wages and salary
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Wages and Salary
By:-Bikram khalkho (A-14)
Raghvendra kumar Singh(A-40)Dorothy Das(A-16)
Parmeshwar Behra(A-36)
EMPLOYEE COMPENSATION
• Employee compensation is a vital part of HR management. wages ,salary and other form of employee compensation constitute a very large component of operating costs.
• Salary or wage—the compensation an employee receives for a fair day’s work.
Types of Employee compensation
• Base or primary compensation
It refers to the basic pay in the form of wages and salaries . It is fixed and paid on the basis
of time expended on the job.
Types of Employee compensation
• Supplementary compensation
It consists of fringe benefits such as housing, medical aid, paid leave , retirement
benefits ,etc.
Basis of Comparison Base compensation Supplementary compensation
Meaning It means wages and salary paid to the employees
It means fringe benefits paid in addition to wage and salaries
Form Cash Paid in kind
Purpose To compensate employee for their services
To retain employee and to increase their efficiency
Basis On the basis of job evaluation and other factors.
Depends on company policies and needs.
Types of Employee compensation
• Incentive compensation It refers to the monetary compensation paid
to the employee to motivate them . it is either based on the individual performance or performance of the whole group.
Types of Wage Incentive PlansWage incentive plans may be classified into two broad categories as follows:
• Individual incentive plans, and• Group incentive plans.
Individual Incentive Plans• Under individual incentive plans, earnings are related
directly to the performance of the individual worker. In case of group incentive schemes, earnings of a group are related to the performance of the group as a whole. Individual incentives may be based on time or output. Under time based plans, a standard time is determined and bonus is given if a worker completes the job in less than standard time. Under output based plans, a standard of output is determined and workers producing more than the standard output are given bonus.
• Group Incentive PlansIn all the incentive wage plans given above, incentive is linked to individual performance. But in some cases, e.g., assembly line industries it is not possible to determine the performance of an individual worker. This is so because several workers are required to jointly perform a single operation. In such cases it is desirable to introduce a group incentive scheme. Under such a scheme, the bonus is calculated for a group of workers and the total amount is distributed among the group members in preparation to the wages earned by each.
Group incentive plans, however, suffer from the following disadvantages:
• An efficient worker may be penalized for the inefficiency of some inefficient members of the group.
• The incentive for an individual worker may not be strong enough to motivate.
• Rivalry among the members of the group may defeat the very purpose of team work and cooperation.
Compensation management
• Administration of employee compensation is called compensation management or salary& wage administration.
• It involves formulation and implementation of policies and programmes relating to wages, salaries and other form of compensations.
• It includes job evaluation, wage/salary survey , development and maintenance of wage structure rules for administration of wages, profit sharing and other incentives .
Issues in compensation management
The main challenge in developing a compensation system are :-
A. To achieve firm’s strategic objectiveB. To mould it to the firm’s unique
characteristics and environment.
Components of compensation
• Basic pay• Allowances
• Dearness allowance• House rent allowance• City compensatory allowance• Transport allowance
• Incentives• Fringe benefits
Objective of Compensation management
• To establish a fair and equitable remuneration• To attract competent personnel• To retain the present employee• To improve productivity• To control costs• To establish job sequence and lines of promotion
wherever applicable• To improve union management relations• To improve public image of the company
Principles of wage and salary administration
• Wage policy should be developed keeping in view of the interest of the employer, Employee, consumer and community.
• It should be stated clearly in writing for proper application
• It should be consistent with the overall plans of the company
• It should be flexible or responsive to changes in internal and external changes in organisation.
Principles of wage and salary administration
• Management must ensure that employees know and understand the wage policy of the company.
• All wage and salary decisions must be checked against the standards already set in wage policy
• Wage and salary plans should simplify and expedite administrative process
• An adequate database should be developed for compensation administration.
• Policies should be reviewed and revised periodically.
Essentials of wage and salary structure
1. Internal equity2. External competitiveness3. Built-in incentives4. Link with productivity5. Maintain real wages6. Increments
Factors affecting wages
• Demand and supply for labour• Ability to pay• Labour unions• Costs of living• Prevailing wage rates• Job requirements• Productivity• State regulations
Methods of wage payment
• The time rate system It is that system of wage payment in which the workers are paid on the basis of time spent by them in the factory. Under this system, the workers and employees are paid wages on the basis of the time they have worked rather than the volume of output they have produced. Hence, according to this system, wages are paid on hourly, weekly or monthly basis. Under time rate system, the wages earned by a worker is determined by using the following formula.
