DU SOL B.Com 3rd Year Human Resource Management Notes Chapter 14 Wages and Salary Administration
Explain the need of proper system of compensation in an
Need Of Proper System Of Compensation:
Broadly speaking compensation refers to a wide range of financial and non-financial rewards or payments. Thus wages, salaries and many other benefits and services (such as paid vacations, sick leave, medical insurance, maternity leave, recruitment pay) are forms of compensation. However, in a specific sense compensation refers to the monetary reward paid by an organisation to an emloyee for work performed. Monetary payments may be regarded as direct compensation and employee benefits as indirect compensation.
Performance appraisal is the most important basis for determining the level of compensation of individual employees.
In an organisation compensation payable to employees should be equitable. A proper system of compensation helps to achieve the following
(a) To attract capable employees,
(b) To motivate them toward superior performance,
(c) To retain their services over an extended period of time.
What do you mean by wages ? Explain living wages, minimum wages and fair wages.
Meaning And Classification Of Wages:
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.
Terms ‘wages’ and ‘salary’ an taken at part because both are compensation to employees for their services rendered to the organisation. However, the two are used differently.
The term ‘wages’ is used to the remuneration paid to the workers for their services doing manual or physical work. Thus wages are paid to unskilled workers. They are based on hourly, daily, weekly or even monthly basis.
The term ‘salary’ is usually defined to mean compensation paid to of-fice employees, foremen, supervisors, managers, professional and technical staff. It is generally paid on monthly or in some cases on yearly basis. Thus, the time period of salary is generally higher than that of the wages.
Wages may be based on member of units produced (piece rate wages) the time spent on the job. But salary is always based on time spent on the job. Where it is difficult to measure the output of the employee, the compensation is paid in the form of salary.
Different Types Of Wages:
Wages have been classified into three categories:
- Living wages;
- Minimum wages;
- Fair wages.
1. Living Wages – 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”.
According to Fair Wages Committee Report: “The living wage should enable the male earner to provide himself and his family not merely the basic essentials of food, clothing and shelter but a measure of frugal comfort including education for the children, protection against ill-health, requirement of essential social needs and measures of insurance against old age.” Thus living wage means the provision for the bare necessities plus certain amenities considered necessary for the well being of the workers in terms of his social status.
Article 43 of the Constitution of India states that the state shall endeavour to secure by suitable legislation or economic organisation or in any other way to all workers a living wage, conditions of work ensuring a decent standard of life and frill enjoyment of pleasure and social and cultural opportunities. Thus, Government of India has adopted as one of the directives of the principle of state policy to ensure living wages.
2. Minimum Wages – 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. When the government fixes minimum wage in a particular trade, the main objective is not to control or determine wages in general but to prevent the employment of workers at a wage below an amount necessary to maintain the worker at the minimum level subsistence.
Minimum wage in a country is fixed by the government in consultation with business organisations and trade unions. The law relating to the minimum wage either states definitely the wage considered to the minimum or the determination of the wage left to an administrative commission which from time to time determines the minimum wage according to the varying economic conditions e.g. variation in the price level should be compensated with the variation in the wage rates because the prime aim of the minimum wage is just to over “minimum living cost”.
The authority entrusted with the task of fixing of minimum wage should consider such factors as local economic conditions, transportation cost and the size of the units in the industry in fixing minimum wages.
The Government of India passed a Minimum Wage Act in 1948 under which farm labourers were to be paid a minimum wage between 66 paise and Rs. 1.50 per day, keeping in view local costs and standards of Hying. Since conditions in various parts of the country were different, the law allowed different rates of wages to be fixed in a poor country such as India. In practice, it was very difficult to enforce minimum wages effectively. Fortunately, the , recent inflationary situation had pushed up the rural wages much above the minimum wage fixed by law.
Minimum wages legislation is supposed to have the following benefits:
- These laws prevent unscrupulous employers from exploiting ignorant persons who possess very little bargaining power.
- These abolish the competition of the lower strata of workers with the upper grades and tend to prevent depressing of wages.
- The productivity of industry is .increased by foreign employers to use the most efficient production methods and the most modern equipment, in order to enable employees to earn the living wage. But at the same time, the workers is stimulated to increase his efficiency in order to hold his job.
- Employers with high standards are protected against underselling by competitors with low Standards.
But some critics of the minimum wage assert, that it is impossible for a group of men to control the wages of labour by law because wages depend upon the supply land demand of labour. Minimum wages are a heavy burden to the society because persons unable to earn a living wage, will be unemployed whereas earning of small wage is preferred to idleness or living on charity. However, basically, minimum wage laws are not wrong if they are wisely framed and applied.
