UNIT - IV

WAGE AND SALARY ADMINISTRATION

Concept:

A wage is monetary compensation (or remuneration) paid by an employer to an

employee in exchange for work done. Payment may be calculated as a fixed amount for each
task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily
measured quantity of work done. Wages are the most common earnings of people. Perceived by
workers, clerks, managers, and employees in general, wages and salaries constitute the core
element in income for the majority of active people. Similarly, many pension schemes are based
on wage levels and dynamics.

Meaning:

Wages may be defined as the price paid for the use of labour. According to Dale Yoder
and Heneman "Wages are the compensation of wage earner, the numerous employees who use
the tools and equipments of their employers to produce goods and services that are sold by their
employers." In other words, wages are the payments made to the employees as compensation for
the services rendered by them to an enterprise. Wages include salaries also. Wages is the central
point for all labour problems. It is not only the concern of the organisation but is equally
important for the workers because it is the question of their bread and butter.

Type of wages:

The main types of wages are:

1. Subsistence wage;
2. Minimum wage;
3. Fair Wage; and
4. Living Wage
5. Money wages
6. Real wages
 Subsistence Wage: - The wage that can meet only bare physical needs of a worker and
his family is called subsistence wage.
 Minimum Wage: - Minimum wage is the wage that is able to provide not only for bare
physical needs but also for preservation of efficiency of worker plus some measure of
education, health and other things. The minimum wage may be defined as the lowest
wage necessary to maintain a worker and his family at the minimum level of subsistence,
which includes food, clothing and shelter.
 Fair Wage:- Fair wages is an adjustable step that moves up according to the capacity of
the industry to pay, and the prevailing rates of wages in the area of industry. A fair wage
is something more than the minimum wages. Fair wage is a mean between the living
wage and the minimum wage. While the lower limit of the fair wage must obviously be
the minimum wage, the upper limit is the capacity of the industry to pay fair wage
compares reasonably with the average payment of similar task in other trades or
occupations requiring the same amount of ability.
Fair wage depends on the present economic position as well as on its future prospects.
Thus the fair wages depends upon the following factors:

(1) Minimum Wages

(2) Capacity of the industry to pay
(3) Prevailing rates of wages in the same or similar occupations in the same
(4) Productivity of labour
(5) Level of national income and its distribution.
(6) The place of the industry in the economy of the country.

 Living Wage:- Living wage is that which workers can maintain the health and decency, a
measure of comfort and some insurance against the more important misfortune of lie.
Living wages has been defined differently by different people in different countries. The
best definition is given by Justice Higgins which reads "Living wage is a wage sufficient
to ensure the workman food, shelter, clothing, frugal comfort, provision for evil days etc.
as regard for the skill of an artisan, if he is one".
 Money Wages: Money wages or nominal wages are wages that are paid to a person
regardless of the inflation rate in the market. Many companies use this method to pay
their employers. Money wages include the whole salary package of the employee such as
basic salary plus any additional benefits that are provided by the company or institution.
 Money wages do not take into consideration the purchasing power and the employee
receives the amount that is promised to him when he/she is hired. Raise in money wages
are also solely dependent on the employee rather than economic conditions of the country
or the purchasing power of a basic employee.

 Real Wages: Real wages are wages that provided taken into consideration the inflation
amount. Real wages are wages that determine the purchasing power of the individual or
how much goods the salary can buy. Real wages can also be defined as the amount of
goods and services that can be bought from the individual’s wages after taking inflation
into account. Some dictionaries also define it as providing goods and service to the
individual in form of remuneration.

“Real wages is the wages in terms of the goods and services that can be bought with
them.” This shows that real wages show the purchasing power of the person. Real wages
indirectly affect the money wages, since as real wages rise, they may force employee to
demand a higher money wage. Money wages may or may not affect real wage, but higher
money wages can increase the cost of living which could indirectly affect the real wage.
This depends on the situation of the country.

WAGE STRUCTURE

Wage structure is generally the levels or hierarchy of job and pay ranges. It is
the interrelationship of the levels of pay for different types of employees. Wage and salary
structures provide wage rates for specific jobs and determine the relationships between these
rates by combining the wage level, specific market pay rates and the job structure.

Developing a Wage Structure

Wage structures result from pricing job structures. Job structures, in turn, result from the
application of formal or informal job evaluation to an organization's jobs. In order to price a job
structure, it is necessary to use dollar amounts from either current pay rates or the market data
collected from wage surveys. A wage structure, then, is a combination of the job structure, the
labor market, and the organization's decisions regarding the wage level. The pricing of job
structures is subject to the influences discussed in Chapter 9 on wage structure determinants plus
some technical ones.

 Pricing a Job Structure: The job structure presents the compensation decision maker
with a hierarchy of the jobs in the organization. Ordinarily, this hierarchy has been
developed by the use of job evaluation and represents the organization's relative rating of
its jobs. A dollar value now needs to be placed on this hierarchy. This dollar value is
available in the current wage rates paid for the jobs and/or in the wage survey data
representing the labor market.
 The Vertical Dimension: The vertical axis of the scatter diagram is simply a set of dollar
figures from low to high. This amount may come from either (1) the current pay rate or
range for the job within the organization or (2) more commonly the value placed upon the
job through wage surveys.

