Wage & Salary Administration

Prof. Rajasshrie

Wage and Salary Administration

• The basic purpose of wage and salary administration is to establish and maintain an equitable wage and salary structure

• The secondary objective is to establish and maintenance of equitable labour-cost i.e. an optimal balancing of conflicting personnel interests so that satisfaction of employer and employee is maximized

• It is concerned with the financial aspects of needs, motivation and rewards. Managers, therefore, analyze and interpret the needs of their employees so that rewards can be individually designed to satisfy these needs

• Wages – The payment paid for manual and mechanical work is

wages– Represents hourly rates of pay

• “Wage means all remuneration, capable of being expressed in terms of money which would if the terms of the contract employment express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment”

• Salary – Meaning Oxford Dictionary - meaning “ Fixed periodical

payment to a person doing other than manual or mechanical work”

– It refers to monthly rate of may, irrespective of the number of hours put by an employee

• Incentives – Are paid in addition to wages and salaries. Incentives

depend upon productivity, sales, profit or cost reduction efforts

• Individual incentive scheme • Group Incentive Scheme

• Fringe benefit– This include such employee benefits as

provident fund, gratuity, medical care, hospitalization, accident relief and group insurance, canteen, uniform recreation

• Perquisites – These are allowed to executives and include

company car, club membership, paid holidays, furnished homes, stock option schemes and the like

– Perquisites are offered to retain competent executives

Dearness Allowance

• Dearness allowance (D.A.) is part of a person's salary. D.A. is calculated as a percent of the basic salary. This amount is then added to the basic salary along with house rent allowance to get the total salary. Rates vary as per rural/urban areas

Non-Monetary Benefits

• This include challenging job responsibilities, recognition of merit, growth prospects, competent supervision, comfortable working conditions, job sharing and flexi-time

Classification of Wages

• The International Labour Organization (ILO) in one of its publication, classified wages as under :

A) Minimum wages B) Fair Wages C) Living Wages

Minimum wages

– It has been defined by the committee as “The wage which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the worker.

– The minimum wages must provided for some measure of education medical requirements and amenities

– It should provide fro the substances of worker’s family members, for the medical care and for some amenities

Fair Wage • According to committee of Fair Wages : “ It is the wage

which is above the minimum wage but below the living wage”

• The lower limit of fair wage is obviously the minimum wage. The upper limit is set by the “capacity of the industry pay”. Between these two limits, the actual wages should depend on considerations of such factors as

– The productivity of labuor – The prevailing rates of wages in the same or neighboring

localities – The level of national income and its distribution – The place of industry in the economy

Living wages

• Living wages – It defined a Living Wage as “One which

should enable the earner to provide for himself and his family not only the bare essential of food, clothing and shelter but a measure of frugal comfort, including education of his children, protection against ill health, requirement of social needs and a measure of insurance against the more important misfortunes including old age”.

Factors Affecting on Wage / Salary levels

• External factors

– Labour Market • Demand for and supply of labor influence wage and salary

fixation. • A low wage may be fixed when the supply of labour exceeds the

demand for it • A higher wage may be fixed when the supply of labour exceeds

the demand for it

– Cost of Living • The criteria matters during period of rising prices and is forgotten

when prices are stable and falling

– Labour Union • The presence or absence of Labour organization often determine

the quantum of wages paid to employees.

– Labour Laws • Some of the central laws which have a bearing on employee

remuneration are the Payment of Wages Act, 1936, the minimum wages act 1948, payment of Bonus Act 1948

– Society • Remuneration paid to employee is reflected in the prices fixed by

an organization for its goods and services For this reason, the consuming public is interested in remuneration decisions.

– Economy • The last external factor that has its impact on wage and salary

fixation is the state of the economy.

Internal Factor

• Business Strategy – The overall strategy which a company pursues should determine the

remuneration to its employees Where strategy of enterprise is to achieve rapid growth, remuneration should be more than competitor’s pay

• Job Evaluation – It help to establish satisfactory wage differential among jobs. PA helps

award pay increases to employees who show improved performance

• The Employee – Several employee-related factors interact to determine his or her

remuneration. Theses include performance, seniority, experience, potential and even sheer luck

            Basic                            50%

            HRA                             20%

Medical 10%

          Misc.   1%

            Conveyance                  6%

          Education. (13% - E P F + ESIC)