Wage
It is the worth of a job
Wages are fixed
In popular terms it is an hourly payment
No long term guarantee of long- term employment
Refer to the payment to workers
There is a provision for overtime
Salary
It is the worth of an individual
Salary is negotiable
It is paid by month
Job can last for a long time
Refers to the payment to managerial and supervisory levels
There is no provision for overtime
Wage plans
The methods of remunerations are:
Time Rate System
Payment by results
Time Rate System:
The time rate or day rate is related to the hours of wage and is commonly used. The wage rate can be fixed on hourly, daily, weekly, fortnightly or monthly basis depending on the nature of his skills.
The method is applied in the following circumstances:
The quality of work is more important
The output of worker cannot be measured
Where the output of a worker is not in his control
Where the work can be closely supervised
Where increase in output is negligible compared to the incentive
Advantages:
The advantages of time rate system are:
i. it is simple and easy to understand
ii. it is recognized by trade unions as all workers are paid alike
iii. it involves less clerical expenditure
iv. a steady income is assured
v. as there is no hurry, tools and materials are handled carefully. Wastages are minimized.
Disadvantages:
i. it does not encourage initiative
ii. labour cost may rise thereby decreasing profit. This may be caused by decreased in productivity.
iii. Standards of labour are difficult to set.
iv. Production may decrease thus upsetting production schedules, create production bottlenecks and increase cost per unit.
v. Labour cost cannot be estimated for the purpose of quotations.
vi. It creates more idle time.
vii. This system encourages inefficiency.
viii. It requires close supervision to ensure that employees are working.
A few variations of this system are in use. They are:
a. High Wage Plan
b. Different Time Rates
c. Measured Day Work (Graduated)
High Wage Plan
Compared to the wage rate prevailing in the region, a higher time rate is fixed. This is done to enable the workers to achieve the standard, suitable working conditions are created.
Unsuitable or inefficient workers are taken off the system.
The employer benefits because overheads and wage costs per unit are reduced.
This scheme is suitable when high quality and productivity are required. But it should be possible to set up standards and measure the output.
The advantages are:
reduces supervision
simple and inexpensive ( because of lower labour cost per unit)
attracts skilled workers
increases productivity
decreases wages and overhead costs.
Different Time Rates
For different levels of efficiency, different rates are fixed. For efficiency upto the standard level, normal wages are paid and for efficiency beyond the standard level, the rate is gradually increased. This is similar to differential piece rate system.
Measured Day Work (Graduated)
The hourly rates are divided into two parts. One part is fixed which depends on the nature of the job and the other part is variable depending upon the merit rating and cost of living.
This system is very complicated. The calculations involved increase when the workers change jobs frequently. Merit rating mar be arbitary. There is multiplicity of rates. The workers do not easily understand the system. Because of all these factors this system is unpopular.
Payment by results
Payment by results is a method of paying wages which depend on the output or units produced by the worker. The worker can increase his income by producing more units.
The main classifications of payments by result are:
a. payment is directly proportional to the worker’s production; for example straight piece work system
b. payment proportionally increases as the production increases, like the differential piece-work system;
c. the rate of payment decreases as output increases e.g. premium bonus methods;
d. the payment varies at different levels of production like the accelerated premium method.
Piece Rate System
The wages are paid on the basis of the output of workers, i.e. ,on the basis of quantity o output. It is simple and common method of wage payment. The worker is paid on the basis of his work, not taking into account the time involved.
The wage is calculated as follows:
Wage = Number of units produced x Rate per unit
The piece rate can be applied in the following cases:
the work is of standard or repetitive nature
piece rate can be easily fixed
the is uninterrupted flow of work
it is necessary for the employer to get maximum production
quantity of output depends on effort and does not require skill
Merits:
i. A worker becomes an expert by continuously doing the work. Thus he can earn more.
ii. It increases efficiency.
iii. It reduces cost.
iv. Idle time is automatically controlled
v. The reward is related to effort. Efficiency is recognized
vi. Quotations can be easily made as cost per unit is known.
vii. Supervision can be reduced as workers are paid according to performance.
viii. Workers endeavour to increase production by discovering new techniques of producing goods.
Demerits:
Quality may be sacrificed to increase production.
Wastages may be high if not properly supervised.
It increases more supervision and inspection so that units attain the standard.
In order to maximize output, the worker may use machines and tools recklessly.
If work stops due to machine break down, power failure, etc., the worker may feel insecure.
The workers health may be affected due to over- strain
The inefficient and less efficient workers may feel insecure.
Lack of steady market may cause overproduction and surplus.
