108 MBA Second Semester (Human Resource Management) JNTU.« UNIT 4 | WAGE AND SALARY ADMINISTRATION ing and Definition of Wage | Pe is See made to the workman for his services to the organisation. Wage is differentiated from the salary on the basis of “how the organisation computes an employee's compensation”. Wages are generally paid hourly to blue-collar workers such as production and maintenance workers while salary is a monthly payment made to an employee for the services he has rendered to the organisation. According to P.M. Stochank, “Wage is that labour’s remuneration which creates the utility”. According to Benham, “Wages means the amount paid to the labour for his services to the employer”. According to Yoder and Heneman, “Wages are the compensation of wage eamers, the numerous employees who use the tools and equipments for their employers to produce goods and services that are sold by their employers”. 4.1.2. Difference between Salary and Wages Wages Salary ‘| 1) Wages are paid according to the number of hours | 1) Salary is paid to the employee irrespective of hours worked by the employee. In other words, the | worked by him. The amount is fixed and is paid employee needs to be physically present and working monthly. {in terms of hours to ea wages. 2) The recipients of wages are not permanent. 2)_ Only permanent employees are paid salary. 3) Employees who are paid wages are called ‘non- | 3) exempt” employees. _ 4) Overtime is paid to wage-based employees. 4 The other name for salary-based employees is ‘exempt’ employees. ‘The chances of getting overtime are very less for salary-based employees. No deduction in salary takes place for salary-based employees for leaves or time-offs. | Annual calculation is done in case of salary. Salary-based employees enjoy the entitlement to 5) The amount paid to wage-based employees is | 5) deducted if they take leaves. 6) Calculation of wages is done on hourly or daily basis. | 6) 7) Wage-based workers are not entitled to paid holidays, | 7) sick leaves, casual leaves, etc, paid holidays, sick leaves, etc. 8) No benefits or perks are given to wage earners. 8) A wide range of benefits, perks, and rewards are _ received by salary-based employees. 9) A relatively high employee tumover is noticed | 9) ‘The positions which face lesser employee tumover are taken up by salary-based employees, 4.1.3. Types of Wages an Different types of wages are as follows: 1) Minimum Wage: According to Government Committee on Wages, 1948, “Minimum wage is @ wage which must provide not only for bare sustenance of life but for the preservation of efficiency of the worker”. Minimum wage should also provide for the requirements like education of children, medical facilities, etc. It is fixed by amongst wage-based employees. agreement between worker and _ the management but usually it is determined by the legislations related to wages. This is mostlY visible in unorganised sector in which labour iS unionised. While fixing the minimum. wages other factors like organisation's ability top): type of job, etc. are also taken into consideratio® alongwith the needs of workers,wage and Salary Administration (Unit 4) ~ i ed with a he wages which are attune« infatees Real wages, ean be represented. inflation. Real wages tablish 5 ; Lae ish by collective a 2) Fair Wage: Fair wage is a wage which is above ar the minimum wage. It ca n be studied in two senses, viz, narrow and broad sense. In narrow sense, wage can be considered fair, if itis equal to present market rate in the same industry and in the surrounding industries, performing same type of work. In a broad sense, fair wage is that wage which is equal to the principal rate for same type of work throughout the country, where the labours are organised systematically and they have power to bargain. According to The Indian National Trade Union Congress, “A fair wage is a step towards the progressive realisation of a living wage”. According to Professor Pigou, “A wage rate is fair in the narrower sense when it is equal to the rate current for similar workmen in the same trade and neighbourhood and fair in the wider sense when it is equal to the predominant rate for similar work throughout the country and in the generality of trades”. The Committee on Fair Wages announces that the fair wage is a wage, which lies in between a Teast wage and a sustainable wage. where, w, = real wages Wa = nominal or money wages Pg = the general price level 4.1.4. Wage Structure ; The term “wage structure” signifies the relationship of wage rates for the entire job within the company, industry or labour market areas. It is the hierarchy of rates of pay which exists within an employing organisation. The internal wage structure of an organisation or company is, thus, established by the relative grading or positioning of jobs within it (i.e., the company) in terms of pay, and it may, therefore, be defined in terms of job or labour grades with either a flat wage rate or a range of rates for each grade that may be applicable to a number of jobs in various departments or units. Organisations may maintain two paralleled wage/salary structure, one for the hourly rated and the other for salaried employees. In setting up a wage structure, necessary information to be used is usually derived from some kind of “job evaluation” system or method. . An