wage policy in india and abroad wage policy in india and abroad

HR Department, Institute of Business Management CSJMU, KANPUR,UP

COMPENSATION MANAGEMENT“ABOUT WAGE POLICY IN INDIA & ABROAD”

Prepared by:Swadeep ShuklaSwati GautamShruti ChaturvediRoli Tiwari


IntroductionWage Policy in India Payment of Wages Act 1986 Minimum Wages Act 1948 Wage Boards Pay Commissions Wage Policy Under PlansInternational Wage & Compensation PoliciesRecommendations & Suggestions

TOPICS COVERED


Wage Policy in India


PAYMENT OF WAGES ACT 1936

OBJECTIVES

(i) Regulating payment of wages, Imposing of fines & deduction from wages

(ii) eliminating all malpractices by laying down wage periods and time and mode of payment of wages


SCOPE & COVERAGE This acts applies to those persons employed directly or

indirectly in1. Factory 2. Railway3. Air Transport Services4. Mines or oil field5. Workshop in which articles are manufactured or

produced6. Or any other establishment notified by the Central or

State Government.


Applies to employees drawing wages up to Rs.1600 .This limit will be suitably increased by central Government after every 5 years.

“Wages means all remuneration expressed in terms of money and includes remuneration payable under any award or settlement, overtime wages ,wages for holiday and any sum payable on termination of employment (bonus is not included).”


EMPLOYER’S OBLIGATIONS Responsibility for payment of wages Fixation of wage period- Daily, Weekly, Fortnightly,

Monthly Time of payment- 7th day after wage period [working

day] ,10th day [employees more than 1,000] Mode of payment-Coins and currency notes Payment in Case of Death of Employee – Nominee or

prescribed authority Returns/Registers and Records-To file annual return

by the 15th Feb. of following year.


DEDUCTION MADE FROM WAGES The employer should not make any deduction from wages other than the following :

Fines in respect of an act or omission which has been approved by the Government and notified at the factory or establishment. No fine should be imposed on an employee, unless he has been given an opportunity of showing cause against the fine.

Deduction for absence from duties for unauthorized absence -

Absence for whole or any part of the day. If ten or more persons absent without reasonable cause, deduction of wages upto 8 days.

Deduction for damage or loss – For default or negligence of an employee resulting into loss. Show

cause notice has to be given to the employee.


Deductions for service rendered- When accommodation amenity or service has been accepted by the employee.

Deductions for recovery of Advance (including those for travelling and conveyance allowance).

Deduction for recovery of loans made from any labour welfare fund, and housing loans

Deduction for income tax payable by the employee.

Deductions for payment to co-operative societies and Insurance schemes.

Limit of Deductions The total amount of permissible deductions in any wage period should not

exceed : a) In case where deductions are wholly or partly made for payment to co-

operative societies, 75% of the wages; and b) In any other case, 50% of the wages.


THE MINIMUM WAGES ACT 1948

OBJECTIVES • To provide for Minimum wages for certain employees • To stop exploitation of labour• The acts also provides for maximum daily hours, weekly

rest day and overtime


FIXING MINIMUM WAGESBy The Government- The no. of working hours in day with one or more

intervals. Provide for a paid rest day in every period of 7

days The minimum wages rates will be different for

different classes of employees- skilled, semi skilled, unskilled .


OBLIGATIONS OF EMPLOYERS Payment of minimum wages- The employer is bound to pay to

every employees minimum wages.

Wages in cash- wages should be paid in cash.

Overtime Wages-Twice the normal wages.

Payment of Undisbursed amount- On account of death of employee then same shall be deposited to prescribed authority.


PENALTIESPayment of Wages less than fixed minimum

wages – Imprisonment upto 6 months or fine upto Rs. 5oo

or both.

Contravention of any Rule or order – Fine upto Rs. 500

WAGE BOARD STRUCTURE, SCOPE,

FUNCTION&

PAY COMMISSION

Wage Board structure, scope,function&

Pay commission


Institutions Related toCompensation

Wage Board(Private sector)

Pay Commissions(Public sector)


WHAT IS WAGE BOARD?

A committee who determines the fair wages.

Based on industry cum region.

To provide better climate for industrial relation.

To standardize wage structure in the industry.

In accordance with the social & economic policy of the government.

Tripartite in nature.


SCOPE OF WAGE BOARD.

Improve conditions for better industrial relations in the country.



Standardize wage structure uniformly across a given industry.



Pave the way for wage settlement in consonance of social & economic policies.


FUNCTION OF WAGE BOARD.

To determine the wages payable to employees.

The appropriate government or the organizations of employers and employees by mutual agreement.

Determination of other matters regarding disputes between two parties


PAY COMMISSION It is an administrative system/mechanism.

Set up by the Government of India to determine the salaries of government employees.

