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 employments
 different class of work in the same scheduled
employments
 adults, 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
Time Wage
 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
Piece Wage
 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 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