Wages Earned = Time spent(Attended) x Wage rate per hour/day/week/month
Advantages of Time wage system
The following are some of the important advantages of time rate system of wage payment:
* Time rate system is simple to understand and easy to calculate.* Time rate system is quite useful for organizations that use costly inputs for quality outputs.* Time rate system is beneficial for average and below workers.* Time rate system assures regular income and creates the feeling of economic security among the workers.* Time rate system does not discriminate the workers and is preferred by trade unions.
Disadvantage of Time wage systemThe following are some notable disadvantages of time rate system of wage payment.
* Time rate system does not help in increasing output and improving efficiency as there is no correlation between effort and reward.* Time rate system is not justifiable between efficient and inefficient workers and skilled and unskilled workers.* Time rate system pays for idle time, which increases the cost of production.* Time rate system encourages a g0-slow tendency among workers
during working hours and encourages them to work overtime.* It is difficult to estimate exact labor cost in advance.* It requires strict supervision to get the required quantity of output.
• Piece wage system The piece rate system is that system of wage payment in which the workers are paid on the basis of the units of output produced. Piece rate system does not consider the time spent by the workers. Piece rate system is the method of remunerating the workers according to the number of unit produced or job completed. It is also known as payment by result or output. Piece rate system pays wages at a fixed piece rate for each unit of output produced. The total wages earned by a worker is calculated by using the following formula.
Total Wages Earned= Total units of outputs produced x Wage rate per unit of output.
OR,
Total Wages Earned= Output x Piece Rate
Advantages Of Piece Rate System
The following are some important advantages of piece rate system of wage payment.
* Piece rate system pays wages according to the output produced by the workers. It encourages efficient workers.* Piece rate system helps to reduce idle time.* Piece rate system gives incentives to the workers to adopt a better method of production for increasing their production and earning.* Piece rate system helps the management to determine the exact labor cost per unit for submitting quotation.* Piece rate system reduces per unit cost of production due to increased volume of production.* Piece rate system requires less supervision cost.
Disadvantages Of Piece Rate System
The following are the notable disadvantages of piece rate system
* Piece rate system does not help in producing quality output as the workers are concentrated more on quantity instead of quality.* Piece rate system does not help for a uniform flow of production and makes difficult to regulate the production schedule.* It is very difficult to fix an acceptable and reasonable piece rate for each item of output or job.* Piece rate system adversely affect the workers' health as well.* It requires extra supervision cost for quality output and effective use of materials, tools and equipment.
Balance or Debt method
• This method is a combination of time and piece wage systems. The worker is guaranteed a time rate with an alternative piece rate. If the wage calculated at piece rate exceeds the time rate, the worker gets credit. On the other hand, if those wages exceed piece wages, the worker is paid time wage and the deficit is carried forward as debt to be recon served in future.
Suppose, the time rate is Rs. 250per week and the piece rate is Rs. 2per unit. The wage of a worker, who produces 150, 100, 125 units in three weeks will be calculated as follows:
Process of wage determination
• Job analysis• Job evaluation• Wage survey• Developing wage structure• Wage administration rules• Employee appraisal
Wage policy of India
The guiding principles of national wage policy are as follows:• Sub serves the national objective of economic growth with
social justice.• Promote employment, productivity and capital formation.• Remove sectoral imbalances and wage differentials.• Promote price stability.• Avoid automatic double linkages.• Ensure rising real wages consistent with the capacity of the
industry and the national economy.• Have relationship with national income, state of the industry
and prevailing wage rates.
Objectives of National wage policy1. To eliminate malpractices in the payment of wages.2. To set minimum wages for workers, whose bargaining position is weak due
to the fact that they are either un-organised or inefficiently organised. In other words, to reduce wage differential between the organised and unorganised sectors.
3. To rationalise inter-occupational, inter-industrial and inter-regional wage differentials in such a way that disparities are reduced in a phased manner.