There are three basic strategies for doing this:

1. Lag the market. In this strategy, the organization updates the wage survey data
to the current date and then installs the new wage structure. If a change in the
labor market of 5 percent is assumed for the next year, then the only time the
organization will be competitive with the market is at the beginning of the year.
By the end of the year any decisions based upon the wage structure will be 5
percent behind the market.
2. Lead-lag. Here the organization takes account of the 5 percent estimated change
in the market but wishes to be on average with the market. It does this by starting
the year at 2.5 percent above the market rate. Provided the increase is steady over
the year, this strategy will place the organization ahead of the market the first half
of the year and behind it the second half. At the end of the year the organization
will be paying 2.5 percent under the market.
3. Lead the market. In this strategy the organization wishes to pay above the
market rate and does so by starting the year at 10 percent above the wage survey
data. By the end of the year the organization will be paying the market rate.
 The Horizontal Dimension: The horizontal axis is the internal ranking of all the
organization's jobs. The pricing process may work with either individual jobs or pay
grades. In fact, if the organization is to employ rate ranges with differential pay rates for
individuals on the same job, it may save time by making decisions on the pay-policy line,
pay grades, and rate ranges at the same time.
1. Market Rates. The organization may assume that it wishes to pay strictly market
rates for its jobs and may therefore place dollar values on both axes, making a
totally consistent structure. Clearly this alternative assumes that there is a market
rate for all of the organization's jobs and that this rate is satisfactory. This process,
called Market Pricing, was discussed in chapter 11 and will be further discussed
further at the end of this chapter.
2. Job Evaluation Rates. Still the most common alternative for the horizontal axis
is the set of ratings developed through job evaluation. Depending upon the
method of job evaluation used, these ratings may consist of a ranking of jobs from
low to high, a series of classification levels, or a range of points.
3. Negotiated Rates. Where there is a union, the hierarchy of jobs may be a
negotiated ranking based upon custom or the relative power of a group of unions.
 Developing the pay-policy line: Once the horizontal and vertical dimensions of the
scatter diagram have been settled upon, all the jobs or the key jobs can be plotted as a
point by their values on both axes.
1. Low-high line. This is a straight line connecting the highest and the lowest of the
plotted points (these are often called anchor points). The rates of all intervening
jobs are made to fall on the line. The low-high line appears especially useful in
union bargaining of the wage structure because of its flexibility.
2. Freehand line. After the points have been plotted the trend of the data can often
be easily visualized. In this case it is possible to draw a freehand line that best
describes the plotted points. In drawing such a line, it is useful to follow the
principle that vertical deviations from the line are minimized if the line follows
the obvious slope of the data.
 3. Least-squares line. The least-squares line follows the principles specified for the
freehand line but is determined mathematically. It may be fitted by calculating the
equation for the line and plotting the line obtained from the solution.

Completing the Wage Structure

At this point in the discussion the wage structure consists of a horizontal dimension and a
vertical dimension with a pay-policy line derived from the plotting of jobs. Theoretically, this
wage structure as pictured in figure 12-1 could be used to establish wage rates for jobs as every
job in the organization could be plotted on the pay-policy line to determine its pay rate.

 Pay Grades: A pay grade is defined as a group of jobs that have been determined by job
evaluation or other measure on the horizontal dimension to be approximately equal in
difficulty or importance. If a point plan is employed in job evaluation, a pay grade
consists of jobs falling within a range of points; if factor comparison is used, a range of
evaluated rates; if ranking is used, a number of ranks.
 Cluster Approach: The simplest approach is to make a scatter diagram of the
organization's jobs, as is done in establishing the pay-policy line. When this is done it can
often be observed that the jobs tend to cluster rather than scattering evenly. This effect
can be taken advantage of by encasing the clusters horizontally and vertically, as
illustrated in figure 12-6. This provides all three dimensions, but none of them is arrived
at consistently, nor are they likely to be symmetrical.
 Division Approach: Another relatively simple approach is to use the horizontal
dimension of the wage structure, usually the job evaluation points, to determine the
number of pay grades. This is done most easily by determining a set number of points for
each pay grade and, starting with the least number of points, marking off the lines
between adjacent grades.
 WAGE AND SALARY POLICY

Overview
The Company attempts to pay competitive wages and salaries with those businesses in our
community and industry. Wages and salaries are classified by position based on experience,
responsibility, and physical and mental demands. Management reviews salary ranges once per
year and makes any adjustment deemed necessary. Ask your manager, accounting or supervisor
if you would like to know the ranges for your position.

Overtime Pay
All overtime must be authorized and directed by a supervisor. Non-exempt employees are paid
time and on half for authorized hours in excess of 12 hours in one day and 40 hours in one week.
The maximum amount of overtime, which may be scheduled for any employee in any 24-hour
period, is eight (8) hours. The maximum overtime that may be scheduled for any employee in
any work week (Sunday through Saturday) is twenty (20) hours.
Work required of a non-exempt employee on a Holiday is calculated at the actual number of
hours worked, paid at the overtime rate.

Payday
Payroll weeks begin on Sunday and end on Saturday. Employees are paid weekly on following
Friday. If you turn time cards in late, you will be delayed in receiving your paycheck.

Pay Advances
Pay advances are not generally given.

Payroll Deductions
Payroll deductions are made from each paycheck to comply with federal and state laws and
certain benefits. Deductions will be made for:
Federal and State Income Tax
FICA (Social Security)
Garnishments and Wage Assignments required by law or court order
Other items designated by the employee
At the beginning of each year you will be supplied with a W-2 which summarizes your income
and deductions for the previous year.
Wage or Salary Increases
Your rate of compensation will typically be reviewed periodically. Pay increases, if any, will be
base on your performance and attitude, not your length of service.

