Wage and Salary Administration

Transcription

1 CHAPTER - 5 Wage and Salary Administration Wage and Salary Fixation. Constitutional Perspective and norms for wage and salary determination. Law relating to payment of wages, salary and bonus. Regulation of minimum wages and equal remuneration. { 132 }

2 Wage and Salary Administration Wage & Salary Administration: Wage & salary administration is essentially the application of a systematic approach to the problem of ensuring that employees are paid in a logical, equitable and fair manner 1. In soundness of compensation management depends upon the amount of wage and salary paid to an employee for a fair days work. Wage and salary is significant to most of the employees as it constitutes a major share of their income "Pay" in one form or another is certainly one of the main springs of motivations in our society 'Salary provides more than a means of satisfying the physical need it provides recognition, a small of accomplishment. The term "wage" may be defined as the remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly employees. 2 'Salary is defined as the remuneration paid to the clerical and managerial personnel employed on monthly or annual basis'. This distinction between wage and salary does not seem to be valid in these days of human resources approach where all employees are treated as human resources and are viewed at par. Hence these two terms are used interchangeably. As such the term wage or salary can be defined as the 1. G. McBeath and D.N. Rands, "Salary Administration", Business London, Publications, 2 nd Edition, 1970, Pg Wage (a) General Report (Report VI A), International Labour Conference 31 Session, { 133 }

3 direct remuneration paid to an employee compensating in services to an organisation. Salary is also known as basic pay. Significance of wage & salary administration: Wage & salaries have two different purposes from point of employers & employees. (i) Employers perceive as a cost of business effort and attempt to reduce it. But they also realise that it is not possible because of these reasons: (a) Wage & salary are essential to attract and retain an effective work force. (b) Wage and salary are required to motivate, employees for positive attitudes and better performance. (c) Employees have to be provided compensation for service rendered by them to the organisation. (ii) Employees consider wage as a means for satisfying their need to maintain their standard. They also want it equitable with similar skills for doing similar work. { 134 }

4 Principles of Wage & Salary administration: 1. Wage & salary plans and policies should be sufficiently flexible. 2. Job evaluation must be done scientifically. 3. Wage & salary administration plans. Must always be consistent with overall organisation plans & programmes. 4. Wage & salary administration plans and programmes should be in conformity with the social & economic objectives of the country like attainment of equality of income distribution and controlling inflationary trends. Wages & salary administration plans and programmes should be responsive to the changing local and national conditions. The plans should simply & expedite other administration processes 3. Objectives of wage & salary administration: 1. To acquire qualified and competent personnel: Candidates decide upon their career in a particular organisation mostly on the basis of the amount of remuneration the organisation offers. Qualified and competent people join the best-paid 3. Abrar, Ul, Mustafa, (2013), "Wage and salary administration : Objectives, Principles. { 135 }

5 organisation. As such, the organisation should aim at payment of salaries at that level, where they can attract competent and qualified people. 2. To retain the present employees: If the salary level does not compare favourable with that of other similar organisation, employees quit the present one and join other organisation. The organisation must keep the wage & salary structure at the competitive level, with those of similar organisation To secure internal and external equity: Internal equity does mean payment of similar wages for similar jobs within the organisation. External equity implies that payment of similar wages to similar jobs in comparable organisations. 4. To ensure desired behaviour: Good rewards reinforce desired behaviour like performance, loyalty, accepting new responsibilities and changes etc. 5. To keep labour and administrative costs in line with the ability of the organisation to pay. 6. To project in public as progressive employers and to comply with the wage legislations. 4. Chandra. Bose, (2012) "Principles of Management and Administration, 2 nd Edition, PH-1, Learning Private Ltd., 2012, Pg { 136 }