It is perfectly feasible to fix a minimum wage and forbid employment below that figure. Sum industries that cannot profitably pay the wages fixed may be forced to wind up because of the financial burden. But, then, what is the use of an industry if it cannot even pay a living wages to its workers and it is better to dispense with it. Industries that can pay a living wage should, if necessary be forced to do so.
The difficulties to be encountered are rather those of practical operation. The administration of the modem industry is very tedious due to the complexity of the wage system. However, if the wage limit is fixed at the very lowest minimum, the risk is slight.
3. Fair Wages. 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:
- Minimum Wages
- Capacity of the industry to pay
- Prevailing rates of wages in the same or similar occupations in the same or neighbouring localities.
- Productivity of labour.
- Level of national income and its distribution.
- The place of the industry in the economy of the country.
Explain the prinicples of wage and salary administration.
Prinicples Of Wage And Salary Administration
The general objectives of the wage and salary administration are as follows:
(a) Control of costs;
(b) Establishment of fair and equitable remuneration;
(c) Utilisation of wages and salaries as an incentive to greater employee productivity.
(d) Maintenance of a satisfactory public relations image.
To achieve these objectives the responsibility for wage and salary administration usually lies with the top-management. Top-management develops policies and procedures regarding wages. In many organisations, this task is entrusted to wage and salary committee composed of line and staff executives.
Principles of Wage Administration – Following are principles of wage administration i.e. wage administration should be guided by the following basic considerations:
- Wage policies should be carefully developed having in mind the interests of management, the employees, the consumers and the community,
- There should be a definite plan to ensure that differences in pay for jobs are based upon variations in job requirements such as skill, effort, responsibility or job or working conditions, mental and physical requirements etc.
- The general level of wages and salaries should be reasonably in line with that prevailing in the labour market.
- The plan should carefully distinguish between jobs and employees. A job carries a certain wage-rate and a person is assigned to fill it at that rate.
- Wage policies should be clearly expressed in writing to ensure uniformity and stability.
- Wage decisions should be checked against the carefully formulated policies.
- Management should see to it that employees know and understand the wage policies.
- Wage policies should be evaluated from time to time to make certain that they are adequate for current need.
- Departmental performance should be checked periodical against the standards set in advance.
- Job descriptions and performance ratings should be periodically checked to keep them up-to-date.
- Equal pay for equal work should be the criteria for fixing the wages. “
- There should be a fair practice of recognition of individual differences in ability and contribution.
- There should be a clearly established procedure for hearing and adjusting wage complaints.
- The wage and salary structure should be flexible so that changing conditions can be easily met.
- A wage committee should be preferred to individual, whenever the management is to revise the wage-structure.
What are the characteristics of a satisfactory wage policy ?
What internal and external factors management should take into account in formulating its wage policy ?
Discuss the essentials or peculiarities of an ideal wage payment system.
Characteristics Of Satisfactory Wage Policy:
A wage policy should possess certain fundamental characteristics to serve the long term interests of all concerned – workers, management and consumers. These characteristics are as follows:
1. Linked with Productivity – A wage policy must be linked with the productivity of the workers. If a wage policy is not related to productivity, it will not be fair either to management and consumers or to workers.
2. Linked with Job-requirements – Wages should be linked with the job requirements and skill. Due consideration should be given to such factors as skill, length of time required in learning, versatality required.
3. Lower Cost Production – The wage policy should result in a reduction of unit cost of manufacture, lowered prices and higher profits. All the three parties – workers, management and consumers – should participate and share the gains of higher productivity :
(a) workers by way of higher wages and incentives;
(b) management by way of lower cost of production and higher profits;
(c) consumers by way of better quality and lower price.
4. Incentive System – The wage policy should include an incentive system for the efficient workers. The system should provide sufficient incentives to workers to work hard and with great care. It should enable an efficient worker to earn more.
5. Proper Wage Differentials – The wage policy should have a proper wage differential based on proper job evaluation so that wages earned by different categories have a proper relation to the content and its worth.
6. Guarantee of Minimum Wage – The wage policy should guarantee minimum wage to protect the interests of workers against conditions beyond their control. The wage policy should take care of minimum wage and the essential needs of the workers.
7. Flexibility – Wage policy should be flexible in order to meet changing conditions. It should be adaptable to necessary changes.
