WAGES AND SALARY ADMINISTRATION

Wage may be defined as payment fo use of labor. According to Benham” Wages means the amount
paid to the laborer for his services to the employer.
Although the term wages is often used to include salaries, some experts differentiate between the
two. The word’ wage’ means compensation paid on an hourly basis and salaries is used to mean
compensation of executives, supervisors, sales men and other employees paid on a basis other than
an hourly rate.

NATURE AND PURPOSE

The basic purpose of wage and salary administration is to establish and maintain an equitable wage
and salary structure. The wage and salary administration is concerned with financial aspects of
needs, motivation and rewards. Managers, therefore , analyse and interpret the needs of their
employees so that rewards can be decided to satisfy those needs. The reward may be money or
promotion , recognition, acceptance etc

OBJECTIVES
A sound wage and salary administration tries to achieve these objectives
FOR EMPLOYEES
1. employees are paid according to requirements of the job.ie highly skilled jobs are paid
more compensation than low skilled jobs. This eliminates inequalities.
2. the chances of favouritism (while fixing wage rates) are greatly eliminated
3. job sequences and lines of promotion are established wherever applicable.
4. employees morale and motivation are increased because a wage program can be explained
and is base on facts.

TO EMPLOYERS
1. They can systematically plan and control labour costs
2. in dealing with trade union, they can explain the basis of their wage program because it is
based upon a systematic analysis of job and wage facts
3. a wage and salary administration reduces the likelihood of friction and grievances on job
inequalities.
4. it enhances an employee’s morale and motivation because adequate and fairly administered
wages are basic to his wants and needs.
5. it attracts qualified employees by ensuring adequate payment for all the jobs.
according to Beach, wage and salary administration have four major purposes
1. to recruit persons for a firm
2. to control payroll costs
3. to satisfy people, to reduce the incidence of quitting grievances, and fractions over pay
4. to motivate people to perform better

TYPES OF WAGES
1. NOMINAL WAGES
It is the amount paid to the worker in cash for the efforts of the worker towards production and no
other benefits are given to the worker. This is called money wage.
2. REAL WAGES
It represents the amount of necessaries, comforts, luxuries and cash payment a worker gets in
return for his efforts. Some organizations provide their employers certain essential commodities,
housing with free electric and water charges, uniforms and other such facilities in addition to the
money in cash. If these amounts are considered for wages, it becomes the real wage
 3. LIVING WAGE
When the wage rates are such that they are going to fullfil some of the requirements of a family
like food, cloths, education and insurance against misfortune along with other basic necessities,
they are referred to as living wage
4. FAIR WAGE
It is a wage which is to be considered as a fair amount of return for the efforts of the employees
and should be able to cover the other necessities of food, cloths and shelter for his family. The rate
for the fair wage lies between real wage and minimum wage,
5. MINIMUM WAGE
Minimum wage may be defined as the wage, which not only provides for basic subsistence but
something more than this. It should be able to keep the employees motivated and it should provide
for some measure of education, medical facilities and other essential requirements. It should also
consider the cost of living.
Main objectives of minimum wages are
• To protect the sections of working population whose wages are very low
• To prevent exploitation of the workers
• To improve the general standard of life
• Satisfactory compensation towards efforts expended by the worker

FACTORS INFLUENCING WAGE SYSTEM

The various factors that determine the wage and salary administration are
1 the organization’s ability to pay
2 supply and demand of labor
3 the prevailing market rate
4 living wage
5 productivity
6 trade union’s bargaining power
7 job requirement
8 managerial attitude
9 psychological and social factors(psychologically, persons perceive the level of wages as a
measure of success in life, people may feel secure. Sociologically and ethically workers
should feel that they are not exploited and that no distinction is made on the basis of caste,
color, sex or religion)
10 skill level available in the market

TYPE OF WAGES
Time rate and Piece rate
Time rate – under this system workers are paid according to work done during a certain period of
time without considering the production in fixing wage. The worker is paid at the settled rate as
soon as the time contracted is spent.
Advantages
• the workman is not in a hurry and that they will pay attention to the quality of work.
• As all workmen employed for doing a particular kind work receive the same wages, ill-will
and jealousy among them are avoided.
• Due to slow and steady pace of the worker, there is no rough handling of machinery
• The worker gets steady wages so that he can plan the budget.

Demerits
• It does not take into account the fact that men are of different abilities and that if al persons
are paid the same wages, better
• Workmen will have no incentive to work harder and better. They will therefore be drawn
down to the level of the least efficient workmen.
Piece Rate- under the system, workers are paid according to the amount of work done or the
number of units completed the rate of each unit being settled in advance, irrespective of the time to
complete a job.
Advantages
• The worker gets a direct stimulus to increase his production
• Supervision is not heavy since the workers do not waste time as they know that their wages
are dependent upon the amount of work.
• The workman will concentrate to avoid breakdown of machinery to get more production
and this will reduce plant maintenance carges.
• The total unit cost of production comes down with larger output .

Disadvantages
• As the workers wish to perform their work at high speed, they generally consume more
power, over work the machine, and do not try to avoid wastage of materials. This results in
high cost of production and lower profit.
• There is greater chance of deterioration in the quality of work due special drive to increase
the production