Determination of piece rate is difficult.
Piece Rate with Guaranteed Time Rate
A certain level of output is determined. Workers are paid on the basis of output. If the output is less than the standard, the worker is paid on time rate basis.
Thus, this system incorporates the merits of time rate and piece rate system and eliminates the demerits of them.
But, it is very complicated and misunderstandings may arise.
Incentive Schemes
Incentive system attempts to combine the merits of both the time rate and piece rate systems. The main objective of incentive plan is to induce a worker to produce more to earn a higher wage. Producing more in the same period of time should result in higher pay for the worker. Because if greater number of units is produced, it should also result in lower cost per unit for fixed factory cost and also for labour cost. A good incentive plan should have the following characteristics:
1. it should be simple and easy to understand;
2. operating cost of the system should be low;
3. it should permit less supervision;
4. the time lag between effort and reward should be minimum;
5. it should be fair to the employees and employer;
6. the standard set should be attainable
7. performance above standard should be well rewarded;
8. it should be flexible;
9. the premium should be large enough to induce workers;
10. all workers should be given equal opportunity to earn;
11. it should facilitate the budgetary control and standard cost systems;
12. inspection should be good;
13. good working conditions must be available;
14. the system should be introduced on a permanent basis and should not be ambiguous;
15. no rate cutting should be permitted and an individual’s earnings should not be curtailed;
16. there should be uniformity of reward for same amount of effort;
17. indirect workers should also be included.
Advantages of Incentive Schemes
less supervision is required;
the employee morale is high because they can earn more;
there is increased productivity;
increased production reduces cost ;
labour cost can be estimated;
it is possible to set standards for labour with accuracy;
there is maximum utilization of resources;
a task is done in the most economical manner which reduces labour cost.
Disadvantages of Incentive Schemes
if rates are not uniform for same type of jobs, it causes discontent;
quality may deteriorate and may be sacrificed in order to increase quantity;
it involves more calculations;
the worker may not adhere to the safety norms in order to increase productions. Here accidents may occur;
the worker’s health may be affected due to over-strain;
there may be apprehensions regarding rate cutting;
inefficient worker may envy the efficient ones which may cause unrest;
unskilled workers sometimes earn more than skilled workers if the latter have to work on time basis.
Classification of Incentive Schemes
Incentive schemes can be classified as follows:
Differential piece rate
Premium bonus schemes
Group bonus plans
Differential piece rate
Efficient and inefficient workers are distinguished
More than one piece rate is determined
Standards are set for each operations or job
Efficient workers that is those who attain or better the standard set are given a higher rate and inefficient are given a lower rate
Hence, there is encouragement to improve the performance
As the level of output increases the piece rate also increases.
The system is suitable where:
the method of working is standardized;
the workers do the same job over a long period;
the nature of work is repetitive;
output of each person can be measured;
the standard time for each job can be determined with precision.
Advantage:
Workers are encouraged to increase their efficiency and earn higher wage.
Disadvantage:
the system is complicated and difficult to understand.
A stage may be reached when the increased labour cost will equalize the benefit arising due to reduced overhead.
Premium Bonus Schemes
Under this system, the gains are shared by the employer and the employee in an agreed proportion. Apart from the minimum guaranteed wages, the efficient worker gets bonus which depends on the time saved. The standard is determined scientifically. The various incentive schemes should be chosen keeping in mind the nature of the work, with the consent of trade unions in order to make it successful.
These plans regulate the speed of work so that the pace of the work is not slow and at the same time it is not fast.
Group Bonus Plans
There are certain jobs which have to be performed collectively by a group of workers. The
ultimate production depends on the efficiency of the whole group. Under group bonus plans, payment may be made by results to all the workers in the group. Bonus may be shared equally or in a different proportion according to the skills required. These proportions may be based on time rates or previously agreed ratios.
These plans may increase production and reduce cost per unit. It creates team spirit. But efficient and inefficient workers may be rewarded alike. Efforts and rewards are not linked properly.
These plans can be used where:
a. it is required to reward both direct and indirect workers.
b. output depends on team work
c. it is desirous to create team spirit
d. It is not possible to measure the output of an individual person
Advantages of group bonus plan:
a. there is more cooperation and team work
b. inspection and supervision can be reduced
c. there is self-discipline
d. Production increases
e. Cost of production decreases and also the spoilt and defective goods
f. It simplifies payroll and cost accounting
Disadvantages of group bonus plan:
the amount of bonus given is too insignificant
no distinction is made between efficient and inefficient workers
time gap between effort and reward is very wide
Indirect Monetary Incentive Scheme
Profit Sharing
Co-partnership
Profit Sharing
‘Profit sharing is an agreement freely entered into, by which employee receives a share, fixed in advance, of the profits.’