8. Simplicity – The wage system should be simple to understand otherwise the worker will look at it with suspicion. A complete wage system may lead to strikes and agitations and may be a hindrance to a hormonious employer-employee relationship. The wage policy should not have any element of ambiguity.
9 Communication – Wage is the centre of all disputes to maintain good industrial relations. It is necessary that the employees and the union must be adequately informed about the procedures used to establish the wage rates. Every employee should be informed of his position in the wage structure.
10. Similar to other firms – The wage policy should consider the wages being paid in other firms in the same locality and of the same industry. It will reduce the labour turnover.
What do you understand by wage variations ? Explain and describe ” the factors influencing wage rates.
The wage-rates depend on various social, political, ethical, behavioural and economic factors. Hence there are differences in wage rates. The relative difference in wage levels is called wage variations.
There are three types of variations in wage rates.
1. Time Variations – Wage rates differ from time to time according to economic conditions of the country. In slump period, the wage rates are ; lower whereas the inflationary pressures may hike in wage rates.
2. Regional Variations – There are different wage rates in difficult regions for the same work in the same industry. This may be because of several reasons such as economic development of the region, demand and supply of the workers, cost of living index and standard of living etc.
3. Industrial Variations – Wage rates may differ from industry to industry. One industry may pay more its workers in the same region for similar work. Various factors such as demand and supply of skilled labour, nature of work and working conditions in the industry, place of industry in the national economy etc., influence of wage rates.
Factors Affecting Wage Rates:
1. Demand and Supply of Workers – The demand and supply of workers in the labour market affects wage rates. If the labour is in short-: supply, the workers shall be paid well. If the labour is available in plenty, wages rates will be lower.
2. Bargaining Power – Wage rates also depend to a large extent on the relative bargaining power of the trade unions or workers and employers. Where labour unions are strong enough to force the employers, the wages will be determined at a higher level in comparison to other units where unions are weak.
3. Cost of living – Progressive employers do not leave the wages to be determined by the blind forces of demand and supply. They take due notice of the cost of living for the workers at that place and try to fix the wages as to ensure a decent living wage to the workers. Cost of living varies under inflationary and deflationary pressures, where employers do not show enough awareness, labour unions, if strong, come out with a demand of wage adjustment according to the cost of living index number.
4. Condition of product market – The wage levels will be influenced by the degree of competitions prevailing in the market for the product of the industry. If it is a perfect competitive market the wage level ‘may be at par with the value of the net additions made by the workers to the total output.
But in any given industry or occupation, wages may not reach this level if imperfect competition exists in the product market.
5. Comparative wages – Wages paid by other firms in the same market for similar work also influence the wage levels. Wage rates must also be consistent with the wages paid by other firms in the same industry. The comparative wages will increase the job satisfaction among the workers.
6. Ability to pay – Wage rates are influenced by the ability of industry or firm to pay its workers. Those firms which are earning huge profits may naturally afford much better wage rates and more facilities to its workers in comparison to those firms which are earning only marginal profits.
7. Productivity of labour – Productivity is considered to be the main basis of wage-determination. In firms, where productivity of labour is high, higher wages are paid as compared to other jobs which do not require the same degree of skill, responsibility or risk.
8. Job requirements – A worker is compensated according to the job requirements. If a job requires higher skill, greater responsibility and risk, the worker placed on that job will naturally get higher wages in comparison to other jobs which do not require the same degree of skill, responsibility or risk.
9. Government policy – Since the bargaining power of the workers is not enough to ensure fair wages in all industries, the Government has to interfere in regulating wage rates to guarantee minimum wage rates in order to cover the essentials of a decent living..
10. Goodwill of the company – A few employers want to establish themselves as good employer in the society and fix higher wages for their workers. It attracts qualified employees.
Discuss the base methods of payment to wage earners ?
Discuss the merits and limitations of time rate system of wage payment. How does it compare the price-rate
Discuss the term “piece rate” method and differentiate it with time rate method.
Methods Of Wage Payments (BASE WAGES):
The basic forms of wage payments fall into two general classes:
(a) those based on the time worked – time wages;
(b) those based on the quantity produced – piece rates;
(A) Time Wage System
Irrespective of the quantity produced by workers, time is made the basis of payment and even now-a-days it is widely used as method of wage payment. The great mechanisation of industrial operations and the increased strength of labour unions tend to make this form of wage payment more popular today than it was in the first quarter of this century.