LEGAL FRAME WORK

The legal frame work for the payment of wages/salaries is governed by mainly 4legislations
besides the guidelines for managerial remuneration:

1. The payment of wages Act, 1948

2. The Minimum Wages Act, 1948
3. The Payment of Bonus Act, 1965
4. The Equal Remuneration Act, 1976

THE PAYMENT OF WAGES ACT 1936

The Payment of Wages Act, 1936 is a central legislation which has been enacted to regulate the
payment of wages to workers employed in certain specified industries and to ensure a speedy and
effective remedy to them against illegal deductions and/or unjustified delay caused in paying wages to
them. It applies to the persons employed in a factory, industrial or other establishment or in a railway,
whether directly or indirectly, through a sub-contractor. Further, the Act is applicable to employees
drawing wages up to Rs. 1600/- a month.
The Central Government is responsible for enforcement of the Act in railways, mines, oilfields
and air transport services, while the State Governments are responsible for it in factories and other
industrial establishments.
The basic provisions of the Act are as follows:-
 The person responsible for payment of wages shall fix the wage period up to which wage
payment is to be made. No wage-period shall exceed one month.
 All wages shall be paid in current legal tender, that is, in current coin or currency notes or both.
However, the employer may, after obtaining written authorization of workers, pay wages either
by cheque or by crediting the wages in their bank accounts.
 All payment of wages shall be made on a working day. In railways, factories or industrial
establishments employing less than 1000 persons, wages must be paid before the expiry of the
 seventh day after the last date of the wage period. In all other cases, wages must be paid before
the expiry of the tenth day after the last day of the wage period. However, the wages of a worker
whose services have been terminated shall be paid on the next day after such termination.
 Although the wages of an employed person shall be paid to him without deductions of any kind,
the Act allows deductions from the wages of an employee on the account of the following:- (i)
fines; (ii) absence from duty; (iii) damage to or loss of goods expressly entrusted to the employee;
(iv) housing accommodation and amenities provided by the employer; (v) recovery of advances
or adjustment of over-payments of wages; (vi) recovery of loans made from any fund constituted
for the welfare of labour in accordance with the rules approved by the State Government, and the
interest due in respect thereof; (vii) subscriptions to and for repayment of advances from any
provident fund;(viii) income-tax; (ix) payments to co-operative societies approved by the State
Government or to a scheme of insurance maintained by the Indian Post Office; (x) deductions
made with the written authorization of the employee for payment of any premium on his life
insurance policy or purchase of securities.
 The Act prescribes following rules for fines:-
 Fines shall be imposed for approved list of acts and omissions.
 A notice specifying such list shall be exhibited in the prescribed manner on the premises
in which the employment is carried on or at the prescribed places in case a person is
employed in railways.
 No fine shall be imposed on any employed person until he has been given an opportunity
of showing cause against the fine, or other-wise, than in accordance with such procedure
as may be prescribed for the imposition of fines.
 The total amount of fine which may be imposed in any one wage period on any employed
person shall not exceed an amount equal to three per cent of the wages payable to him in
respect of that wage-period.
 No fine shall be imposed on any employed person who is under the age of fifteen years.
 No fine imposed on any employed person shall be recovered from him by installments or
after the expiry of sixty days from the day on which it was imposed.
 All fines and all realizations thereof shall be recorded in a register to be kept by the
person responsible for the payment of wages.
Hence, the main object of the Act is to eliminate all malpractices by laying down the time and
mode of payment of wages as well as securing that the workers are paid their wages at regular intervals,
without any unauthorized deductions.
 MINIMUM WAGES ACT 1948
The Minimum Wages Act, 1948 was enacted to safeguard the interests of workers, mostly in the
unorganised sector by providing for the fixation of minimum wages in certain specified employments. It
binds the employers to pay their workers the minimum wages fixed under the Act from time to time.
Under the Act, both the Central Government and the State Governments are the appropriate
Governments to fix, revise, review and enforce the payment of minimum wages to workers in respect of
'scheduled employments' under their respective jurisdictions. There are 45 scheduled employments in the
Central sphere and as many as 1530 in State sphere.
In the Central sphere, the Act is enforced through the Central Industrial Relations Machinery
(CIRM). CIRM is an attached office of the Ministry of Labour and is also known as the Chief Labour
Commissioner (Central) [CLC(C)] Organisation. The CIRM is headed by the Chief Labour
Commissioner (Central). While, the State Industrial Relations Machinery ensures the enforcement of the
Act at the State level.
The appropriate Government is required to appoint an Advisory Board for advising it, generally
in the matter of fixing and revising minimum rates of wages. The Central Government appoints a Central
Advisory Board for the purpose of advising the Central and State Governments in the matters of the
fixation and revision of minimum rates of wages as well as for co-ordinating the work of Advisory
Boards.
Minimum wage and an allowance linked to the cost of living index and is to be paid in cash,
though payment of wages fully in kind or partly in kind may be allowed in certain cases. The minimum
rate of wages consists of a basic wage and a special allowance, known as 'Variable Dearness Allowance
(VDA)' linked to the Consumer Price Index Number. The allowance is revised twice a year, once in April
and then in October.
Under the Minimum Wages Act, there are two methods for fixation/revision of minimum wages,
namely:-
 Committee method - Under this method, committees and sub-committees are set up by the
appropriate Governments to hold enquiries and make recommendations with regard to fixation
and revision of minimum wages, as the case may be.
 Notification method - Under this method, Government proposals are published in the Official
Gazette for information of the persons likely to be affected thereby and specify a date not less
than two months from the date of the notification on which the proposals will be taken into
consideration.
After considering the advice of the Committees/Sub-committees and all the representations received
by the specified date in Notification method, the appropriate Government shall, by notification in the
Official Gazette, fix/revise the minimum wage in respect of the concerned scheduled employment and it
shall come into force on expiry of three months from the date of its issue. The Government may review
the minimum rates of wages and revise the minimum rates at intervals not exceeding five years.
The fixation of minimum wages depends on a number of factors such as level of income and paying
capacity, prices of essential commodities, productivity, local conditions, etc. Since these factors vary from
State to State, the wages accordingly differ throughout the country. Hence, in the absence of a uniform
national minimum wage, the Central Government introduced a 'national floor level minimum wage'.
Initially, this minimum wage level was fixed at Rs. 35/- per day and has been revised periodically.
The last revision being Rs. 66/- per day with effect from 1.2.2004, on the recommendations of the Central
Advisory Board. All the States/UTs Governments are required to ensure that fixation/revision of
minimum rates of wages in all the scheduled employments is not below this national minimum wage.
Also, in order to bring uniformity in the minimum wages of scheduled employments, the Union
Government has requested the States to form regional Committees. Hence, five Regional Minimum
Wages Advisory Committees have been formed in the country. These include:-