-Henry R. Seagar
The workers get a share in the profit of the undertaking in a certain agreed percentage which is in addition to the normal wage of the workers. the profit percentage is predetermined and may be given in cash or in the form of shares. The percentage is often governed by the Payment of Bonus Act. If profit is given in the form of shares, it is called co-partnership.
Advantages:
Relations between labour and management improve because labour takes interest in management.
This method assumes that every worker contributes towards profit. It is applicable to all workers irrespective of their efficiency. There is better employer-employe relationship.
Labour morale is boosted. Hence, there is industrial peace.
The employees get a share of profit, capital and control of the management. This creates a sense of belonging to the company and the workers contribute to the welfare of the company. Materials and plant will be handled with care thus minimizing loss and wastages.
As bonus is given annually there will low labour turnover.
There is a direct relationship between profits and bonus. The workers try to increase bonus by increasing efficiency and production.
There is greater cooperation and Better team spirit.
Because of this scheme, quality workers are attracted to the industry.
Disadvantages:
The worker may not be satisfied as there is uncertainty of profits in spite of the efforts taken.
Labour unions also oppose the scheme as it may alienate workers from the union.
Profits depend on many factors. Many are beyond the control of the workers and are not directly related to their efforts.
Apportionment of profit on a suitable basis is difficult.
Once the workers are used to bonus, non payment of bonus in a year may give rise to discontent. Fluctuations in bonus also create bad industrial relations.
The workers may not trust the figures presented by the employer and may resort to strike.
The efficiency of worker may not increase as they have to wait for the year end to get reward for their efforts.
The efficiency may be adversely affected as both efficient and inefficient workers are treated alike.
The employers object to this scheme as the workers share the profits but not the losses.
Co-partnership
Sometimes labour is given a share of profit in the form of shares. This form of profit sharing is called labour co-partnership. It gives labour a permanent interest in the future of the organization. Hence, this scheme is also known as co-ownership.
Though the employees get a part of the capital and profits accruing thereon, these share may or may not carry voting rights. The employees may freely deal with these shares or a few restrictions may be placed on them. Sometimes, the employee may be given a loan to buy the company’s share.
Advantages:
Because the employees have a share in the capital, they have a greater sense of belonging and hence they evince more interest in the concern.
It reduces labour turnover.
As the employees contribution to the profit of the concern is recognized, their morale is high.
Disadvantages:
Efforts and rewards are not properly related.
The importance of incentive is reduced as date of payment is too far away.
It does not differentiate between inefficient and efficient workers.
Misunderstanding between employer and employee may arise because employees cannot verify the share allotted to them.
Wage Policy
The term ‘wage policy’ refers to the legislation or government action undertaken to regulate the level or structure of wages, or both, for the purpose of achieving specific objectives of social and economic policy.
The social objective of wage policy aim at:
eliminating exceptionally low wages
establishing fair standards
protecting wage earners from the impact of inflationary tendencies
increasing the economic welfare of the community as whole
Objective of Wage Policy
to abolish malpractices and abuses in wage payment;
to set minimum wages for workers having weak bargaining power because either they are unorganized or inefficiently organized, accompanied by separate measures to promote the growth of trade unions and collective bargaining;
to obtain for the workers a just share in the fruits of economic development, supplemented by appropriate measures to keep worker’s expenditure on consumption goods in step with the available supplies so as to minimize inflationary pressure; and
to bring about a more efficient allocation and utilization of manpower through wage differentials and where appropriate systems of payment by results costs
to provide minimum wage to workers employed in sweated industries
to fix wage ceilings
to improve existing wage-structure
Minimum Wage: A minimum wage must provide not merely for the bare sustenance of life but for the preservation of efficiency of worker. For this purpose, the minimum wage must also provide for the measure of education, medical requirements and other amenities.
Living wage: A living wage should enable the male-wage earner to provide for himself and his family not merely the bare essentials of food, clothing and shelter, but a measure of frugal comfort, including education for his children, protection against ill-health, requirements of essential social needs, and a measure of insurance against the more important misfortunes, including old-age.
Fair wage: While the lower limit of fair wage must obviously be the minimum wage, the upper limit is usually set by what may broadly be called the capacity of the industry to pay.