4. To ensure reduction of disparities of wages and salaries between the private sector and public sector in a phased manner.
5. To compensate workers for the raise in the cost of living in such a manner that in the process, the ratio of disparity between the highest paid and the lowest paid worker is reduced.
6. To provide for the promotion and growth of trade unions and collective bargaining.
7. To obtain for the workers a just share in the fruits of economic development
Objectives of National wage policy
8. To avoid following a policy of high wages to such an extent that it results in substitution of capital for labour thereby reducing employment.
9. To prevent high profitability units with better capacity to pay a level of wages far in excess of the prevailing level of wages in other sectors.
10.To permit bilateral collective bargaining within national framework so that high wage islands are not created.
11.To encourage the development of incentive systems of payment with a view to raising productivity and the real wages of workers.
12.To bring about a more efficient allocation and utilisation of man-power through wage differentials and appropriate systems of payments.
Pay structure of India
Pay structure in India generally consists of the following components:
• Basic wage/salary.• Dearness allowance (D.A.) and other
allowances.• Bonus and other incentives.• Fringe benefits or perquisites.
1. Basic WageThe basic wage provides the foundation of pay pocket. It is a price for services rendered. It varies according to mental and physical requirements of the job as measured through job evaluation. In India, basic wage has been influenced by statutory minimum wage, wage settlements, and awards of wage boards, tribunals, pay commissions, etc.Minimum WageMinimum wage is that wage which is sufficient to cover the bare physical needs of a worker and his family. But the committee felt that the minimum wage should provide not merely for the base subsistence or sustenance of life but for the preservation of the health, efficiency and well-being of the worker by some measure of education, medical facilities and other amenities. Minimum wage has got to be paid to every worker irrespective of the capacity of the industry to pay. If an enterprise is unable to pay its workers at least a bare minimum, it has no right to exist . the minimum wage in Delhi is Rs 297 for unskilled labour.
The Fair Wages Committee defined the components of minimum wage but did not quantify them. The Indian Labour Conference at its 15th Session held in July 1957 formally quantified the minimum wage. The Conference laid down the following criterion for the calculation of minimum wage.
• The standard working class family should be taken to consist of 3 consumption units for the one earner, disregarding the earnings of women, children and adolescent.
• Minimum food requirements should be calculated on the basis of a net intake of 2,700 calories, as recommended by Dr. Aykroyed for an average Indian adult of moderate activity.
• Cloth requirements should be 18 yards per consumption unit per annum.
• Rent is to be calculated as per the minimum rent charged by the Government under the subsidized Industrial Housing Scheme for law income groups.
• Fuel, lighting and other miscellaneous expenditure is to constitute 20 per cent of the minimum wage.
Fair WageA fair wage is something more than the minimum wage providing the bare necessities of life. While the lower limit of the fair wage is set by the minimum wage, the upper limit should be the capacity of the industry to pay. Between these two limits, fair wage should depend on several factors like:
• The productivity of labour• The prevailing rates of wages in the same or similar
occupations in the same region or neighbouring regions,• Level of national income and its distribution,• The place of the industry in the economy of the country• The employer’s capacity to pay. Thus, the fair wage should
be determined on industry-cum-region basis. Fair wage is a step toward the ideal of living wage.
• Living WageIt is the wage that provides, in addition to the necessities of life, certain amenities considered necessary for the well-being of the worker in a particular society. It should ensure a normal standard of life to the average employee regarded as human beings living in a civilized community. According to the Fair Wages Committee, “the living wage should enable the male earner to provide for himself and his family not merely the bare essentials of food, clothing and shelter but also a measure of frugal comfort including education for children, protection against ill-health, requirements of essential social needs and measure of insurance against the more important misfortunes including old age.”The concept of living wage is dynamic related with the level of economic development in a country. There should be progressive improvement in the wage with improvements in the economic life of the nation. In an underdeveloped country like India living wage is the ideal or target that is to be achieved through higher productivity.
Dearness Allowance (D.A.) and Other Allowances
This allowance is given to protect the real wages of workers during inflation. Under Section 3 of the Minimum Wages Act it is described as cost of living allowance. Dearness allowance has now become an integral part of the wage system in India. The following methods are used to calculate dearness allowance:
• Flat Rate. According to this method, D.A. is paid at a flat rate to all workers irrespective of their wage levels and regardless of changes in the consumer price index. This method was used in jute, cotton and engineering industries in West Bengal in the early days of adjudication.