internally consistent relationship amongst jobs is 3) Living Wage: Living wage can be described a an the very essence of a wage structure. It is important caming which is higher than the amount of a fair for both the management and the employees. The wage. Living wage enables a wage earner not only management must be able to justify its reasons for ‘o afford the minimum requirements of life Tike structuring jobs in a particular order. The other input food, clothing, shelter, basic education and health for the wage structure comes from inputs from the needs, but also the need of luxuries which include surrounding region or industry or trade or skill, higher and better health and education facilities for Together, these two (internal alignment of jobs and family and children, fulfilling societal desires, external input) form the basis for a wage structure. ensuring safe and insured future, and thus, Procuring a comfort life at present. To determine ‘Types of Wage or Pay Structures the living wage, the gross economic condition of Most common types of wage or Pay structures are as the nation should be taken into consideration follows: because living wage differs from nation to nation. 1) Separate Pay Structures: These are for manual In developed countries, living wage itself is the ‘workers relate to the rates paid to employees who basis for determining minimum wage. In India, Work on the shop floor, in distribution, transport, minimum wage is dependent on sweated industries and anywhere else where the work’ primarily Which come under Minimum Wage Act, 1948. involves manual skills and tasks. It is similar to 4) Real Wage: According to Adam Smith, “The real wages of labour may be said to consist of the uantity of necessaries and conveniences of life that are given for its nominal wages, in the quantity of money. The labourer is rich or poor, is well or ill-rewarded in proportion to the real, Not the nominal wages of his labour”. any other pay structure in certain respects. It incomporates pay differentials between jobs which reflect real and assumed differences in skill, and responsibility. Inevitably pressurce from local labour markets influence it, as well xe custom and practice and various. settlements reached between Management and trade unions,no 2» 3) a » 6) Spot Rates: Spot rates in their simplest form allocate a specific rate for the job. Spot rates are often to be found among lower-skilled occupations where there is a need for a simple ‘rate for the job’. Conversely, spot salaries often also occur at the other end of the scale for more senior positions, such as senior managers or directors, where the remuneration package may need to be designed to attract or retain a specific individual. Spot rates are also relatively common in small firms. Rate for Age: It provides a specific rate of pay or a pay bracket to be linked to age for staff in certain jobs. Integrated Pay Structures: They cover groups of employees who have traditionally been paid under separate arrangements. There may be one grading system which includes all employees, excluding senior management. Graded Pay Structures: A grade structure consists of a sequence or hierarchy of grades, bands, or levels into which groups of jobs that are broadly comparable in size are placed. There may be a single structure with a sequence of narrow grades (often 8 to 12), or relatively few broadbands (often 4 to 5). Alternatively, the structure may consist of a number of career or job families each divided typically into 6 to 8 levels (a career or job family structure groups jobs with similar characteristics together). Individual Job Ranges: They are used where the content and size of jobs is widely different. For example, at senior levels an individual job grade structure may be preferable to a conventionally banded structure. This approach aveids the problem of grouping number of jobs with widely different job sizes into a grade, with the inevitable consequence that some jobs are under-paid and others are over-paid. Career Family Structures: In career family structures, jobs are grouped together into ‘families’. Career families consist of jobs in a function or ‘occupation such as marketing, operations, finance, TT, administration or support services, which are related through the activities carried-out and the basic knowledge and skills required, but in which the levels of responsibility knowledge, skill or competence needed, differ. The successive levels in each career family are defined by reference to the key activities carried-out and the knowledge and skills or competences required to perform them effectively. Each job family is divided into a number of levels. These can vary between job families but typically there are five to seven levels, MBA Second Semester (Human Resource Management) JNTU-K 8) 9) 10) Progression/Maturity Curves: Job Family Structures: A job family structure consists of separate grade and pay"structures for different job or career families. Whereas career families are focused on an occupation or function, job families are typically based on ‘common processes, These consists of jobs in a function or discipline such as research scientist, development engineer or personnel specialist, Jobs will be related in terms of the fundamenta} ‘activities carried out and the basic skills required, but will