National Wage Policy
Though it is desirable to have a National Wage Policy it is difficult to conceive a concept of the same. The National Wage Policy has been discussed on many occasions in different fora. Because fixation of wages depends on a number of criteria like local conditions, cost of living and paying capacity also varies from State to State and from industry to industry, it would be difficult to maintain uniformity in wages. The Indian Labour Conference, held in November, 1985 expressed the following views-
Till such time a national wage is feasible, it would be desirable to have regional minimum wages in regard to which the Central Government may lay down the guidelines. The Minimum Wages should be revised at regular periodicity and should be linked with rise in the cost of living”
Accordingly, the Government issued guidelines in July, 87 for setting up of Regional Minimum Wages Advisory Committees. These Committees renamed subsequently as Regional Labour Ministers’ Conference, made a number of recommendations which include reduction in disparities in minimum wages in different states of a region, setting up of inter-state Coordination Council, consultation with neighbouring States while fixing/revising minimum wages etc.
Regional committees to reduce disparities in wages
There is disparity in rates of minimum wags in various regions of the country. This is due to differences in socio-economic and agro-climatic conditions, prices of essential commodities, paying capacity, productivity and local conditions influencing the wage rate. The regional disparity in minimum wages is also attributed to the fact that both the Central and State Governments are the appropriate Government to fix, revise and enforce minimum wages in scheduled employments in their respective jurisdictions under the Act
. To bring uniformity in the minimum wages of scheduled employments, the Union Government has requested the States to form regional Committees. At present there are five Regional Minimum Wages Advisory Committees in the country which are as
under:-
Region States/UTs covered
Eastern Region West Bengal, Orissa, Bihar, Jharkhand andAndaman & Nicobar Islands.
North Eastern Region Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Sikkim, Nagaland and Tripura.
Southern Region Andhra Pradesh, Karnataka, Kerala, TamilNadu, Pondicherry and Lakshadwadeep.
Northern Region Punjab, Rajasthan, Himachal Pradesh, Jammu & Kashmir, Haryana, Uttar Pradesh, Uttranchal, Delhi and Chandigarh.
Western Region Maharashtra, Gujarat, Goa, Madhya Pradesh,Chhattisgarh, Dadra & Nagar Haveli and Daman & Diu.
The meeting of the Regional Committee on Minimum Wages for these Regions are being held from time to time.
National Floor Level Minimum Wage
In order to have a uniform wage structure and to reduce the disparity in minimum wages across the country, concept of National Floor Level Minimum Wage was mooted on the basis of the recommendations of the National Commission on Rural Labour (NCRL) in 1991. Keeping in view the recommendation of NCRL and subsequent rises in price indices, the National Floor Level Minimum Wage was fixed at Rs.35/- per day in 1996.
The Central Government raised the national floor level minimum wage to Rs.40/- per day in 1998 and further to Rs.45/- w.e.f. 01.12.1999, and Rs.50/- per day w.e.f. 1.9.2002 keeping in view the rise in consumer price index.
Based on the norms suggested by the Working Group and its acceptance by the Central Advisory Board subsequently in its meeting held on 19.12.2003, national floor level minimum wage has last been revised upwards to Rs. 66/- per day with effect from 1.02.2004. The national floor level minimum wage, however, has no statutory backing. The State Governments are persuaded to fix minimum wages such that in none of the scheduled employments, the minimum wage is less than National floor level minimum wage. This method has helped in reducing disparity among different rates of minimum wages to some extent.
To sum up, effective implementation of the Minimum Wages Act, 1948, which primarily falls in the State sphere, is assiduously pursued by Ministry of Labour and Employment through discussion, writing letters, personal interaction and visits to States. The State
Governments are regularly asked to fix and revise minimum wages in scheduled employments to be at least at par with national floor level minimum wage of Rs. 66 per day.
Fixation/revision of minimum wages
Norms
The norms include those which were recommended by the Indian Labour Conference in its session held in 1957.
(i) 3 consumption units for one earner.
(ii) Minimum food requirements of 2700 calories per average Indian adult.
(iii) Clothing requirements of 72 yards per annum per family.
(iv) Rent corresponding to the minimum area provided for under Government's Industrial Housing Scheme.
(v) Fuel, lighting and other miscellaneous items of expenditure to constitute 20% of the total Minimum Wages.
Other parameters
(i) "Children education, medical requirement, minimum recreation including festivals/ceremonies and provision for old age, marriage etc. should further constitute 25% of the total minimum wage." This judgment was delivered by the Supreme Court of India in 1991 in the case of Reptakos Brett and Co.Vs.its workmen.
(ii) Local conditions and other factors influencing the wage rate.
Compensation Package and terminal benefits
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