6 7. To pay according to the content and difficulty of the job and in tune with the effort and merit of the employee. 8. To facilitate pay roll administration of budgeting and wage and salary control. 9. To simplify collective bargaining procedures and negotiations. 10. To promote organisation feasibility. Systems to Achieve the Objectives: The above mentioned objectives are achieved by the use of the following systems: 1. Job evaluation: All jobs will be analysed and graded to establish the pattern of internal relationships. It is the process of determining relative worth of jobs, It includes selecting suitable job evaluation techniques, classifying jobs into various categories and determining relative value of jobs in various categories. 2. Wage and salary ranges: Overall salary range for all the jobs in an organisation is arranged. Each job grade will be assigned a salary range. These individual salary ranges will be fitted into an overall range. { 137 }

7 3. Wage and salary adjustments: Overall salary grades of the organisation may be adjusted based on the data and information collected 'about the salary levels of similar organisations. Individual salary Ievel may also be adjusted based on the performance of the individual employees. The Elements of Wage and Salary System: Wage and.salary system should have relationship with the performance, satisfaction and attainment of goals of an individual. Following are the elements of wage and salary system. 1. Identifying the available salary opportunities, their costs, estimating the worth of its members of these salary opportunities and communicating them to employees. 2. Relating salary to needs and goals. 3. Developing quality quantity and time standards relating to work and goals. 4. Determining the effort necessary to achieve standards. 5. Measuring the actual performance. 6. Comparing the performance with the salary received. { 138 }

8 7. Measuring the job satisfaction gained by the employees. 8. Evaluating the unsatisfied wants and unreached goals of the employees. 9. Finding out the dissatisfaction arising from unfulfilled needs and unattained goals. 10. Adjusting the salary levels accordingly with a view to enable the employees to reach unreached goals and fulfil the unfulfilled needs 5. Process of Determinations of wages: Determination of equitable wage and salary structure in one of the most important phase of employer-employee relations. The primary objective of wage and salary administration programme is that each employee should be equitably compensated for the service rendered on the basis of: (i) The nature of job. (ii) The present worth of that type of job in other organisation, and (iii) The effectiveness with which the individual performs the job. 5. Merrill R. Lott, "Wage Scales and Job Evaluation", The Ronald Press Co., 1926, P. 20 : Quoted in Richard I. Hernderson, Op. Cit., P { 139 }

9 The first two factors are related to job evaluation and wage survey, while the third to performance appraisal. Comparison of a job to other job in the organisation is done through job evaluation. Comparison of similar job in other organisations is done through wage surveys to determine the going wage for the given job. Chart 5.1 Steps Involved in Determination of Wage Rate Wage Survey: After the relative worth of jobs in the organisation has been determined by job evaluation, the actual wages to be paid to employees { 140 }

10 must be determined taking into consideration wages of similar job in other organisations. A major factor in taking such decisions is the survey of wages of similar jobs in other enterprises in the same region and in the same industry. The purpose of wage survey in to determine the extent to which the organisation's pay scale are like those of other enterprises in the region. So they must be taken into consideration while fixing the wages for different jobs in an organisation. The wages and salary practices of other organisation have an important impact on the employment, retention and morale of the personnel. If external alignment is lacking, the organisation will not be able to retain or attract capable employees from outside. Normally employer's choose the average wage level so that employees do not leave, even it must be above the average level. Method of wage fixation: In India, several methods of wage fixation are used. These methods include wage boards, job evaluation, collective bargaining and legislation. { 141 }

11 1. Wage boards: The government of India, acting upon the recommendations of the First Five-Year Plan, appointed wage boards for fixing wages. The first wage board was set up in 1957 for the cotton textile industry. The wage board are tripartite in nature, with independent members and a chairman. It was actually the Committee on Fair Wages that recommended the setting up of wage boards for fixing wages. Wage board were set up because workers were not satisfied with the method of compulsory adjudication for wage determination not only because it was a lengthy procedure but also because they had no role to play in determining wages. 2. Job evaluation: Job evaluation is another method of wage fixation. Job analysis explains the duties of a job, authority relationships, skills, required, conditions of work, and additional relevant information. Job evaluation, on the other hand, uses the information in job analysis to evaluate each job-valuing its components and ascertaining relative job worth. It involves a format and systematic comparison of jobs in order to determine the worth of one job relative to another, so that a wage or salary hierarchy results. So this process evaluate the jobs in an organization. { 142 }

