WAGE AND SALARY ADMINISTRATION

What should be the objectives of Wage and Salary Administration?

What principles should wages and salary administration consider while setting up the structure?

Which factors have to be considered in Wage setting? What are advantages, disadvantages and

applicability of Time wage plans? What are advantages, disadvantages and

applicability of piece wages plan? What are the advantages, disadvantages of skill-

based and Competency Based pay? What are the guidelines for an effective incentive

plan?

OBJECTIVE

Beach has listed five objectives To recruit persons for a firm To control pay-roll To satisfy people, reduce turn over, grievances,

and frictions To motivate people perform better To maintain good public image To fulfil legal requirements

PRINCIPLES OF WAGE AND SALARY ADMINISTRATION

External Equity Internal Equity Individual Worth

PRINCIPLES OF WAGE AND SALARY ADMINISTRATION

Should be sufficiently flexible. Job evaluation must be done scientifically. Must always be consistent with overall

organizational plans and programs. Should be in conformity with the social and

economic objectives Should be responsive to the changing local and

national conditions. Should maintain Equity Should maintain competitiveness in market Optimized employee and employer interest.

WHAT ARE THE FACTORS THAT DETERMINE WAGE AND SALARY STRUCTURES ?

Cost of living Productivity Prevailing Wage rate Ability to Pay Attraction and retention of employees

TYPES OF WAGES Propounded by Committee of Fair wages

(1948) and 15th session of Indian Labour Conference (1957)

Minimum Wages Fair Wages Living Wages

MINIMUM WAGES

The minimum wages is that wage which is sufficient to meet the worker's bare necessities.

The minimum wages takes in the factor of the prevailing cost of essential commodities whenever such minimum wage is to be fixed.

State Governments have the power to fix different minimum rates of wages for different scheduled employmentsdifferent class of work in the same scheduled

employmentsadults, adolescents, children and apprenticies

and different localities

FAIR WAGE Prof Pigou defined fair wage as:

Fair wage in narrower sense: Equal to the rate current for similar workmen in the same trade and neighbourhood

Fair wage in wider sense: Equal to the predominant rate for similar work throughout the country and in the generality of trades.

In Shivraj Fine Arts Litho Works vs LIC (1978), the Supreme Court said, '.. The fair wage is, however, not a living wage. It lies between the minimum wage and the living wage..'.

Industrial state of India, Maharashtra, being an industrial zone, sees fair wages as a combination of the following factors: Productivity of the laborers Prevailing rates of wages in the same or similar occupations in

the same or similar neighboring localities Level of national income and its distributions place of the industry in the economy of the country

LIVING WAGES

Justice Higgins: A wage which does not allow of the matrimonial condition and the maintenance of about five persons in a home would not be treated as a living wage.

Supreme Court in Kamani Metals & Alloys Ltd vs its Workmen (1967) said: Living Wage is a wage which is not only sufficient to provide a standard family with food, shelter, clothing, medical care and education of children, but also fair measure of frugal comfort with an ability to provide for old age and evil days.

TRADITIONAL METHODS OF WAGE PAYMENTS

Under this system, wages are paid on the basis of time spent on the job irrespective of the amount of work done. The unit of time may be a day. A week, a fortnight or a month.

It came to be known as the

‘Day Wage System’

Advantages Disadvantages Applicability

Under this system, remuneration is based on the amount of work done or output of a worker. One unit of output is considered as one piece and a specific rate of wage is paid per piece

It is called payment by results

Advantages Disadvantages Applicability

Time Wage Piece Wage

TIME WAGES SYSTEM Advantages

It is the simplest and the oldest method. Earnings of workers are regular and fixed and they do not suffer from

temporary loss of efficiency. As there is no pressure to speed up production, the quality of work can be kept

high. It is an objective method.

Disadvantages The method provides no incentive for better performance Guaranteed remuneration makes workers indifferent and complacent. Calculation of labor cost per unit is difficult In the absence of an incentive to hard work, productivity of labor becomes low More payment may be made for the lesser amount of work.

