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Master of Business Administration

Semester 4
MU0006 -Compensation Benefits
Assignment Set – 1
Q.1 Explain the objective of a sound compensation planning.
The most important objective of any pay system is fairness or equity. The term equity has three
a) Internal Equity: This ensures that more difficult jobs are paid more. Internal equity deals
with the perceived worth of a job relative to other jobs in the organization. All employees
compare their jobs to other jobs within the organization. Generally, they consider skill,
effort, responsibility and working conditions in this comparison in order to determine the
value of their jobs relative to other jobs. Likewise, management must often determine the
‘worth’ or ‘value’ of one job in relation to other jobs for the purpose of pay programs.
Maintaining appropriate pay relative to value or worth is achieving internal equity.
b) External Equity: This ensures that jobs are fairly compensated in comparison to similar
jobs in the labor market. External equity deals with the issue of market rates for jobs. An
employer’s goal should be to pay what is necessary to attract, retain and motivate a
sufficient number of qualified employees. This requires a base pay program that pays
competitively. Among others, internal data such as turnover rates and exit interviews can
be helpful in determining the competitiveness of pay rates.
Employees also compare their jobs and pay to the jobs and pay in other organizations.
Generally, employees consider much more than base pay in determining external equity.
Depending on the individual employee, serious consideration may be given to employee
benefits, job security, physical work environment, commuting distance, opportunity for
advancement and the employee relations practices of the employer in determining external
equity issues.
An important issue to employees in determining external equity is the transferability of their
skills. If an employee’s skills are valued more highly in a different type of job or industry in
the area, the employee may believe that he is being treated inequitably.
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c) Individual Equity : it ensures equal pay for equal work , i.e., each individual’s pay is fair
in comparison to others doing the same/ similar jobs. Individual equity deals with an
individual’s perception of how he is being paid relative to other individuals within the
organization and perhaps within the same position. This focus of individual equity is on
the merits of the person filling a job, as opposed to the job itself. In simple terms,
employees want to feel that the rewards they receive for how they do their work are
comparable to the rewards received by others for the same amount of effort or output, all
other factors being equal. How merit rewards or increases are given strongly impacts
perceptions of individual equity.
d) Process Equity
How employees perceive the fairness or equity in the administration of the compensation
system is process equity. Process equity, in the perceptions of employees, is strongly
influenced by the openness of the system, communication of the system to employees,
participation in design or administration of the system and a grievance appeal procedure.
e) Performance Incentives
A significant element of a base pay program is to encourage higher or increased levels of
employee performance. Pay systems need to be designed to improve organizational
f) Maximum Use of Financial Resources
Since an organization does not have unlimited financial resources, the base pay program
needs to be designed to maximize the value to the organization with minimum use of
these limited resources. In order to accomplish this, pay programs have a variety of tools
such as pay range maximums, pay increase budgets, authorization procedures,
compensation committees or various internal auditing procedures available to help
accomplish this objective.
g) Compliance with Laws and Regulations
Though it is not the primary objective of a pay program, one of the objectives of a pay
program is to keep the organization in compliance with various state and federal laws and
h) Administrative Efficiency
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Due to the limited financial resources in an organization, one of the objectives of a pay
program should be to have a pay program that is easy to administer, flexible, and cost-
In addition, there are other objectives as well. The ultimate goal of compensation administration
(the process of managing a company’s compensation program) is to rewards desired behaviors
and encourage people to do well in their jobs. Some of the important objectives that are sought to
be achieved through effective compensation management are listed below:
a) Attract Talent
Compensation needs to be high enough to attract talented people. Since many Firms
compete to hire the services of competent people, the salaries offered must be high
enough to motivate them to apply.
b) Retain Talent
If compensation levels fall below the expectations of employees or are not competitive,
employees may quit in frustration.
c) Ensure Equity
Pay should equal the worth of a job. Similar jobs should get similar pay. Likewise, more
qualified people should get better wages.
d) New and Desired Behavior
Pay should reward loyalty, commitment, experience, risk –taking, initiative and other
desired behaviours. Where the company fails to reward such behaviors, employees may
go in search of greener pastures outside.
e) Control Costs
The cost of hiring people should not be too high. Effective compensation management
ensures that workers are neither overpaid nor underpaid.
f) Comply with Legal Rules
Compensation Programs must invariably satisfy governmental rules regarding minimum
wages, bonus, allowances, benefits, etc.
g) Ease of Operation
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The compensation management system should be easy to understand and operate. The
only will it promote understanding regarding pay related matters between employees,
unions and managers.