According to this system, wages are calculated by the formula=T x R where “T” is the time
spent in the work-place and “R” is the rate of payment per unit of time. The system is an ideal one where quality of goods produced is of paramount importance or where production is made an automatic plants, or where the work done by an employee is difficult to be measured.
Time wage system offers the following advantages:
- Simplicity is the greatest merit of the time wage system. The time, which a man extends on a job, is easy to measure.
- It gives the workers a sense of security which is so important for sustaining their interest in work. It gives the workers a remuneration which is more definite and certain as compared with other forms of payment.
- Where the quality of product is more important than quantity, or the materials worked upon are very costly, time wages prove cheaper than piece rates in their ultimate results.
- Time wages become the only equitable form of wage payment in those cases where labour productivity cannot be measured because of the non-standardised character of production.
- In factories with assembly line, each operation is bound up with other operation and a worker cannot work faster than the group. Accordingly time wages become the usual mode of payments rather than piece rates.
- The workers will avoid over-speeding and consequently damage to equipment if they are paid a fixed time rate independent of production.
- Trade unions accept this form of wage payment quite willingly because it does not create any distinctions in the ranks of workers on account of differences in efficiency.
- The greatest advantages of this form is that it does not provide any incentive to greater effort or hard worker. It makes no difference between an efficient and a lazy worker and both are treated on the same footing.
- The superior workers are repressed under this system because they are paid at par with the inferior workers.
- It leads to a reduced quantum of work unless a strict and close supervision is arranged. This method relies more upon the driving power of the supervisor for the purpose of obtaining a satisfactory output.
- It offers too much security to workers.
- From the employer’s point of view, it create difficulties in the calculation of labour cost and the cost per unit.
- It destroys the morale of workers and efficient workers are either driven out or their efficiency is pulled down to the level of inefficient workers.
Suitability – The system may prove to be ideal in following cases;
- Where supervision is close as in small concerns.
- Where quality is more important than quantity e.g., tool making.
- Where measurement of work is not simple or not possible.
- Where production has to pass through different stages in which case delays and interruptions are inevitable.
- Where specialised skills are required to perform the job.
- Where increase in the volume of production is beyond the capacity and capability of worker.
- Where nature of job changes frequently.
- Where a worker is learning a job.
(B) Piece Rate System:
According to the piece rate system, a worker is paid for the amount of work performed rather than on time basis. The wages payable to a worker under this system is calculated by the formula:
N ‘ R
where N = Number of units produced
R = Wage rate per unit of product
Piece rate wages are applicable to repetitive jobs which can be readily measured, inspected and counted.
- It motivates the hard working labourers to work more and earn more.
- It helps in speediating production.
- In the case of excessive work, the ‘work load’ can be distributed among other workers.
- Less time consumption is felt.
- It requires less supervision because the workers are themselves in hurry to do all.
- employers are protected against lazy and idlers through this system.
- It avoids frequent industrial disputes which otherwise are inevitable.
- Payment under this system is irregular and uncertain for workers’ point of view, and thus creates uncertainty in the life of workers as well as he feels unable to maintain a desirable standard of life because of the uncertainty of the amount of wages.
- During the periods of illness, or disability, the worker is not paid any amount, whereas in fact, during these periods monetary need becomes more pressing.
- The system consumes enough time and space because huge and varying records are to be kept by the employers.
- Too much emphasis on the quantity of production may lower the
quality of products.
- The establishment of peice rates is difficult and often becomes a source of grievances on the part of workers. Without undertaking time and motion study and having past experience, piece rate may be set at so low a level that it exercises a demoralising effect on the workers.
- Differences in earnings cause dissatisfaction and resentment among workers. Trade unions openly opposed to this system of wage remuneration, r as this form of wage payment encourages rivalry between workers and endangers, solidarity of labour unions.
- In their eagerness for increased earnings workers may exert themselves to the point of exhaustion so to undermine their health and efficiency.
Suitability – The system of piece wage rate is suitable in following y cases:
- Where the work is of standardised and repetitive character.
- Where there is an urgent need to increase production.
- Where units of output are measurable.
Comparison between Time Rate System and Piece Rate System:
Time rate system and Piece rate system may be compared in following lines:
- In time wages, time is the basis of payment whereas in piece wage quantity of work is the basis of payment.
- Time rate system does not make a distinction between efficient and inefficient workers whereas piece-rate system gives a premium on efficiency.
- Time rate system provides security of wages to workers while piece rate does not.
- Time rate system may be used where quality is more important than quantity whereas piece rate system is used where quantity is more important than quality.
- Labour unions generally prefer time rate system and oppose piece – rate system.
