A Business Encyclopedia

High Standard Hour System

Definition: Under High Standard Hour System, the earnings of the worker vary in the same proportion to the level of output, as in the case of the standard hour system, but the increment in the earnings for each additional unit of output above standard is significant.

In other words, the high standard hour system implies that the worker’s earnings start increasing once the standard has been reached. Here the standard time in terms of hours to complete the job is fixed and the rate per hour is then determined. For every one percent increase in the level of output above standard, there might be a 4/3 times increase in the worker’s earnings as compared to the one percent increase in the earnings under the standard hour system.

The main feature of a high standard hour system is that for every level of output above standard the labor cost per unit also increases and thus the worker also shares the earnings in the overhead costs which result from the increased level of output. The amount of share that a worker earns depends on the size of an increase in the earnings resulting from different levels of output.

If the increments in the earnings are large enough, then the worker can obtain all the savings in the overhead cost.  Definitely, this is not possible if the size of the increment remains same for each successive increase in the output.

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