Q.2 Apex is an ITES service provider Company. It is startup (new) company, which is
trying to woo talent from the market. Being a new company it might face difficulty in
hiring highly talented candidates. As remuneration plays an important role, what will be
the strategic incentives plans organization can offer to persuade talented employees besides
providing good salary?

An effective system of remuneration is extremely important because several problems relating to

employees centre around one element, namely, remuneration. Many employees for example may
absent themselves from work often because they feel they are not paid enough. They may look
for new and better prospects because the present emoluments may not be attractive enough to
stay on. They may agitate or turn violent because the remuneration paid to them may not be

Desire For More Pay

Search for higher

remunerative jobs
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Strikes Grievances

Pay Turnover Absenteeism Psychological

dissatisfaction withdrawal

Visit to

Job dissatisfaction
attractiveness of Poor Mental Health

An average worker cares only for money. This being the reality, remuneration must fulfill the
expectations and aspirations of employees and exploit theor energies for the benefit of
organizations. Attractive remuneration enables an organization to attract retain and motivate
competent people. Retaining competent individuals for long is more difficult than attracting fresh
ones. An employee’s longevity of service in a particular organization depends more on non-
financial benefits, but the role of financial benefits cannot be ruled out, particularly at the lower
levels of hierarchy. Loyalty towards an organization depends on his perception about
remuneration is equal or more than the remuneration received by others in the same category of
jobs. If the remuneration is lower, the employee feels that he is inequitably treated. An employee
sticks to an organization when he is paid equitably. The organization’s pay structure must,
therefore, be equitable and consistent.
Employees get motivated to perform better when their past performance is rewarded adequately.
Employees set expectations about rewards and compensation to be received, if certain levels of
performance are achieved. These expectations determine goals or levels of performance are
achieved for the future. Employees achieving the desired level of performance except a certain
level of compensation. At some point, the management evaluates and rewards the employee’s
performance. Such rewards include merit –pay increases, promotions, and non financial rewards
such as recognition and increased status. Employees consider the relationship between their
performance and rewards related to that performance, and then the fairness of the relationship.
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The final step in the process will have the employee settings new goals and expectations, based
on past experience within the organization.
If employees see that hard work and superior performance are recognized and rewarded by the
organization, they will expect such relationships to continue in the future. Therefore, they will set
higher levels of performance for themselves, expecting higher levels of rewards. Of course, if
employees see little relationship between performance and rewards, then they may set minimum
goals in order to retain their jobs, but will not see the need to excel in their positions.
Remuneration is the only HR activity, which has its impact on all other functions regarding
personnel. Recruitment and selection are dependent upon wages and salaries offered to
prospective employees. There is a close relationship between performance appraisal and
remuneration. This is particularly true in case where ‘payment by results’ schemes exist.
Incentive payments depend on the employee performance which needs to be carefully assessed.
It needs no particular emphasis that union- management relations largely depend upon employee
remuneration. Industrial conflicts between employees and employers take place on remuneration-
related issues. There are other benefits of an effective remuneration system. Such a system helps
the organization obtain and retain employees at a reasonable cost. In the absence of a rational
payment system, employees are likely to be overpaid or underpaid. There are a number of labor
acts, which need to be complied with by an organization. Non –compliance of any provision
makes the organization guilty and punishable. A properly designed wage and salary system helps
the company to avoid such possibilities.

Q.3 Explain the steps involved in designing a Remuneration Plan.

Any remuneration plan must be understandable, workable and acceptable. The remuneration
scheme plan must have two components – a base rate and the scope for increasing the base rate.
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The remuneration plan must be determined keeping in mind the requisites and the components.
The following steps must be followed in designing a remuneration plan:

Job Analysis

Job Documentation

Job Hierarchy

Pay Survey

Pricing Jobs

Job Analysis
This involves collecting and evaluating relevant information about jobs. Any data collected
should clarify the nature of the work being performed (principal or essential tasks, duties and
responsibilities), the level of the work being performed, the extent and types of knowledge, skill,
mental and physical effort and requirements, and responsibility required for the work being
performed. There are five primary sources of data for collection of job information:
questionnaires, interviews, logs or diaries, direct observation and work plans. All of these
methods have advantages and disadvantages and the organization must choose the method that
will provide comprehensive data with administrative efficiency and cost-effectiveness.