- Close supervision is required so that employees may not waste their
time in time wage system whereas in piece rate system, close supervision is not required.
- There are high chances of wastage of time in time wage system whereas in piece- rate system, there are high chances of wastage.of raw materials, power, machines and equipment.
What are various components of wage and salary ?
Components Of Compensation:
In industry, workers are compensated in the form of following payments or benefits. .
- Base wage or salary.
- Dearness allowance and other allowances.
- Fringe benefits or perquisites.
1. Base wage/salary. Basic wage or pay provides the foundation of pay packet. It is price for services rendered. It varies according to mental or physical requirements of the job as measured through job evaluation. In India basic wage is influenced by statutory minimum wages and. other factors affecting the fixation of pay.
Such factors are considered by the wage boards, tribunals, wage settlements or pay commissions while recommending the basic wage structure for the workers or employees. According to the Fair wages committee ‘any attempt to evolve principles for governing the fixation of wages must be made against the background of general economic conditions and the level of national income. The committee gave three concepts relating to basic wages –
(a) Minimum wages,
(b) Fair wages and
(c) living wages (The concepts have already been discussed in a previous question)
2. Dearness Allowance (D.A.) and other Allowances. Allowance is a fixed monetary amount paid by the employer for meeting some particular expenses whether personally or for the performance of his duties. They are paid monthly along with salary in cash in addition to salary. Some of the allowances are –
(a) Dearness Allowance (D.A.), This allowance is given to employees
to protect their real wages during inflation. This has become an integral part of salary. D. A. is included for calculating salary for different purposes and for retirement benefits. The following methods are used to calculate dearness allowance –
- Flat rate. Under this method, D.A. is paid at a flat rate to all workers irrespective of their wage levels, status, and changes in the price index.
- Graduated scale. Under this method, D.A. increases with each slab of salary. As a percentage of basic pay, it decreases steadily for each successive slab as shown in the following table –
Graduated scale of D.A.
- Index based D.A. In this method a flat rate of D.A. per point of increase in index is given to all workers’ irrespective of their pay scale. For example, if Rs, 2 are increased for increase of 1 point of index, then Rs. 20 will be increased as D.A. to all workers if consumer price index increases by 10 points.
- D.A. linked to index and pay scale. Under this method, a higher rate of D.A. is paid to lower pay scale and lower rate for higher pay scales. This method was used by the central government for paying D.A. to its staff.
- D. A. at fixed percentages of basic pay. Under this method, D.A. is increased for each worker/employee with the percentage increase in consumer price index over a fixed period. For example, if consumer price index increases by 10% over a period of time, the D.A. shall also be by 10% of basic pay of all employees irrespective of their pay scales.
Other Allowances. In addition to D.A.\several other allowances are paid by the employer. Some of the allowances are given in the following table.
- House Rent Allowance (HRA)
- City Compensatory Allowance (CCA)
- Conveyance Allowance
- Education Allowance
- Medical Allowance.
- Helper Allowance
- Academic Allowance
- Uniform Allowance
3. Bonus. Bonus is an ex-gratia payment to workers. It began to be paid ” to workers of textile mills in Bombay and Ahmedabad after the First World Wr. Some experts are of view that bonus is a deferred wage aimed at bridging the gap between actual wage and need based wage.
Some others argue that bonus is the share of workers in the prosperity of the enterprise. Bonus is also regarded as an incentive to higher productivity. Bonus commission (1961) defines the Bonus as “Sharing by the workers in the prosperity of the concern in which they are employed.
In the case of low paid workers such sharing in the prosperity augments their earnings and helps to bridge the gap between the actual wage and need based wages. ” It has very little incentive effect because it is paid to all workers at the same rate and is not based on individual or group performance.
The payment of Bonus Act provides the payment of Bonus to employee in specific establishments drawing a salary or wages for not more that a specified amount. It is paid to workers who has worked for not less than 30 days in the year.
Every employer is bound to pay a minimum bonus at 8.33 per cent of his salary or Rs. 100 (whichever is higher) and a maximum bonus at 20% of his wages/salary. The employer, such bonus is payable within 8 months from the close of the accounting year. Thus, the Bonus Act imposes a statutory liability of the employer to pay a bonus to eligible workers within the limits specified in the Act.
4. Fringe Benefits or Supplementary Compensation. Fringe benefits or supplementary compensation are paid or provided to workers over and above the base wages with a view to retain the employees in the organisation on a long term basis. They may be paid in cash or in the form of services or facilities. Benefits or facilities provided to executives are known as perquisites (or perks). Examples of such benefits are housing, medical, club, entertainment, social, security, subsidize food etc. (For details see next question).
