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)