a) Job Documentation - There needs to be a formalized way to document job content. In

most organizations, a job description is the means used to accomplish this. Job
documentation is used to evaluate job content, provide objective criteria for making pay
comparisons, ensure that jobs are classified according to content as opposed to individual
personalities, effectively communicate the job duties to both supervisors and employees,
and help the organization defend itself against charges of discrimination. Who should
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write job descriptions? That will depend on the resources available to the organization,
but they should always be reviewed by line management.

c) Development of a Job Worth Hierarchy - A job worth hierarchy is the result of job
evaluation, the overall process of comparing jobs. There are 6 major methods of
comparing jobs in order to develop the job worth hierarchy. The first three methods are
"whole-job" evaluations and are non-quantitative in nature. These include ranking,
classification and slotting. The second three are "factor" evaluation and are quantitative in
nature. These include point factor, factor comparison, and scored questionnaires.

i) Pay Surveys
Job hierarchy being established, the next step is to establish pay differentials. Before
fixing wage and salary differentials, prevailing wage and salary rates in the labour market
need to be ascertained. Hence pay surveys are relevant. Wage and salary surveys ensure
external equity. A wage and salary survey provides information as to what other
organisations that compete for employees are paying. The survey could cover all the jobs
within an organisation or limited to benchmark jobs, jobs that are used to anchor the
company’s pay scale and around which other jobs are slotted based on their relative worth
to the firm. The benchmark jobs have the following basic characteristics.
i) Many workers in other companies have these jobs.
ii) They will not be changing in the immediate future in terms of tasks, responsibilities,
iii) They represent the full range in terms of salary such that some are among the lowest
paid in the group of jobs, others are in the middle range and some are at the high end of
the pay scale.
Formal and informal surveys could be undertaken to collect data on benefits like
insurance, medical leave, vacation pay, etc., and offer a basis on which to take decisions
regarding employee benefits. Published sources also provide valuable information
regarding industry-wise trends in salary structures in and around the country. The
published sources in India include:
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i) Reports published by the Ministry of Labour

ii) Pay Commission reports
iii) Reports of Wage Bonds appointed by Government
iv) Reports of employees and employers’ organisations
v) Trade journals of specific industry groups, etc.
One of the major problems with these sources is the comparability of jobs in the survey to
jobs in the organisation. To overcome the limitations of published surveys, one must
resort to conducting one’s own surveys of important jobs. The following survey methods
are generally used to collect relevant wage-related information:
j) Key Job Matching: Under this method, similar key jobs are identified between the
organization and the relevant wage particulars about those comparable jobs are collected.
ii) Key Class Matching: Similar classes of jobs are identified and the necessary data
about those classes are collected.

iii) Occupational Method: Certain basic occupational groups like clerks, officers,
managers are identified and then the necessary data is collected.

iv) Job Evaluation Method: All the parties participating in the survey method use the
same method and same mechanism for evaluating similar jobs.

v) Broad Classification Method: Under this method, broad groups of relatively

homogeneous job i.e., by industry, by profession or by geographical areas are grouped
and the relevant information about these jobs is collected.

e) Pricing Jobs
Establishment of Pay Ranges and/or Rates - In order to actually establish a pay structure, an
organization needs to set rates of pay for the jobs in the job hierarchy. Before doing this, an
organization needs to ask, and answer, the following questions:
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1.How should the organization's pay level relate to the external market? Should the organization
be a pay leader, match the market or pay less than market?
2.What is the organization willing to pay for: job content, seniority, performance, skills, cost of
labor, or some combination of all of these?
3.How does the organization pay its employees: based on a single rate structure (all employees in
the same job receive the same pay), based on seniority, based on merit, based on productivity
(piece work), based on new skills (skill-based pay), or based on some combination of these
factors? Are short term or long term incentives provided?
4.What steps does the organization need to take to ensure that pay is administered in a manner
free of bias and discrimination?

If an organization decides to use pay ranges (or grades), it will have to determine how many
ranges to have. This will depend on the number of different levels of relative job value that are
recognized by the organization and the difference in pay between the highest and lowest paid
jobs in the pay structure. The focal point of a pay range is the mid-point as this is generally the
"going" rate for jobs assigned to that range. From the mid-point, an organization can determine
the range minimum and maximum. The range minimum is the usually the lowest pay rate for any
job in that range and is usually the pay rate given to people hired in that range who meet minimal
qualifications only. Occasionally an organization will pay a "training" rate that is below that
minimum. The maximum of a range is the highest rate an employer is willing to pay for jobs in
that pay range. Other important range issues include the range width and the degree of overlap
between ranges.