What do you mean by Fringe benefits ? What type of fringe benefits are often offered to’ industrial employees ?
Fringe Benefits Or Perquisites:
Meaning of Fringe Benefits. Fringe benefits or perquisites cover a number of employee services and facilities provided by the employer to his employees and their family members over and above their base wage. Fringe benefits may be paid in cash or provided in the form of benefits or services.
Generally benefits provided to the executives of the organisation may be known as perquisites (or perks). The examples of fringe benefits include – Social security measures, retirement benefits like provident fund, gratuity, pension, leave encashment at the time of retirement etc,, housing, medical, canteen, cooperative society credit, consumer stores, educational facilities, recreational facilities and so on.
Objectives. The basic objectives of fringe benefits (perks) are
- To create and maintain sound industrial relations.
- To attract talented human resources with the organisation.,
- To boost up employee morale and to motivate employees by identifying and satisfying their unsatisfied needs.
- To meet the demand of various legislations relating to fringe benefits.
- To retain the employee with the organisation and arrest the higher rates of labour turnover. Fringe benefits are also lebelled as ‘golden handcuffs’.
- To improve the quality of work life of the employees.
- To enhance the public image of the employer company,
- To promote employees welfare by providing welfare measures like recreational or medical facilities.
Types of Fringe Benefits.
According to Edwin & Flippo, fringe benefits may of the following types –
1. Payment for time not worked. Examples in this area include, pay for sick leave, personal leave, holidays, vocations, paid rests, lunch hours, wash-up time, clothes change time, voting time, etc.
2. Protection against Hazards. There are a number of hazards that might be faced by an employee. Income maintenance during these periods is the purpose of these fringes designed to protect the hazards of illness, injury, debt unemployment, disability, old age and death.
3. Employee Services. Big organisations offer certain employee services on a continuing basis, such as housing, food, medical, recreation and so on. They have such fringe benefits programmes as cafeterias career counselling educational tuition, aid in housing, medical services (hospitals, clinics etc), low cost loans, use of organisation vehicles for personal use, day core centres for children and paid memberships in certain professional organisations.
4. Legal Payments. In most countries, the governments have passed several laws to protect the employees against the major hazards of life. Payments under this category involve unemployment or lay off compensation, employee insurance, old age benefits such as provident fond, pension etc. various social security schemed.
The lists of fringe benefits has increased manifold over the years and the expenditures on such programmes have equalled or exceeded the base wage compensation to the employees. That is why the term “fringe” is no longer appropriate and it is replaced by terms such as ‘employee benefits’, or employee services etc.
The list of fringe benefits has increased manifold over the years and the expenditures on such programmes have equalled or exceeded the base wage compensation to the employees. That is why the term “fringe” is no longer appropriate and it is replaced by terms such as ‘employee benefits’, or employee services etc. ‘
Make a difference between base compensation and supplementary compensation.
Difference Between Base And Supplementary Compenstion Base:
Employee compensation has been classified into two categories –
(i) Base compensation, and
(ii) Supplementary compensation
(i) Base Of Primary Compensation. Base compensation refers to basic pay in the form of wages (paid on time basis or piece basis) or salaries. It is paid weekly, monthly or even annually on the basis of time spent or units produced during that period. It does not include incentive payments.
(ii) Supplementary Compensation. Supplementary compensation consists of incentives and variable payments which supplement the base wage based on either individual output or output of the group. It includes fringe benefits offered to the employee by the employer. Such benefits include housing, subsidised foods, medical, entertainment, creche services etc.
The distinction between these two types of compensation is given below –
|Based Compensation||Supplementary Compensation|
|1. It denotes payment to workers in the form of wages and salaries.||It denotes fringe benefits to workers over and above the regular salary or wages.|
|2. Wages and salaries are paid in cash||Fringe benefits / perquisites are generally provided in the form of services or benefits. Such as housing, medical etc. In some cases they are paid in cash as retirement benefits and PF., gratuity’ etc.|
|3. Wages and salaries are paid to compensate employees for their services.||Fringe or non-wage payments are made to increase the efficiently of the workers or to relation them in the organisation on long term bases.|
|4. Wages and salaries are determined by job evolution demand and supply of labour etc, barging bane of the union etc.||Supplementary compensation is determined by the history of the organised, philosophy or management, organisation of caps.|