• Graduated Scale. Under this method, D.A. increases with each slab of salary. Therefore, D.A. as a percentage of basic pay decreases steadily. Currently DA rate is 80%.
Index Based D.A. In this method a flat rate per point of index is prescribed so that all workers determine the same amount of D.A. irrespective of their pay scale. For example, if Rs. 1.50 is the rate Rs. 15 will be paid as D.A. whenever the All India Consumer Price Index (AICPP) increases by 10 points. This method is in force in the cotton mills of Mumbai and Chennai and in many Central Government undertakings.
• D.A. Linked to Index and Pay Scale. Under this method, a higher rate of D.A. is prescribed for lower pay scales and a lower rate for higher pay scales. This method is used to pay D.A. to employees in Government offices and in many central public sector undertakings.
• Types of Allowances Paid to Employees
• BonusBonus is a deferred wage aimed at bridging the gap between actual wage and the need based wage. Bonus is a share of the workers in the prosperity of an enterprise. Bonus may also be regarded as an incentive to higher productivity. According to the Bonus Commission (1961), bonus is “sharing by the workers in the prosperity of the concern in which they are employed. In the case of low paid workers such sharing in the prosperity augments their earnings and helps to bridge the gap between the actual wage and the need based wage. “It has little direct incentive effect because it is usually paid to all workers at the same rate irrespective of their individual efficiency and long after the close of the financial year.
Wage Board
• G.O.I set up wage board on industry wise basis to fix and revise pay. It consists of an impartial chairman, two independent members and 2 or 3 representative of workers and employers each. The recommendations of wage board are first submitted to the govt. Govt may accept it ,modify or reject the recommendations. once accepted ,the parties are requested to enforce the recommendations.
While determining wages ,following things are taken into account.
• Need based minimum wages• Industry capacity to pay• Productivity of labour• Prevailing rates of wages• Level of income and its distribution• Place of industry in the economy• Need to provide incentive for improving
productivity.
Acts made by regulatory authorities
• The minimum wages act, 1948The Minimum Wages Act, 1948 was enacted to safeguard the interests of workers, mostly in the unorganised sector by providing for the fixation of minimum wages in certain specified employments. It binds the employers to pay their workers the minimum wages fixed under the Act from time to time.Under the Act, both the Central Government and the State Governments are the appropriate Governments to fix, revise, review and enforce the payment of minimum wages to workers in respect of 'scheduled employments' under their respective jurisdictions. There are 45 scheduled employments in the Central sphere and as many as 1530 in State sphere.
Under the Minimum Wages Act, there are two methods for fixation/revision of minimum wages, namely:-
• Committee method - Under this method, committees and sub-committees are set up by the appropriate Governments to hold enquiries and make recommendations with regard to fixation and revision of minimum wages, as the case may be.
• Notification method - Under this method, Government proposals are published in the Official Gazette for information of the persons likely to be affected thereby and specify a date not less than two months from the date of the notification on which the proposals will be taken into consideration.
Payment of Wages Act, 1936• The Payment of Wages Act, 1936 is a central legislation
which has been enacted to regulate the payment of wages to workers employed in certain specified industries and to ensure a speedy and effective remedy to them against illegal deductions and/or unjustified delay caused in paying wages to them. It applies to the persons employed in a factory, industrial or other establishment or in a railway, whether directly or indirectly, through a sub-contractor. Further, the Act is applicable to employees drawing wages up to Rs. 1600/- a month.
• The Central Government is responsible for enforcement of the Act in railways, mines, oilfields and air transport services, while the State Governments are responsible for it in factories and other industrial establishments.
The basic provisions of the Act are as follows:-• The person responsible for payment of wages shall fix the wage period up to which wage
payment is to be made. No wage-period shall exceed one month.• All wages shall be paid in current legal tender, that is, in current coin or currency notes or
both. However, the employer may, after obtaining written authorisation of workers, pay wages either by cheque or by crediting the wages in their bank accounts.