12 Job evaluation aims to assess the relative worth of a given collection of duties and responsibilities to the organization. It helps the management to maintain high levels of employee productivity and employee satisfaction. In the absence of proper job evaluation, it is very likely that jobs would not be properly priced. Consequently, high valued jobs may receive less pay than low-valued jobs. The employees realizing this may be come dissatisfied, leave the organization, reduce their efforts or may adopt other modes of behaviour detrimental to the organization. Therefore, organizations pay a great deal of attention to the relative worth of jobs so that they are able to determine what a particular job should be paid. A person is paid for what he brings to a job- his education, training and experience. 3. Collective bargaining: Bi-partite union management negotiations determine the wages. It is common in private and public sector enterprises. 4. Wage legislation: In India workers have always needed state protection against exploitation. As such, the state has enacted a number of legislations to ensure regular, expeditious, equitable and minimum payment of wages and bonus tow workers. There are four main acts that comprise the legal framework relating to wage legislation. { 143 }

13 (a) The Payment of Wages Act, (b) The Minimum Wages Act, (d) The Equal Remuneration Act, (c) The Payment of Bonus Act, (a) The payment of Wages Act, The payment of wages act, 1936 regulates the payment of wages to certain classes of persons employed in the industry. It also stipulated the payment for working overtime and deduction of wages. Section 312 of the Act 6 makes it obligatory for the employers to make payment of wages, fix the wage period and time of payment. The Act authorizes the employers to make deductions of fines, for absence from duty, damage or loss of goods, money, house accommodation provided by the employer, deductions for such benefits/amenities and services supplied by the employer, for recovery of advances or for adjustment of over payment of wages, income tax at source, subscription to and for repayment of advances from PF, payment to a co-operative society and deduction for written authorization of the employee. (b) The Minimum Wages Act, The Minimum Wages Act aims to: Provide minimum (statutory) wages for scheduled employments. 6. K.N. Subramaniam, "Wages in India", Mc, Graw Hill Publication, 1995, Pg { 144 }

14 Eliminate chances of exploitation of labour through payment of very low and sweating wages. Provide for maximum daily working hours, weekly rest and overtime. The rates fixed under the Act prevail up on the rates fixed under the award or agreement 7. The Act, defines wage as all remuneration which are capable of being expressed in terms of money and, which would, if the terms of the contract of employment, expressed or implied, are fulfilled, be payable to a person employed in respect of his employment or of work-done in such employment. But it does not include value of accommodation, supply of light, water medical attendance, any other amenity or any service, excluded by general or special order of the government, any contribution by employer towards provident fund or pension fund or under any scheme of social justice, any travel allowance or value of travel concession, any sum to meet special expenses entailed on him by the nature of the employment or, any gratuity payable on discharge from service. 7. S.K. Bhatia, (2009), New Compensation Management in Changing Environment", Deep and Deep Pub. Pvt. Ltd., P { 145 }

15 (c) The Equal Remuneration Act, This-act emphasizes on equal payment of wage to men, women wage earners who are engaged in identical employment. The act attracts punishment to employers for violation of the provisions of the Act. It for prevention of discrimination, on grounds of sex against women in matter of employment 8. (d) The Payment of Bonus Act, The Payment of Bonus Act, 1965 provides for payment of bonus to workers in all establishments/factories in which 20 or more persons are employed on any day, covered in the related accounting year. The Act lays down a minimum eight and one-third percent and a maximum of twenty per cent of pay. The minimum bonus is payable, even though accompany has not made profits during the related accounting year. Although, the act aims to ensure payment of bonus every year to a factory worker, it became a constraint for many good employers like Tata's, who earlier paid much more than the prescribed limit. In reality many of the then British firms operating in West Bengal paid some kind of bonus in the form of Puja that was more than the provisions under the act. 8. David W, Belcher, "Omnibus trends in wage and salary administration", Personnel, { 146 }