Till now six pay commissions have been set up-• First pay commission - 1947• Second pay commission- 1959(2nd FYP)• Third pay commission – 1973(4th FYP)• Fourth pay commission – 1984(6th FYP)• Fifth pay commission – 1996(8th FYP)• Sixth pay commission – 2008(11th FYP)


Salary proposed should balance the interests of the – Employee Employer Public

Employee must be paid a “living wage” i.e. minimum wage.

Dearness Allowances to be paid to prevent economic hardships.

FIRST PAY COMMISSION


Concept of ‘living wage’ was extended to the matter of social policy.

Minimum wages should deal not only economic considerations but also offer social justice.

Lowest rate of remuneration should not be lower than a ‘living wage’ & the highest salary should be consistent enough to attract employees and maintain efficiency.

SECOND PAY COMMISSION


Criteria of a sound pay system: Inclusiveness Comprehensibility Adequacy

No consideration that the Government should be a ‘model employer’.

Dearness allowances to be treated as part & parcel of the compensation structure.

THIRD PAY COMMISSION


Focus on criteria for fixing pay levels and structures .

Concluded that market comparison cannot be relied upon .

The government should pay ‘fair wages’ (EQUAL PAY FOR EQUAL WORK) to the public servants.

Dearness allowances to be treated as part & parcel of the compensation structure.

FOURTH PAY COMMISSION


Full neutralization of rise in cost of living should be paid @- 80% to employees drawing basic pay up to Rs.

3,500/month,

- 75% of employees drawing basic pay between Rs. 3,500 & Rs. 6000/month,

- 65% to employees drawing basic pay above Rs. 6,000/month.

FOURTH PAY COMMISSION


Pay revision based on work organization & manpower planning.

40% increase in pay with 30% reduction in manpower over a three year period.

Emphasized on new means of recruitment.

Focused on bringing about innovation in training, performance appraisal, etc. of the government employees.

FIFTH PAY COMMISSION


To govern the structure of pay etc. for the following: Central govt. employees Personnel belonging to All India Services Personnel belonging to Armed Forces Personnel to the Union Territories Officers & employees of the Indian Audit & Accounts

Department Members of regulatory bodies set up under Acts of

Parliament.

To transform the Central Government organizations to modern, professional entities.

SIXTH PAY COMMISSION


To work out a comprehensive pay package for all the categories of employees.

To harmonize the functioning of the Central Govt. organizations.

To examine the principles which should govern the structure of pension, death-cum-retirement gratuity etc.

To make recommendations as to which principles should be used to govern the bonuses etc.

To examine the desirability & the need to sanction any interim relief.

SIXTH PAY COMMISSION


Wage Policy Under Plans


FIRST FIVE YEAR PLAN(1951-56) Favorability of Wages. Wages, Profits , terms and Conditions ,

Norms and Standards. Scientific Assessment. 50 % of the D.A. should be merged with

the basic wages. Full & Effective implementation of

Minimum Wages Act 1948. Permanent Wage Board with tripartite

composition in each state & at the Centre.


SECOND FIVE-YEAR PLAN{1956-61(2ND P.C.-1959)} Workers right to fair wages has been recognized Industrial tribunal has not given full support to

the parties concerned Methods of Resolving the above problems: Tripartite wage board Equal representation of employers and workers Independent Chairman Comprehensive Wage Census followed by the

appointment of a wage commission Link between pay and productivity, improvement

of wages through improved productivity & different perspective of productivity.


THIRD FIVE-YEAR PLAN(1961-66)

Recognized disparities in wages. Resolving measures: Fixing a fair wage for different classes

for workers was advocated. Setting up of Wage Boards as the most

suitable method of settling disputes. Incentives for skills and quality.


FOURTH FIVE-YEAR PLAN{(1969- 74)3RD P.C.-1973} Integrated income policy for both public and

private sector. Protection of Standard of Living of Workers Linking dearness allowance with cost of living Total wage should have three components Basic or minimum wage Element related to cost of living Element related to increase in productivity Payments by results Common broad approach for employers and

workers Simple incentive Schemes


SIXTH FIVE-YEAR PLAN{(1980-85) 4TH P.C.-1984} Eliminate malpractices in regard to

wage rates and wage payment Fixation and revision of minimum wages Incentives for increase in productivity Allowances for occupational hazards Wage differentials for skills Fringe benefits, bonus and ex-gratia

payments Social security arrangements


SEVENTH FIVE-YEAR PLAN(1985-90) Increase in productivity should result in

increase in level of real income, productive employment, improvement in skills.


EIGHTH FIVE-YEAR PLAN{(1992-97 5TH P.C.-1996}

Unrealistic high level wages should be checked

Implementation of wages once fixed should be ensured

Role of workers’ organizations, voluntary organizations and trade unions were recognized


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International Wage & Compensation Policies


OBJECTIVES OF INTERNATIONAL COMPENSATION AND WAGES POLICIES

Policy should be consistent with the overall strategy.