Region States/UTs covered

Eastern Region West Bengal, Odisha, Bihar, Jharkhand and Andaman & Nicobar Islands.

North Eastern Region Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Sikkim,
Nagaland and Tripura.

Southern Region Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry and
Lakshadwadeep.

Northern Region Punjab, Rajasthan, Himachal Pradesh, Jammu & Kashmir, Haryana, Uttar
Pradesh, Uttarakhand, Delhi and Chandigarh.

Western Region Maharashtra, Gujarat, Goa, Madhya Pradesh, Chhattisgarh, Dadra &
Nagar Haveli and Daman & Diu.

THE PAYMENT OF BONUS ACT, 1965

The payment of Bonus Act, 1965 aims to regulate the amount of bonus paid to the
persons employed in certain establishments based on their profits and productivity. The act is
applicable to the whole of India for all establishment containing twenty or more persons
employed on any day during the year. In this article, we examine the various aspects of Payment
of Bonus Act in detail. To know more about Payments of Wages Act.
Objective of the Act
The objective of the Bonus Act (Payment of bonus Act), are as follows:
 To impose a legal responsibility upon an employer of every establishment covered by the
Act to pay the bonus to employees in an establishment.
 To designate the minimum and maximum percentage of bonus.
 To prescribe the formula for calculating bonus.
 To provide redressed mechanism.
Applicability of the Act
The Payment of Bonus Act implements to the following entities are listed below:
 It applies to any factory or establishment containing twenty or more workers employed
on any day during the year.
 The act does not apply to the non-profit making organizations.
 It is not applicable to establishments such as LIC, hospitals which are excluded under
section 32.
 It is not applicable to establishments where employees have signed an agreement with the
employer.
 It is not applicable to establishments exempted by the appropriate government like sick
units.
Departments, Undertakings and Branches
According to this section, any different departments or undertakings or branches of an
establishment of whether located in the same place or at different areas should be considered as
parts of the similar establishment for computation of bonus under the Act.
The separate balance sheet regarding profit and loss of the establishment in the year had to be
prepared and maintained concerning such department or undertaking, or branch should be treated
as a separate establishment for computation of bonus for the year.
Eligibility for Bonus
The person is eligible for availing bonus under the following conditions is explained below:
Any employee receiving salary or wages up to RS.21,000 per month and engaged in any work
whether skilled, unskilled, managerial, supervisory etc. is entitled to the bonus for every year if
the employees have worked for not less than 30 working days in the same year.
Disqualification of Bonus
The employees cannot utilize the bonus in case of undergoing with the following activities such
as dishonesty, theft, sabotage of any property of establishment, violent behavior while on the
premises of the establishment.
Number of Working Days
An employee will be considered working in every year by including the following days which is
specified here.
 The employee who is under an agreement or as permitted by standing orders under
the Industrial Employment (Standing Orders) Act, 1946, the Industrial Disputes Act,
1947 or any other law applicable to the establishment.
 The employee during employment has taken leave with salary.
 The employee who has been absent due to temporary disablement caused by accident
arising out of and in the course of his work.
 The employee during the accounting year has been on maternity leave with salary.
Payment of Minimum and Maximum Bonus
The minimum bonus will be provided 8.33 % of the salary during the year, or one hundred
rupees will be given in case of employees above 15 years and sixty rupees in the case of
employees below 15 years, whichever is higher. The maximum bonus is 20 % of the salary
during the accounting year.
Timeline for Payment of Bonus
The payment of bonus should be paid in cash within eight months from the end of the accounting
year or within a month from the date of enforcement of the act.
Computation of Bonus
As per the Section 4 and section 7 together with the schedule 1 and two deal with the calculation
of gross profit and available surplus out of which 67% in case of companies and 60% in other
cases would be allocable surplus.
To compute the available surplus the sums, so deductible from the gross profits are
 All direct taxes under section 7
  The sums which are particularized in the schedule
 The allowance for investment or development in which the employer is allowed to deduct
from his income under the Income Tax Act.
Available Surplus = Gross Profit – (deduct) the following:
 Depreciation is allowable in section 32 of the Income-tax Act.
 Development Allowance.

