A Business Encyclopedia

Standard Hour System

Definition: The Standard Hour System is an incentive scheme in which the standard time in terms of hours is set for the completion of a job. The rate per hour is then determined.

The standard hour system is also called as 100 percent gains-sharing. Under this method, the worker is paid for a standard time irrespective of whether the job is completed in the standard time or less. This means that the worker is paid the same wages even if the time spent is more than the standard hours unless he/she is guaranteed the time wages.

In case the time wages are guaranteed, then the earnings of the worker shall be computed on the basis of the time taken multiplied by the per unit of time (time-rate). This can be illustrated by the examples given below:

Standard time = 8 Hours
Rate per hour = Rs 2

Case 1: Time taken = 6 hours
Earnings = 8 x 2= Rs 16

Case 2: Time taken = 10 Hours

  • Time wages are not guaranteed, then the worker’s earnings will be Rs 16 (8 x2).
  • Time wages are guaranteed, then the worker’s earnings will be Rs 20 (10 x 2).

Standard hour system can be applied successfully in the organizations where the task or a job is longer, nonrepetitive and requires specialized skills for its completion.

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