The end result of all of the above is a pay structure that should accomplish the organization's
objectives with regards to a pay program, and should reflect the organization's philosophy on
how it wishes to relate its pay program to the market. Also, this pay structure should demonstrate
the internal job values of positions, and how the organization wishes to mix base pay, benefits
and incentives.

f) Pay Rates and Pay Increases

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Creating a pay structure is not the final step in the creation of a compensation plan. An
organization must also decide how to administer this compensation plan. This means deciding
how to pay new employees, how and when to give employees increases, including how to move
existing employees from the minimum to the maximum of their assigned pay grades, how to
determine the pay increase for an employee being promoted from one job to another and what
influence, if any, cost of labor increases will have on the determination of pay increases for
employees. In addition, an organization must develop policies and procedures that will
implement the results of these decisions in a consistent manner.

g) Starting Pay for New Employees - In order to avoid paying new employees the same as more
experienced employees, most employers choose to start new employees closer to the minimum of
the pay range. In general, an employee with minimum qualifications should be paid the minimum
of the range. This general rule is not true when a new hire has skills which are in great demand or
has skills or other expertise substantially above the minimum.

h) Employee Increases - There are several different types of base pay increases: general (across-
the-board) increases, cost-of-living/labor increases, promotion increases, step increases (based on
longevity), and merit increases.

General increases are diminishing in popularity because they are not consistent with the idea of
pay for performance. With a general increase, employees in a certain group based on established
requirements are eligible for a certain monetary or percent increase to their base pay.

A cost-of-living increase is a type of general increase given to all eligible employees. This type
of increase may happen as a result of union contract negotiation. Some companies choose to
track benchmark positions over a period of time and modify other positions based on changes in
the ranges of benchmark positions.

Promotion increases are given when an employee is moved from one job to another with a higher
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pay grade and range. The size of the increase will be influenced by the difference between the
old and new pay ranges, and the pay of the newly promoted person's peers, superiors and
subordinates, if any.

Step increases can be based solely on longevity or some combination of longevity and
performance. Step increases alone are inconsistent with pay for performance.

Merit increases are also known as pay for performance. To be successful, an organization must
be able to measure differences in job performance and these differences must be significant
enough to merit the time and effort required to measure them and pay accordingly. Merit
increases also affect other components of the compensation plan in that the pay range must be
wide enough to allow for significant differences based on performance, supervisors and
managers require training in performance planning and appraisal, and control mechanisms must
be in place to successfully administer a merit increase program.

i) Performance Appraisal

If an organization chooses to pay for performance, the compensation plan must include a well-
designed and properly administered performance appraisal system in order to be complete.
Following are some questions that will help determine if an organization's current performance
appraisal system meets this criteria.

Is performance appraised on the direct measurement of an employee's output or results? Does the
performance appraisal system consider only job-related behavior rather than personality traits?

Are supervisors and managers trained in the performance appraisal process?

Are the criteria used to measure performance as objective and quantitative as possible? Or are the
criteria open to subjective interpretation?
Have objective job standards been developed? Have the employees had input into the
development of these standards? Are they communicated to the employees at the beginning of
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the appraisal period? Are job standards reviewed regularly to ensure relevance and importance to
the department and organization?
Is the employee actively involved in the performance appraisal process? Or is a performance
appraisal something that is "done" to the employee?

j) Maintaining and Auditing a Compensation Plan

Changes in the external market or internally within the organization can cause one or more parts
of a compensation plan to become outdated. Part of the challenge in creating a compensation
plan is to build in mechanisms that facilitate change when necessary, yet maintain control on a
regular basis. Some actions an organization can take to maintain an updated compensation plan
include regular review of job descriptions, monitoring of compensation levels versus companies
with which there is competition for employees, and regular review of the pay structure including
pay ranges and pay increase budgets.

An audit is an excellent means to ensure that a compensation plan is being properly administered
and maintained. When planning to audit a compensation plan,an organization needs to consider
the following:
Process measures - Are procedures and practices in place to ensure the compensation plan is
being administered smoothly and efficiently?
Policy compliance - Are there procedures or other mechanisms in place to ensure that the
compensation plan is being administered in accordance with policy?
Documentation adequacy - Is there adequate documentation in place to ensure that the
administration of the compensation plan and compliance issues can be audited?
Overall results - Are there measures that can assess how well the compensation plan is achieving
its goals and objectives?