• All payment of wages shall be made on a working day. In railways, factories or industrial establishments employing less than 1000 persons, wages must be paid before the expiry of the seventh day after the last date of the wage period. In all other cases, wages must be paid before the expiry of the tenth day after the last day of the wage period. However, the wages of a worker whose services have been terminated shall be paid on the next day after such termination.
• Although the wages of an employed person shall be paid to him without deductions of any kind, the Act allows deductions from the wages of an employee on the account of the following:- (i) fines; (ii) absence from duty; (iii) damage to or loss of goods expressly entrusted to the employee; (iv) housing accommodation and amenities provided by the employer; (v) recovery of advances or adjustment of over-payments of wages; (vi) recovery of loans made from any fund constituted for the welfare of labour in accordance with the rules approved by the State Government, and the interest due in respect thereof; (vii) subscriptions to and for repayment of advances from any provident fund;(viii) income-tax; (ix) payments to co-operative societies approved by the State Government or to a scheme of insurance maintained by the Indian Post Office; (x) deductions made with the written authorisation of the employee for payment of any premium on his life insurance policy or purchase of securities.
Payment of Bonus Act, 1965. The Act provides for the payment of bonus to persons employed in specified establishments. The main provisions of the Act are as follows:
• Every employee in the specified establishments drawing a salary (basic pay plus D.A.) not exceeding Rs. 3,500 per month is entitled to bonus provided he has worked for not less than 30 days in the year.
• Bonus is to be calculated on a salary of Rs. 2,500 per month wherever the actual salary exceeds this amount.
• Every employer is bound to pay a minimum bonus of 8.33 per cent of the salary of an employee or Rs. 100 per year whichever is higher whether or not he has any allocable surplus1? in the accounting year2.
• Where an employee has not worked for all the working days in any accounting year, the minimum bonus of Rs. 100 or 60 as the case may be, shall be proportionately reduced, if such bonus is higher than 8.33 of his salary or wage.
• No minimum bonus is payable by a newly set up establishment in the circumstances prescribed under Section 16 of the Act.
• The bonus is to be paid within 8 months from the close of the accounting year.• An employee dismissed from service for fraud, theft, misappropriation of
sabotage of property and riotous/violent behavior on the premises or the establishment is not entitled to bonus.
The Equal remuneration act,1976• The Equal Remuneration Act, 1976 aims to provide for the payment of
equal remuneration to men and women workers and for the prevention of discrimination, on the ground of sex, against women in the matter of employment and for matters connected therewith or incidental thereto. According to the Act, the term 'remuneration' means "the basic wage or salary and any additional emoluments whatsoever payable, either in cash or in kind, to a person employed in respect of employment or work done in such employment, if the terms of the contract of employment, express or implied, were fulfilled". Nothing in this Act shall apply:-
• (i) to cases affecting the terms and conditions of a woman's employment in complying with the requirements of any law giving special treatment to women
• (ii) to any special treatment accorded to women in connection with the birth or expected birth of a child, or the terms and conditions relating to retirement, marriage or death or to any provision made in connection with the retirement, marriage or death.
The main provisions of the Act are:-• No employer shall pay to any worker, employed by him/ her in an establishment, a
remuneration (whether payable in cash or in kind) at rates less favourable than those at which remuneration is paid by him/ her to the workers of the opposite sex in such establishment for performing the same work or work of a similar nature. Also, no employer shall, for the purpose of complying with the provisions of this Act, reduce the rate of remuneration of any worker.
• No employer shall, while making recruitment for the same work or work of a similar nature, or in any condition of service subsequent to recruitment such as promotions, training or transfer, make any discrimination against women except where the employment of women in such work is prohibited or restricted by or under any law for the time being in force.
• Every employer shall maintain such registers and other documents in relation to the workers employed by him/ her in the prescribed manner.
• If any employer:- (i) makes any recruitment in contravention of the provisions of this Act; or (ii) makes any payment of remuneration at unequal rates to men and women workers for the same work or work of a similar nature; or (iii) makes any discrimination between men and women workers in contravention of the provisions of this Act; or (iv) omits or fails to carry out any direction made by the appropriate Government, then he/ she shall be punishable with fine or with imprisonment or with both.
• Where an offence under this Act has been committed by a company, every person who at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed, to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
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