greater output
Time-rate payroll costs have a tendency to creep upwards (e.g. due to inflation-related
pay rises and employee promotion.