THE EQUAL REMUNERATION ACT, 1976

The Equal Remuneration Act, 1976 aims to provide for the payment of equal
remuneration to men and women workers and for the prevention of discrimination, on the ground
of sex, against women in the matter of employment and for matters connected therewith or
incidental thereto. According to the Act, the term 'remuneration' means "the basic wage or salary
and any additional emoluments whatsoever payable, either in cash or in kind, to a person
employed in respect of employment or work done in such employment, if the terms of the
contract of employment, express or implied, were fulfilled".
Nothing in this Act shall apply:- (i) to cases affecting the terms and conditions of a
woman's employment in complying with the requirements of any law giving special treatment to
women; or (ii) to any special treatment accorded to women in connection with the birth or
expected birth of a child, or the terms and conditions relating to retirement, marriage or death or
to any provision made in connection with the retirement, marriage or death.
The Central Industrial Relations Machinery (CIRM) in the Ministry of Labour is
responsible for enforcing this Act. CIRM is an attached office of the Ministry and is also known
as the Chief Labour Commissioner (Central) [CLC(C)] Organization. The CIRM is headed by
the Chief Labour Commissioner (Central).

The main provisions of the Act are:-

 No employer shall pay to any worker, employed by him/ her in an establishment, a
remuneration (whether payable in cash or in kind) at rates less favourable than those at
which remuneration is paid by him/ her to the workers of the opposite sex in such
establishment for performing the same work or work of a similar nature. Also, no
 employer shall, for the purpose of complying with the provisions of this Act, reduce the
rate of remuneration of any worker.
 No employer shall, while making recruitment for the same work or work of a similar
nature, or in any condition of service subsequent to recruitment such as promotions,
training or transfer, make any discrimination against women except where the
employment of women in such work is prohibited or restricted by or under any law for
the time being in force.
 Every employer shall maintain such registers and other documents in relation to the
workers employed by him/ her in the prescribed manner.
 If any employer:- (i) makes any recruitment in contravention of the provisions of this
Act; or (ii) makes any payment of remuneration at unequal rates to men and women
workers for the same work or work of a similar nature; or (iii) makes any discrimination
between men and women workers in contravention of the provisions of this Act; or (iv)
omits or fails to carry out any direction made by the appropriate Government, then he/
she shall be punishable with fine or with imprisonment or with both.
 Where an offence under this Act has been committed by a company, every person who at
the time the offence was committed, was in charge of, and was responsible to the
company for the conduct of the business of the company, as well as the company, shall be
deemed, to be guilty of the offence and shall be liable to be proceeded against and
punished accordingly.

DETERMINANTS OF PAYMENT OF WAGES

7 Factors to Consider for Determining Wage and Salary Structure of Workers
The following factors should be taken into consideration in determining wage and salary
structure of workers:
(i) Labour Unions: The labour unions attempt to work and influence the wages primarily by
regulating or affecting the supply of labour. The unions exert their influence for a higher wage
and allowances through collective bargaining with the representatives of the management.
(ii) Personal perception of wage: Whether the wage is adequate and equitable depends not
only upon the amount that is paid but also upon the perceptions and the views of the recipients of
the wage. Even though the wage is above the going wage rate in the community if it is lower
than that of fellow worker deemed inferior, it will be regarded as inequitable in the eyes of the
recipients of the wage. A man’s perception of the equity of his wage will undoubtedly affect his
behaviour in joining and continuing in the organization.

(iii) Cost of living: Another important factor affecting the wage is the cost of living adjustments
of wages. This approach tends to vary money wage depending upon the variations in the cost of
living index following rise or fall in the general price level and consumer price index. It is an
essential ingredient of long term labour contracts unless provision is made to reopen the wage
clause periodically.
(iv)Government legislation: The laws passed and the labour policies formed by the Government
have an important influence on wages and salaries paid by the employees. Wages and salaries
can’t be fixed below the level prescribed by the government. The laws on minimum wages,
hours of work, equal pay for equal work, payment of dearness and other allowances, payment of
bonus, etc. have been enacted and enforced to bring about a measure of fairness in compensating
the working class.
(v) Ability to pay: Labour unions have often demanded an increase in wages on the basis that
the firm is prosperous and able to pay. However, the fundamental determinants of the wage rate
for the individual firm emanate for supply and demand. If the firm is marginal and cannot afford
to pay competitive rates, its employees will generally leave it for better paying jobs. However,
this adjustment is neither immediate nor perfect because of problems of labour immobility and
lack of perfect knowledge of alternatives. If the firm is highly successful, there is little need to
pay for more than the competitive rates to obtain personnel.
(vi) Supply and demand: As stated earlier, the wage is a price for the services rendered by a
worker or employee. The firm desires these services, and it must pay a price that will bring forth
the supply, which is controlled by the individual worker or by a group of workers acting together
through their unions. The practical result of the operation of this law of supply and demand is the
creation of “going- wage rate”.
(vii) Productivity: Increasingly there is a trend towards gearing wage increases to productivity
increases. Productivity is the key factor in the operations of a company. High wages and low
costs are possible only when productivity increases appreciably. The above factors exercise a
kind of general influence on wage rates. In addition, there are several factors which do affect the
individual difference in wage rates.
 WAGE DIFFERENTIALS
WAGE DIFFERENTIALS

Meaning: the difference in wages between workers with different skills in the same industry or
between those with comparable skills in different industries or localities. Wage differential refers
to differences in wage rates due to the location of company, hours of work, working conditions,
type of product manufactured, or other factors. It may be the difference in wages between
workers with different skills working in the same industry or workers with similar skills working
in different industries or regions.