Applicability Where units of output are non-measurable an in case of office work and mental

work is involved as in policy working. When quality of work is especially important, e.g., artistic furniture, fine

jewelry, etc. When supervision is good and supervisors know what constitutes a “fair day’s

work”. When workers are new and learning the job. When collective efforts of a group of persons are essential for completing the

job.

PIECE WAGE SYSTEM Advantages:

An incentive to increase productivity. Opportunity to improve their standard of living and morale. The method is just and fair to all Management can distinguish between efficient and inefficient workers for the purpose of

promotion, etc. Increase in productivity results in higher output and lower costs of production per unit. The cost of labor per unit of output can be easily calculated as the wage bill varies in direct

proportion to the output. As workers themselves have a stake in maximization of efficiency, cost of supervision is low.

Disadvantages: It is very difficult to fix piece wage rates. The earnings of workers are not stable and they may suffer due to temporary delays or

difficulties.. Employees may not stress quality so that rigid quality control becomes necessary. Trade unions do not like it as it affects their solidarity. Detailed records of production have to be kept so that the clerical work is increased.

Applicability When work done by an individual worker can be measured accurately,. When the quantity of output depends directly upon the skill and efforts of the worker. Where the flow of work is regular and interruptions are minimum i.e., repetitive jobs. Where quality and workmanship are not very important. In large scale production involving heavy overheads and heads and broad supervision. When competitive conditions and cost control require that labor cost per unit fixed in order. When methods of production are standardized and the job is of a repetitive nature.

BALANCE OR DEBT METHOD

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.

WAGE DIFFERENTIALS

Types Occupational differentials or differentials based

on skill Inter-firm differentials Inter-area or regional differentials Inter-industry differentials Differentials based on sex.

FEATURES OF A GOOD WAGE PLAN

It should be linked to employee performance It should be communicated to employees Employee suggestions should be valued It should have monetary as well as non-monetary

aspect It should be easily understandable. It should be capable of easy computation It should be capable of effectively motivating the

employees It should provide for remuneration to employees as

soon as possible after the effort has been made. It should be relatively stable rather than frequently

varying.

MINIMUM WAGES ACT (1948)

Objective: Fixing minimum rates of wages in certain employments

Applicable to whole of India Central and State Government empowered to

fix minimum wages Did not define “minimum wages”. Definition

given by Fair Wages Committee Minimum Wages to be paid in Cash Defined normal working hours , one day rest

in every period of 7 days Overtime fixed on a specific time unit

PAYMENT OF WAGES ACT (1936)

Objective: regulate payment of wages for certain classes of employed persons

Does not apply to people whose wages exceed ₹ 10,000 per month (2007)

Wages to be paid by 7th of each month and in case of more than 1000 workers, 10th of each month

Current currency or by authorization by cheque or bank transfer

Employer to maintain register/ records Deductions: fines, absence from duties, cost of

damage, advance payment, Income tax, PF, loans Should not exceed 75% of salary in case of

deductions ; and 50% in other cases

PAYMENT OF BONUS ACT (1965)

Objective: Share profit earned by organization with employees

Applies to every factory or establishing employing not less than 20 people

Employee drawing salary not beyond ₹ 10,000, per month, who has worked for not less than 30 days in an accounting year is eligible for bonus of minimum 8.33% of salary/wages and maximum of 20% of salary/wages.

Applicable to whole of India, where 10 or more workers are working

Calculation: includes Wages + DA Paid in Cash within 8 month of closing of

accounting year

PAYMENT OF GRATUITY ACT, 1972. Objective: payment of gratuity to employees engaged in

factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments

Applicable to the whole of India Gratuity shall be payable to an employee on the

termination of his employment after he has rendered continuous service for not less than five years

In the case of death of the employee, gratuity payable to him shall be paid to his nominee

For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days’ wages based on the rate of wages last drawn by the employee concerned

The amount of gratuity payable to an employee shall not exceed three lakhs and fifty thousand rupees