be differentiated by the level of responsibility, skill or competence involved. Broad-Banded Structures: Broadbanding refers to a human resources strategy that collapses salary grades into a few wide “bands” for the purposes of managing career growth and administering pay. By eliminating much of the hierarchy associated with a traditional pay structure, broadbands support today’s flatter leaner, more customer-focused organisation. This, range of pay in a band is significantly higher than in a conventional graded structure. The structure usually covers the whole workforce from the shop floor to senior management. Broadbands widen salary ranges in order to facilitate organisational flexibility, encourage individual career development, and market competitiveness. The use of broadbanding also reduces the number of job classifications. They are a development of job-family structures. A pay curve system recognises that different methods of handling pay determination and progression may have to be used in some job families especially those containing knowledge workers. 11) Pay Spines: Pay spines are found in the public sector or in agencies and charities that have adopted a public sector approach to reward management. They consist of a series of incremental ‘pay points extending from the lowest-to the highest-paid jobs covered by the structure. Typically, pay spine increments are between 2.5 per cent and 3 per cert Pay scales or ranges for different job grades may then be superimposed on the pay spine. method is favoured particularly within the U.K. for most National Health Services (NHS) and centri! and local government employees. They may b standardised from the top to the bottom of the spine, or the increments may vary at different levels, sometimes widening towards the top. Job grades are aligned to the pay spine and the paY anges for the grades are defined by the relevant scale of pay points, .Wage and Salary Administration (Unit 4 41.5. Legal Framewo Wages are governed by various framed by the government to secure ber a 8 ter well-being of the employees in organisainen™ The very objective of these wage related leglamtoe based upon the i cr Principles enshrined j Iu ed in our constitution. In the absence of such legislate framework, employees particularly the lower level employees are susceptible to” exploitation by employers. These legislative measures seek to enstre that minimum Iabour standards in matters of waece and benefits are adhered to by organisations including Payment of minimum wages. Statutory provisions governing wages are covered under following acts: 1) Payment of Wages Act, 1936: The Payment of Wages Act, 1936 was passed to regulate the Payment of wages to certain classes of persons employed in industry. It is essentially meant for the benefit of industrial employees not getting very high wages and the provisions of the Act were enacted to safeguard their interest. It also Provides against irregularities in payment of wages and unauthorised deductions therefore by the employers. Further, it ensures payment of wages in a particular form and at regular intervals without unauthorised deductions. It extends to the whole of India, 2) Minimum Wages Act, 1948: The Minimum Wage Fixing Machinery Convention was held at Geneva during 1928 and the resolution of that was embodied in Articles 223 to 228 of the International Labour Code to represent fixation of minimum wages in the case of trades or parts of trades where such bonds are absent or wages are exceptionally low. The foundational aim of the Minimum Wages Act is to prevent exploitation of labour in industries. Subsequent to the committee’s report, Government enacted legal provisions regarding minimum wages under the Minimum Wages Act, 1948. This Act does not define the concept of minimum wages but empowers the Central Government as well as State Governments to fix minimum wages from time to time. Wherever this Act applies, the payment of minimum wages is mandatory. In 1957, Indian Labour Conference elaborated fixation of minimum wage which were seamed as need-based minimum wages. This Act provides for fixing minimum Tates of wages in certain employments. This Act also provides for certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto. 3) 4) Payment of Bonus Act, 1965: With enactment of the Payment of Bonus Act, 1965 the concept of bonus has undergone considerable change. The obligation to pay a minimum bonus irrespective of the financial results has turned bonus into an additional statutory payment by an employer to his employees. The Payment of Bonus Act provides for payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith, The Act has laid down a detailed procedure for calculating the amount of bonus payable to employees. Every employee shall be entitled to be paid by his employer in an accounting year, bonus, in accordance with the provisions of this Act, provided he has worked in the establishment for not less than thirty working days in that year. Every employer shall be bound to pay to every employee in respect of any accounting year a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees whichever is higher, whether or not the employer has any allocable surplus in the accounting year. Equal Remuneration Act, 1976: The principle of equal pay for equal work to men and women workers has been