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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.

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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 manner1.

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,


2nd Edition, 1970, Pg. 3.
2. Wage (a) General Report (Report VI A), International Labour Conference 31 Session,
1948.
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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.

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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 processes3.

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.
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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 organisation4.

3. 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, 2nd Edition, PH-1,
Learning Private Ltd., 2012, Pg. 265.
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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.

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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.


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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. 151.
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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

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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.

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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.

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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.


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(a) The Payment of Wages Act, 1936.

(b) The Minimum Wages Act, 1948.

(d) The Equal Remuneration Act, 1976.

(c) The Payment of Bonus Act, 1965.

(a) The payment of Wages Act, 1936. 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 Act6 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, 1948. 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. 174.
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• 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 agreement7.

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. 194.
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(c) The Equal Remuneration Act, 1976. 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 employment8.

(d) The Payment of Bonus Act, 1965. 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, 1964.
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