The wage paid to workers varies greatly. These wage differentials are mostly the result of
differences in worker ability and the workers' effort in performing the job. There are also wage
differentials across occupations, because of differences in the demand and supply of laborers for
particular job or occupation. These differences arise primarily because of differences in the
amount of education or training required and in the desirability of the job itself.

Wage differential:
The committee on fair wages recommended that wage differentials should be established
on the basis of certain considerations:
• The degree of skill
• The strain of work
• The experience involved
• The training required
• The responsibility undertaken
• The mental and physical requirement
• The disagreeableness of the task
• Hazards
• Fatigue involved

Ordinarily wage differentials may arise out of the following factors:

• Ignorance on the part of employers and employees as to the prevailing wage rates
• Due to different systems of payment
• Due to payment of overtimes, vacations, statutory holidays, SL,
• Relative bargaining powers of employers and employees
• Due to different systems of payment

Common types of wage differentials:

 Occupational wage differentials: Difference in technological advancement, managerial
efficiency, structure of product market, financial capacity, availability of raw materials
 and power, transport facilities are some of the significant variables that influence inter
firm wage rates.
 Skill: Skilled, semiskilled and unskilled, Occupations requiring greater skill, experience,
and efforts are paid higher, Diff in blue collar and white collar
 Inter industry: Industries with large no of skilled workers pay high. Developing and
expanding capital intensive industries pay higher than other labor intensive industries.
 regional/geographical: most imp factors in determining regional wage diff are capacity
to pay, product market, Abundance of natural resources, diff in labor productivity, diff in
cost of living, rate of capital formation, unionization, urban or rural area, labor supply,
social barriers, family ties etc.
 gender differential: male, female differences

JOB DESIGN AND EVALUATION

Job design follows job analysis i.e. it is the next step after job analysis. It aims at outlining and
organizing tasks, duties and responsibilities into a single unit of work for the achievement of
certain objectives. It also outlines the methods and relationships that are essential for the success
of a certain job. In simpler terms it refers to the what, how much, how many and the order of the
tasks for a job/s.
Job design essentially involves integrating job responsibilities or content and certain
qualifications that are required to perform the same. It outlines the job responsibilities very
clearly and also helps in attracting the right candidates to the right job. Further it also makes the
job look interesting and specialized.
The whole process of job design is aimed to address various problems within the organizational
setup, those that pertain to ones description of a job and the associated relationships. More
specifically the following areas are fine tuned:
 Checking the work overload.
 Checking upon the work under load.
 Ensuring tasks are not repetitive in nature.
 Ensuring that employees don not remain isolated.
 Defining working hours clearly.
 Defining the work processes clearly.
The above mentioned are factors that if not taken care of result into building stress within the
employees.
Benefits of Job Design
The following are the benefits of a good job design:
1. Employee Input: A good job design enables a good job feedback. Employees have the
option to vary tasks as per their personal and social needs, habits and circumstances in the
workplace.
2. Employee Training: Training is an integral part of job design. Contrary to the philosophy
of “leave them alone’ job design lays due emphasis on training people so that are well
aware of what their job demands and how it is to be done.
3. Work / Rest Schedules: Job design offers good work and rest schedule by clearly defining
the number of hours an individual has to spend in his/her job.
4. Adjustments: A good job designs allows for adjustments for physically demanding jobs
by minimizing the energy spent doing the job and by aligning the manpower
requirements for the same.
Job design is a continuous and ever evolving process that is aimed at helping employees make
adjustments with the changes in the workplace. The end goal is reducing dissatisfaction,
enhancing motivation and employee engagement at the workplace.

JOB EVALUATION
Concept of job evaluation:
In simple words, job evaluation is the rating of jobs in an organization. This is the process
of establishing the value or worth of jobs in a job hierarchy. It attempts to compare the relative
intrinsic value or worth of jobs within an organization. Thus, job evaluation is a comparative
process.
The objectives of job evaluation, to put in a more orderly manner are to:
1. Provide a standard procedure for determining the relative worth of each job in a plant.
2. Determine equitable wage differentials between different jobs in the organisation.
3. Eliminate wage inequalities.
4. Ensure that like wages are paid to all qualified employees for like work.
5. Form a basis for fixing incentives and different bonus plans.
6. Serve as a useful reference for setting individual grievances regarding wage rates.
7. Provide information for work organization, employees’ selection, placement, training and
numerous other similar problems.
8. Provide a benchmark for making career planning for the employees in the organization.

Procedure of job evaluation:

Though the common objective of job evaluation is to establish the relative worth of jobs in a job
hierarchy, there is no common procedure of job evaluation followed by all organizations. As
such, the procedure of job evaluation varies from organization to organization. For example, a
job e valuation procedure may consist of the eight stages as delineated in Figure 14.1.
1. Preliminary Stage: This is the stage setting for job evaluation programme. In this stage, the
required information’s obtained about present arrangements, decisions are made on the need for
a new programme or revision of an existing one and a clear cut choice is made of the type of
programme is to be used by the organization.

