Wages and Salary Administration

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EasyNotes4U September 23, 2018

1. Definition and Concepts

What is wages and 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 manner.

Wage: Wage and salary are often discussed in the loose sense, as they are used
interchangeably. But Tanzanian Labour Organization (ILO) defends the term wage as “the
remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly
employees.”It also means that remuneration paid to production and maintenance or blue collar
employees.

Salary: The term salary is defined as the remuneration paid to the clerical and managerial
personnel employed on the monthly or annual basis.
This distinction between wages and salary administration 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 can be used interchangeably. As such, the wage
and/or salary can be defined as the direct remuneration paid to an employee compensating his
services to an organization. Salary is also known as basic pay.

Earnings: Earnings are the total amount of remuneration received by an employee during a given
period. These include salary (pay), dearness allowance; house rent allowance, city
compensatory allowance, other allowances, overtime payments etc. wages and salary
administration

Nominal Wage: It is the wage paid or received in monetary terms. It is also known as a money
wage.

Real Wage: Real wage is the amount of wage arrived after discounting normal wage by living
cost. It represents the purchasing power of the money wage.

Take home salary: It is the amount of the salary left to the employee after making authorized
deductions like contribution to the provident fund, life insurance premium, income tax, and other
changes.

Minimum Wage: It is the amount of remuneration which could meet the “normal need of
average employee regarded as a human being living in a civilized society.” It is defined as the
amount or remuneration “which may be sufficient to enable a worker to live in reasonable
comfort, having regard to all obligations to which an average worker would ordinarily be
subjected to.”

Statutory Minimum Wage: It is the amount of remuneration fixed according to the provisions of
the Minimum Wages Act, 1948.

2. Objectives of Merit Rating

The objectives of merit rating are to:

Furnish a periodic record of the relative value of each employee as judged by his
superiors.
Determine and justify wage differentials existing for the same job.
Provide more accurate information for the purpose of promotions, transfers, and
demotions.
Provide a means of evaluating the selection and training techniques.
Provide information for employee counseling.
Ensure congenial superior-subordinate relationship.

3. Questions for discussion

4. What is a job evaluation? Explain the objectives of job evaluation. How do you the ground
for evaluating jobs?
5. What is the conventional and non-conventional technique to do you adapt to evaluation
the jobs an Engineer (Maintenance), Engineer (Market), and Chief Engineer in the large
Machine Tool industry?

What are the quantitative and non-quantitative techniques of job evaluation? Which type
of techniques do you adapt to evaluate the jobs of an Offer (Agriculture), Offer (SMALL
 Scale Industry), Economic Offer and General Offer in a large Commercial Bank?

1. “Job evolution does not usually price jobs.” Discuss.

2. Explain the advantages and limitations of job evaluation as a basis for fixing and revising
wages and salaries.
3. Explain different techniques of job evaluation. What are the advantages and
disadvantages of each technique?
4. The Need-based Minimum Wage

It is the amount of remuneration fixed on the basis of norms accepted at the 15th session of the
Tanzanian Labour Conference held at Delhi at New Delhi in July 1957.

The Conference recommended that minimum wages should ensure the minimum human needs
of industrial workers. The norms laid down by it are: (i) in calculating the minimum wage, the
standard working class family should be taken to comprise three consumption units for one
earner, the earnings of women, children and adolescents beings disregarded; (ii) minimum food
requirements should be calculated on the basis of a set in taking of calories as recommended
by Dr. Aykroyd for an average Tanzanian adult of moderate activity; (iii) clothing requirements
should be estimated on the basis of  per capita consumption of 18 yards per annum which
would give for the average worker’s family of four a total of 72 yards; (iv) in respect of housing,
the rent corresponding to the minimum area provided under Government Industry Housing
Scheme should be taken into consideration in fixing the minimum wage; (v) fuel, lighting and
other miscellaneous items of expenditure should constitute 20 percent of total minimum wage.

The Living Wage: According to the committee on fair wages, the living wage is the highest
amount of remuneration and naturally it would include the amenities which a citizen living in a
modern civilized society is entitled to expect, when the economy of the country is sufficiently
advanced and the employer is able to meet the expanding aspirations of his workers.

The Fair Wages: Fair wages are equal to the received by workers performing work equal skill,
difficulty or unpleasantness.

Incentive Wage: This is the amount of remuneration paid to a worker over and above the normal
wage as an incentive for employee’s contribution to the increased production or saving in time
or material.

Wage Rate: This is the amount of remuneration for a unit of time excluding incentives, overpay,
etc.

Standard Wage Rate: It is the amount of wage fixed for a unity of time fixed on the basis of job
evaluation standards. wages and salary administration

5. Need for Sound Salary Administration

Management has to formulate and administer the salary policies on sound line as: (i)most of
the employees’ satisfaction and work performance are based on pay; (ii) internal inequalities in
pay are serious to certain employees; (iii) employees compare their pay with that of others; (iv)
employees act only to gross external inequities; (v) employee comparisons of pay are
uninfluenced by levels of aspirations and pay history and  (vi) employees compare the pay of
different employees with their skill, knowledge, performance, etc. wages and salary
administration
OBJECTIVE OF THE WAGE AND SALARY ADMINISTRATION

The objects of wage and salary administration are numerous and sometimes conflict with each
other. The important among them are:

1. To acquire qualified competent personnel: Candidates decide upon their career in a

particular organization mostly on the basis of the amount of remuneration the
organization offers. Qualified and competent people join the best-paid organizations. As
such, the organizations should aim at the payment of salaries at that level, where they can
attract competent and qualified people.

To support skills needed by the organization

To pay for contribution and not time
To reward for behavior built on organization values and leadership attributes
To provide flexibility for individuals
To mix between fixed and variable pay
To recognize individual and teams
To attract and talent, wages and salary adminstration

2. To secure internal and external equity: Internal equity does mean payment of similar
wages for similar jobs within the organization. External equity implies the payment of
similar wages to similar jobs in comparable organizations.

To ensure desired behavior: Good rewards reinforce desired behavior like performance,
loyalty, accepting new responsibilities and changes etc.
To keep labour and administrative costs in line with the ability of the organization to pay.
To protect in public as progressive employers and to comply with the wage legislation
To pay according to the content and difficulty of the job and in tune with the effort merit of
the employees.
To facilitate pay roll administration of budgeting and wage and salary control.
To simplify collective bargaining procedures and negations
To promote organization feasibility. wages and salary administration