gaining increasing acceptance all over the world. In many countries, laws have been passed prohibiting discrimination between men and women in matters relating to payment of wages for the same or similar work. Article 39 under the Directive Principles of the State Policy of the Indian Constitution enjoins upon the state to secure equal pay for equal work for both men and women. In 1958, the Government of India ratified ILOs Equal Remuneration Convention No, 100, 1951 which calls for equal remuneration for men and women for work of. equal value. The Convention also suggests that the principle may be applied by national laws or regulations, legally established or recognised machinery for fixing wages, collective agreements or by combination of these methods. The Equal Remuneration Recommendation suggests various procedures to be followed for ensuring a progressive introduction of the principle. With a view to giving effect to the Constitutional provisions as well as those of ILOs Convention No. 100, the Equal Remuneration Ordinance was promulgated in September, 1975. The Ordinance was replaced12 by an Act of the same name in 1976. Thus, this act aims to prevent discrimination, on the ground of sex, against women in the matter of ‘employment, and pay equal remuneration to men and women workers. 4.1.6. Determinants of Payment of Wages Managements, however, do not come forward to pay higher wages because cost of production goes up and profits decrease to that extent. A number of determinants ‘or factors, thus, influence the remuneration payable to the employees, which are as follows: » ‘ External Determinants: External _ factors influencing payment of wages are as follows: i) Demand and Supply: The labour market conditions or demand and supply forces operate at the national and local levels and determine organisational wage structure. ‘When the demand of a particular type of Tabour is more and supply is less then the wages will be more. On the other hand, if supply of labour is more demand on the other hand, is less then persons will be available at lower wage rates also. ii) Cost of Living: The wage rates are directly influenced by cost of. living of a place. The workers will accept a wage which may ensure them a minimum standard of living. Wages will also be adjusted according to price index number. The increase in price index will erdde the purchasing power of workers and they will demand higher wages. iii) Trade Union’s Bargaining Power: The wage rates are also influenced by the bargaining power of trade unions. Stronger the trade union higher will be the wage rates. ‘The strength of a trade union is judged by its membership, financial position, and type of leadership. Union's last weapon is strike which may also be used for getting wage increases. If the workers are disorganised and disunited then employers willbe successful in offering low wages. iv) Government Legislation: To improve the working conditions of workers, government may pass*legislation for fixing minimum wages of workers. This may ensure them a minimum level of living. In under developed countries bargaining power of labour is weak and employers try to exploit workers by paying them low wages. In India, Minimum MBA Second Seme 2) vi) ster (Human Resource Management) JNTU-K Wages Act, 1948 was passed to empower government to fix minimum wages of workers. Psychological and Social Factors: The level of compensation is perceived as a measure of success in life. Management should take into consideration the psychological needs of the employees while fixing the wage rates so that the employees take pride in their work. Sociologically and ethically, the employees want that the wage system should be equitable, just, and fair These factors should also be taken into consideration while devising a wage programme. Economy: Economy also has its impact on wage and salary fixation. While it may be possible for some organisations to thrive i recession, there is no doubt that economy affects remuneration decisions. A depressed economy will probably increase the labour supply. This, in turn, should lower the goi ‘wage rate. vii) Technological Development: With the rapid growth of industries, there is a shortage of skilled resources. The _ technological developments have been affecting skills levels at faster rates. Thus, the wage rates of skilled employees constantly change and an organisation has to keep its level upto the mark to suit the market needs. viii) Prevailing Market Rates: The wage rates paid in the industry or other concerns at the same place will form a base for fixing wage rates. If a concern pays low rates then workers leave their jobs whenever they get a job somewhere else. It will not be possible t0 retain good workers for long. Internal Factors: Important internal factors influencing payment of wages are as follows: i) Organisation’s Ability to Pay: In the short tun, the economic influence on the ability pay is practically nil. All employers: irrespective of their profits or losses must Pay no less than their competitors and need to pay no more if they wish to attract and keep workers. Marginal firms and non-profit organisations (like hospitals and educational institutions) pay relatively. low wages because of low or no profits. Wage increase’ should be given by those organisations which can afford them.