2. Planning Stage: In this stage, the evaluation programme is drawn up and the job holders to be
affected are informed. Due arrangements are made for setting up joint working parties and the
sample of jobs to be evaluated is selected.
3. Analysis Stage: This is the stage when required information about the sample of jobs is
collected. This information serves as a basis for the internal and external evaluation of jobs.
4. Internal Evaluation Stage: Next to analysis stage is internal evaluation stage. In the internal
evaluation stage, the sample of bench-mark jobs are ranked by means of the chosen evaluation
scheme as drawn up at the planning stage. Jobs are then graded on the basis of data pending the
collection of market rate data. Relative worth of jobs is ascertained by comparing grades
between the jobs.
5. External Evaluation Stage: In this stage, information is collected on market rates at that time.
6. Design Stage: Having ascertained grades for jobs, salary structure is designed in this stage.
7. Grading Stage: This is the stage in which different jobs are slotted into the salary structure as
designed in the preceding stage 6.
8. Developing and Maintaining Stage: This is the final stage in a job evaluation programme. In
this stage, procedures for maintaining the salary structure are developed with a view to
accommodate inflationary pressures in the salary levels, grading new jobs into the structure and
regarding the existing jobs in the light of changes in their responsibilities and market rates.

INCENTIVE PAYMENT SYSTEMS

INCENTIVE PAYMENT
Purpose
To improve company performance by motivating those in management roles to increase
focus and effort on overall company goals and objectives.

Process
 Conduct a review of the company’s vision, goals and incentive plan history.
 Confirm overall company objectives.
 For each manager, assess which objectives they can realistically contribute to and how,
within the context of their day to day responsibilities.
 Set individual objectives and the corresponding incentive.
 Consolidate objectives and determine the impact on the overall company objectives.
 Once approved, establish a quarterly review process that will track progress, remove
potential roadblocks, and address any new factors that could impact the attainment of
objectives.
 Assist in the completion of the year end reports, distribution of the incentive, and post
review of the program.

Objectives for Incentives

 Increasing Productivity: The more work employees accomplish, the more revenue a
company is likely to make, which leads to higher profits. Many incentives that businesses
 offer to workers revolve around increasing productivity. For instance, companies often
offer commissions to salespeople, which means the sales staff receives pay based on a
certain percentage of the sales they make.
 Improving Safety: In businesses that hire physical laborers, such as manufacturers and
building contractors, worker safety is an important issue. When workers are hurt on the
job it can cost employers a lot of money, both in terms of workers' compensation and lost
productivity. Employers can offer special incentives to workers who promote safety, such
as giving out extra compensation or prizes if workers avoid injuries on the job.
 Increasing Morale: Another possible goal of incentives is to improve employee morale.
The pay and other benefits workers receive for doing a job can determine how happy they
are with their jobs. For instance, if a salaried worker puts in hundreds of extra hours of
work in a year, a bonus is a way to make him feel like his extra effort was worthwhile.
Workers who feel rewarded for their efforts are likely to be happier and more loyal to
their employers.
 Customer Incentive Programs: Businesses can also offer incentive programs to
consumers as a way to retain customers, increase sales and ultimately increase profit.
Examples of common types of customer incentive programs include membership
programs that grant customers reduced prices or access to special deals, and points
programs in which customers earn points for purchases that they can redeem for cash,
prizes or discounts.

Principles of incentive system:

a. Simple and easy to understand.
b. Union management agreement.
c. Time standard must be fixed.
d. Reward must be proportional to the effort.
e. Complaints and grievances must be properly attended to.
f. The plans should not change frequently and must be tried out continuously for some length of
time.
g. Equity and fairness.
h. Workers must be made to understand the plan.
i. Method study must precede time standard.
j. There must be a min guaranteed payment.

WELFARE MANAGEMENT
Meaning:
Employee welfare implies the setting up to minimum desirable standards and the provisions of
facilities like health, food, clothing, housing, medical assistance, education, insurance, job
security, recreation, etc. such facilities enable the worker and his family to lead a good work life,
family life & social life. Employee welfare measures are an effort towards revolving the
industrial worker of his worries and making them happy.
Definitions:
The labour Investigation Committee preferred to include under ‘Labour Welfare’:
“Anything done for the intellectual, physical, moral and economic betterment of the workers,
employers, by government or by other agencies over and about what is laid down by law or what
is normally expected of the contractual benefits for which workers may have bargained.”
According to the committee and labour welfare services should be
“Such services, facilities, and amenities as adequate canteen, rest and recreation facilities,
sanitary and medical facilities, arrangements for travel to and from place of work, and for the
accommodation of workers employ data distance from they homes; and such other services,
amities and facilities, including social security measures, as contribute to the conditions under
which workers are employed
Objectives Of Employee Welfare:
 To avoid the frustration of workers and thereby increase their overall efficiency and
productivity.
 To improve the health and working environment of the individual
 To release the employees from personal and family worries
 To provide better amenities to the workers and thereby afford him a wider concept of life
 To increase the standard of living
 To reduce absenteeism and labor turnover in organization
Basic Features Of Employee Welfare:
On the basis of the various definitions, the basic charters tics of labour welfare work may be
noted thus:
It is the work, which is usually undertaken with in the premises or in the vicinity of the
undertakings for the benefits employees and the members of their families.
The work generally includes those items of welfare which are over and above what is
provided by statutory provisions are required by the custom of the industry or the
employees expect as a results of a contract of services from the employers.
The purpose of providing welfare amenities is to bring about the development of the
whole personality of the worker-his social, psychological, economic, moral, and cultural
 and intellectual development to make him a good worker, a good citizen and a good
member of the family.
These facilities may be provided voluntarily by progressive and enlightened
entrepreneurs at their own accord out of their realization of social responsibility towards
labour statutory provisions may compel them to make these facilities available: or these
may be under taken by the government or trade unions, if they have the necessary funds
for the purpose.
Labour welfare is a very broad term, covering social securities and such other activities
as medical aid, crèches, canteens, recreations, housing, adult education, arrangements for
the transports of labour to and from the work place.