Attract and retain staff. Transfer of international employee Equity and ease determination.


OBJECTIVES FOR AN INTERNATIONAL EMPLOYEE

Financial protection Opportunities of financial advancement Housing, education of children and

recreation. Repatriation and career advancement.


KEY COMPONENTS OF INTERNATIONAL COMPENSATION

BASE SALARY FOREIGN SERVICE

INDUCEMENT/HARDSHIP PREMIUM ALLOWANCES


KEY COMPONENTS OF INTERNATIONAL COMPENSATION

INTERNATIONAL

COMPENSATION

INCENTIVES

ALLOWANCES

SALARY

FOREIGN

SERVICE /

HARDSHIP

PREMIUM


BASE SALARY

Base

salary is the amount of money that an expatriate normally receives in the home country.

Benefits:

Alternatively known as indirect compensation, Benefits constitute a substantial portion of international compensation ( approx. one third of compensation for regular employees is benefits).

Benefits include a suit of programmes such as: Entertainment, Festival celebrations, Gifts, Use

of club facilities, provision of hospitality including food and beverage, employee welfare, use of health club, Conveyance tour and travel, Hotel Board and Lodging, vehicles, telephone and other telecommunication facilities, Sponsorship of children.

Basically an employee tends to join and stay with an org. which guarantees an attractive benefits programme.

Vacation along with holidays and rest breaks help employees mitigate fatigue and enhance productivity during the hours employees actually work.


ALLOWANCES It is an inevitable feature of International

compensation. The most common allowance relates to the cost of living – an adjustment for different in the cost of living between the home country and foreign country assignment. This allowance is designed to provide the expatriate with the same standard of living that he or she enjoyed in the home country.

Spouse assistance, housing allowance, home leave allowance, relocation allowance and educational allowance are the popular in expats. Compensation.


FOREIGN SERVICE INDUCEMENT/HARDSHIP PREMIUM

This is often perceived as an inducement in the form of a salary premium to accept an overseas assignment. Generally, salary premiums vary from 5—40% of the base salary. Actual salaries depend upon the assignment, actual hardship, tax consequences and length of assignment. In addition, if the work – week in the host country is longer than in the home country , the assignee will be paid for the extra hours worked.

Certain countries are highly hostile to foreigners staying and working. Indians engaged in road construction work in Afghanistan, for example, face constant threat lives. In fact, ten such emigrants got killed in recent times (2006-2007). Expatriates in such environments are paid 2-3 times more than their domestic salaries.


TAXES

The final component of the expatriate’s remuneration relates to taxes. MNCs generally select one of the following approaches to handle international taxes:

1. Tax equalization: Firms withhold an amount equal to the home country tax obligation of the expatriate, and pay all taxes in the host country.

2. Tax protection: The employee pays up to the amount of taxes he or she would pay on remuneration in the home country. In such a situation, the employee is entitled to any windfall received if total taxes are less in the foreign country than in the home country.


INCENTIVES An additional payment (or other remuneration) to

employees as a means of increasing output. Increasingly, MNCs these days are designing special incentive programmes for keeping expatriates motivated. In the process, a growing number of firms have dropped the ongoing premium for overseas assignments and replaced it with a one – time, lump-sum premium.


APPROACHES TO INTERNATIONAL COMPENSATION

GOING RATE APPROACH( OR MARKET RATE APPROACH)

BALANCE SHEET APPROACH( OR BUILD-UP APPROACH)

CONCLUSION


THE GOING RATE APPROACH

With this approach the base salary for the international transfer is linked to the salary structure in the host country. The multinational usually obtains information from local compensation surveys and must decide whether local nationals, expatriates of the same nationalities will be the reference point in terms of benchmarking.

Key characteristics of this approach based on local market rate. Compensation based on the selected survey

comparison. Base pay and benefits may be supplemented by

additional payments for low- pay countries.


BALANCE SHEET APPROACH

The balance sheet approach to international compensation is a system designed to equally the purchasing power of employees at comparable position levels living overseas and in the home country and to provide incentives to offset qualitative differences between assignment location.


CONCLUSION

International compensation administration may be

more complex than its domestic counterpart but is only slowly and fitfully evolving from a dominant domestic state of origin. Domestic pay patterns that is norms and assumptions, pay strategies and practices, as well as pay forms and administration are increasingly challenges as executives in MNCs are expose to alternatives pay forms, varying , legal and institutional contexts and the rapidly changing realities of global competitiveness.


RECOMMENDATIONS FOR INDIAN WAGE SYSTEM

Wages should be decided by market forces rather than by institutions.

Implementation of laws should be proper.

Wages in organized sector as well as in unorganized sector in Indian should be fixed.


CONTD…

Piece wage system should be introduced instead fix wage system so that competitive prices of products can be introduced.

Organization should be revised wage as per market conditions.

wage policy in india and abroad wage policy in india and abroad

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