Time Based Remuneration Method: Definition; Basic System; High Day Rate; Common Bonus Time; Types; Advantages And Disadvantages

1.1 Definition

Time Based Remuneration Method

This is a method of rewarding workers based on the time spend at the place of work. It is one of the most conventional approaches of compensating employees. Again, depending on the nature of timing, this approach is further classified in to three categories;

  1. Basic system
  2. High Day Rate System
  3. Common Bonus time Based System

Basic System

1.2 Definition

Basic system remuneration is a method based on pre-determined time frame where by the employee is paid for working for certain number of hours or time for a week. Month or year. Let say for 40 hours for a week for a month which translates to 160 hours per month. In this approach, it is assumed that the employee will work normally without any anomaly. So, it is assumed that reporting and logging out time is well observed by the employee and at the same time, the floor supervisor is ensuring that all is well.

It should be noted that although he focusses is on hours worked for, the issue of the quality and quantity of work done is paramount. That is, output done is of the employer’s concern.

1.3 Applicability of the Basic System or Method

This method is more appropriate in the following circumstances;

  1. Where the quality of work is preeminent-that is the quality of work gotten or done is given the first priority.
  2. Applies where incentive scheme doesn’t work well.
  3. Works well where the employee is not in a position to control the output rate.
  4. Where by it is hard to measure the worker’s productivity with precision.
  5. Works well where it is possible to closely watch over what the employee is doing.

1.4 Advantages of Basic System

  1. Simple to understand and implement at the place of work. For instance, it is simple for one to compute how much he/she owe the employer.
  2. Job security assurance-this method adopted by employers guarantees the workers of job continuity. This is because there is no link between job wages and the level of output.
  3. Assurance of better quality of output. Since employees are not tied to timelines, they are able to take their humble time and do a good job. Hence good output is rest assured.
  4. Supported by trade union most of the times-this approach wins the heartbeat of the labor organizations and as a result, there are few cases of workers’ strikes.
  5. Suitable to job beginners-those who are newly employed find this approach convenient for them to grow with the profession for they can learn the job skills without difficulties.

1.5 Disadvantages of Basic System

  1. Efficiency is low. This is because the workers ae left on their own to perform and it may take some time before they polish their skills for, they are aware no hurry in perfecting their skill. So, a lot of resources may be utilized with less output
  2. Time wasting. The method promotes time loss instead of minimizing the time resources spend on a particular job.
  3. No room to motivate those workers who are high performers. The workers who do better in the place of work as compared to the others are paid equally with those who are lazy. This is demoralizing.

High Day Rate System

2.1 Definition

 High Day Rate System is a method of rewarding workers more above their normal work load such that a high incentive is paid to them when they perform way above the basic normal time. This is made possible by entering into agreement with the labor force and the relevant trade union on the required level of production above which better rates are used to compensate the workers. The term high day rate system tells it all.

2.2 Advantages of High Day Rate System

  1. High performing employees are well compensated which becomes a source of encouragement
  2. Simplicity in computation of the wage fee due. It is easy to determine the wages or salary to be paid to workers for it is a straight forward model.
  3. High chances of attracting professional and experienced workers. Since the method is attractive, many qualified employees prefer this option and this guarantee good output to the employer.

2.3 Disadvantages of High Day Rate System

  1. Creation of unhealth job competition amongst employers. High rates of payment could interrupt the job structure competition amongst employers for those who pay low are forced to increase their salaries even when their level of production is low so as to retain workers.
  2. Compromise to quality output. Since the system works with extra hours, the employees may focus more on the hours worked at the expense of the quality work.

Common Bonus Time Based System

1.1  Definition

Common bonus time-based system is a method used by the employer to compensate the worker beyond his or her regular salary income once in a year and it is in form of cash. Sometimes if cash is not available, the company or management may prefer to reward the employee with share ownership commonly referred to as Employee Stock Ownership Plans (ESOPs). Some other times it can assume non-cash rewards such as off-duty days.


Based on high-rate time bonus scheme, there are those specific methodologies which fall under this broad approach. They include;

Types Of Time-Based Bonus

4.1 Shift Bonus

Shift Bonus system is an incentive paid over and above the normal working hours are pegged on the work done in another shift. Such as night shift which is highly paid as compared to day jobs.

4.2 Timekeeping Bonus

Timekeeping Bonus is an incentive that involves the approach of good working record whereby if one has a track record which is extra ordinary, then some bonuses are paid pegged on that exemplary work.

4.3 Continuous working Bonus method

Continuous working Bonus method is amount paid to workers if the firm has experienced workflow without interruptions such as strikes by employees, then the employer pays bonus based on that good report.

4.4 Achievement bonus

Achievement bonus is a reward given to an employee by the company especially at the end of the financial year due to hitting the set targets. In this case, there must be an already pre-determined set goal of output performance.

4.5 Retention Bonus

Retention bonuses is a rewarding system which considers employee’s key contribution to the business and awards such a worker to ensure that he/she remains in the business for a longer period of time. Such incentives are usually contained in the employment contract agreement.

4.6 Holiday Allowance

Holiday allowance is an extra incentive to employees rewarded to them which is tied to a forthcoming holiday so that the cash received can boost cerebration of that day. The reward is issued near the holidays to employees who have worked for a certain period.

4.7 Profit-sharing Bonus

Profit-sharing bonus is incentives originating from the organization returns whereby the company decides to distribute some amount emanating herein. It is given when the company’s profit equals the target or exceeds it.

NB: This reward is not guarantee. So, Profit-sharing bonus is optional.

4.7.1 Advantages of Bonus

  1. Gives first priority to product quality

Quality of the final output is the focus of this type of initiative. So, this builds up the name of the firm.

  1. It is a universal incentive

The method of rewarding applies in many scenarios such that it is more reliable in many organizations which want to reward their employees.

  1. Help in budgeting process

This type of incentive is user friendly when it comes to cost mitigation especially during budgeting. The method is used by companies to easily plan employee cost budgets because it only calculates the number of workers with total working hours.

  1. Suitability when the output is Measurable.

If the output associated to the workers is measurable, then it becomes easy to compute the amount the employee is demanding from the employer. This assures the former that no financial loss will be experienced.

  1. Source of motivation to the employees

Use of bonus is a source of encouragement to the workers because the timing of the payment coincides with a key need to be attended to.

  1. Employee turnover rate declines

It is in rare cases for firms to experience exit of employees from firm to get greener pastures for the bonus is good motivator. 

  1. Attract best qualified employees.

The firm enjoys professional and qualifies personnel and this increases the net worth of the shareholders and the whole firm at large.

4.7.2 Disadvantages Bonus

  1. Computation of the amount to be paid to each employee is cumbersome.

This is because it takes a lot of time to reconcile the normal pay and the increment targeted.

  1. Lack of equalization in payments

Since the payment of the incentive is wholesome, the more active employees who are associated with the increased output lack commensurate reward as supposedly. This is because even the lazy workers get some incentive even when they did almost nothing. 

  1. Costly venture

Since the firm is forced to pay extra in terms of bonuses, then the firm further pay more to supervisors to ensure that the employees has effectively worked. This means incurring or paying additional cost. 

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.