STATUTORY AND NON-STATUTORY WELFARE MEASURES

Organizations provide welfare facilities to their employees to keep their motivation levels high.
The employee welfare schemes can be classified into two categories viz. statutory and non-
statutory welfare schemes. The statutory schemes are those schemes that are compulsory to
provide by an organization as compliance to the laws governing employee health and safety.
These include provisions provided in industrial acts like Factories Act 1948, Dock Workers Act
(safety, health and welfare) 1986, Mines Act 1962. The non statutory schemes differ from
organization to organization and from industry to industry.

The statutory welfare schemes include the following provisions:

1. Drinking Water: At all the working places safe hygienic drinking water should be
provided.
2. Facilities for sitting: In every organization, especially factories, suitable seating
arrangements are to be provided.
3. First aid appliances: First aid appliances are to be provided and should be readily
assessable so that in case of any minor accident initial medication can be provided to the
needed employee.
4. Latrines and Urinals: A sufficient number of latrines and urinals are to be provided in
the office and factory premises and are also to be maintained in a neat and clean
condition.
5. Canteen facilities: Cafeteria or canteens are to be provided by the employer so as to
provide hygienic and nutritious food to the employees.
 6. Spittoons: In every work place, such as ware houses, store places, in the dock area and
office premises spittoons are to be provided in convenient places and same are to be
maintained in a hygienic condition.
7. Lighting:
Proper and sufficient lights are to be provided for employees so that they can work safely
during the night shifts.
8. Washing places: Adequate washing places such as bathrooms, wash basins with tap and
tap on the stand pipe are provided in the port area in the vicinity of the work places.
9. Changing rooms: Adequate changing rooms are to be provided for workers to change
their cloth in the factory area and office premises. Adequate lockers are also provided to
the workers to keep their clothes and belongings.
10. Rest rooms: Adequate numbers of restrooms are provided to the workers with provisions
of water supply, wash basins, toilets, bathrooms, etc.

Non statutory schemes

Many non statutory welfare schemes may include the following schemes:
1. Personal Health Care (Regular medical check-ups): Some of the companies provide
the facility for extensive health check-up
2. Flexi-time: The main objective of the flextime policy is to provide opportunity to
employees to work with flexible working schedules. Flexible work schedules are initiated
by employees and approved by management to meet business commitments while
supporting employee personal life needs
3. Employee Assistance Programs: Various assistant programs are arranged like external
counseling service so that employees or members of their immediate family can get
counseling on various matters.
4. Harassment Policy: To protect an employee from harassments of any kind, guidelines
are provided for proper action and also for protecting the aggrieved employee.
5. Maternity & Adoption Leave – Employees can avail maternity or adoption leaves.
Paternity leave policies have also been introduced by various companies.
6. Medi-claim Insurance Scheme: This insurance scheme provides adequate insurance
coverage of employees for expenses related to hospitalization due to illness, disease or
injury or pregnancy.
7. Employee Referral Scheme: In several companies employee referral scheme is
implemented to encourage employees to refer friends and relatives for employment in the
organization.
 INCENTIVE MECHANISMS
"Incentive mechanism" is that the main incentive systems use a variety of incentive
means and make them standardization and relatively fixed, and at the same time interact with the
incentive object in structure style, and the relationship and the evolution in the organization
system. Incentive mechanism is the connection means change the lofty ideals into concrete
reality including the spirit, salary incentive.

The Role and Importance of Incentive Mechanism

The incentive mechanism is formed, it will be intrinsic role in the organizational system
itself, so that the organization functions in a certain state, and further affect the survival and
development of organizations. Incentive mechanism of organization have two properties,
namely, encourage and attenuated, that is to say, incentive mechanism has contributed to the role
and attenuated effects on tissue. One of the facilitation of incentive mechanism is a set of
incentive mechanism for employees in accordance with the organization's desired behavior have
repeatedly strengthened, the increasing role of, such incentives under, organization development,
growing.

We call such incentives is a good incentive mechanism. Managers should be able to

identify the real needs of the employees, and will meet the staff needed measures with
organizational goals to achieve an effective combination. Due to the incentive factors existed in
the incentive mechanism, organizational desired behavior of employees did not show it.
Although the incentive mechanism of the original intention of the designers hopes that the
incentive mechanism can effectively mobilize the enthusiasm of the staff, to achieve
organizational goals. However, whether the incentive mechanism is not perfect, and the incentive
mechanism is not feasible, will work enthusiasm on the part of employees restrained and
weakened, this is the weak interaction of the incentive mechanism.

The role of attenuated incentives, the motivating factors which must be eradicated,
replaced by an effective motivator. Incentive mechanism in the organization is obviously, it not
only can fully mobilize the enthusiasm and creativity of employees, improve the organizational
performance, but also conducive to the creation of a tissue culture, the formation of the whole
enterprise respect knowledge, respect talent atmosphere and efforts to forge ahead, the
atmosphere. Just imagine, if the work of the staff motivation has been very good incentive, the
level of work it is possible to play to the highest. Conversely, if the employee is not due to the
lack of motivation, enthusiasm and he would not have to work hard, will "one day at a time",
muddle along, but have, not only can’t play a normal level of business, but also become the
tissue in the unstable factor, disturb the normal order of organization, influence others work
performance