After reviewing audit results, management can make recommendations on any improvements
that may be necessary, allocate the necessary resources and follow-up to make sure the work is
completed.Success of a compensation plan includes an overall pay philosophy as well as the
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policies and procedures that govern operation of the compensation plan. Because organizations
have limited resources, excessive time and money should not be expended in pay program
administration. The costs of administration should be balanced against achieving the other
objectives of the pay plan. An organization must decide how it will move employees through the
pay range once a pay-range structure has been developed. An organization may utilize the

*Individual performance as a basis for movement

* Automatic or step progression based on employee tenure
* Cost of living increases

If an organization chooses to implement a performance-based pay program, then compensation

professionals must ensure that their merit-pay programs measure performance objectively and
management must carefully evaluate performance to make judgments regarding pay differentials.
Organizations find that an audit of the compensation plan is a useful tool for educating
management, thus increasing their understanding and support of the pay program. It is
recommended to conduct a comprehensive audit at least every two years in order to identify
problem areas and resolve them as soon as possible.
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Master of Business Administration

Semester 4
MU0006 -Compensation Benefits
Assignment Set – 2
Q.1. Fringe benefits are the important components of remuneration, though most
of the organizations face confusion when it comes to administering fringe benefits
program. Design the steps needed to administer Fringe benefits to avoid problem in
administering indirect remuneration plan.

A fringe benefit is a form of pay (including property, services, cash or cash

equivalent) in addition to stated play for the performance of services. Some forms of
additional compensation are specifically designated as “fringe benefits” in the Internal
Revenue Code; others, such as moving expenses or awards, have statutory provisions
providing for special tax treatment but are not so designated by the Code. This
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publication uses the term broadly to refer to all remuneration other than stated pay for
which special tax treatment is available. The definition of fringe benefits applies to
services of employees and independent contractors; however, unless otherwise
this guide applies to fringe benefits provided by an employer to an employee. (For a
discussion of whether a worker is an employee or independent contractor, see
15-A.) Fringe benefits for employees are taxable wages unless specifically excluded by
section of the Internal Revenue Code (IRC).
Fringe benefits are one of the means to ensure, maintain and increase the material
welfare of employees. The physical and mental strain of workers in an industry is
considerably alleviated by tax benefits through creating an environment that insulates
them from fatigue and monotony.
Administration of Fringe Benefits:
Administration of Fringe Benefits Tax identified that a number of processes relating to
the administration of FBT in Australian Government entities could be improved. This
Guide has been produced to assist entities to administer their FBT obligations.
These problem can be avoided if the following lines are taken while administering
indirect remuneration. The steps are:
1.Benifit objectives:
In establishing objectives, the management must consider several factors like employee
preference for benefits, attendance, length of service, performance etc. The benefits
accomplish four objectives;
1. Fostering external competitiveness,
2. Increasing cost effectiveness,
3. Meeting Individual employee’s needs and preferences,
4. Complying with legal compulsions.
2. Assessing Environment:
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A company remuneration program is influenced by both external and internal factor.

External Factor:
The external factors are aspects such as govt. policy and regulations, Unions, and
economic factors. The major govt. policies, which influence employee benefits and
services, are wage regulations, tax policies, and specific benefits laws.
Unions are a dominant force to improve benefits and services.
Economic factors influence benefits decisions in competitive way. Struggling to achieve
competitive prices for their product and service, managers look to reduce, at least
curtail, increases in labour cost. Competition in the labour market to attract and retain
production employees creates pressure to match the benefits offered by others.
Internal factors:
Internal factors involve organisational strategies and objectives, employee preferences
and demographics. The preferences and demographics of a particular employee in an
organisation also affect indirect remuneration.
3. Competitiveness:
Generally organisations offer benefits to match or outstrip those offered by competitors.
These are assessed through market surveys conducted by professional associations and
consultants. These survey provide data on the various benefits offered, their coverage,
eligibility and costs.
4.Communicating the benefits:
Fringe benefits program must be communicated to employees through booklets,
brochures, slide presentations, and regular employee meetings. An effective technique is
to use employee calendar, which communicates the total remuneration components.
5.Evaluation and control:
One way to assessing the usefulness of fringes is to ascertain how far the advantages
claimed in favour of indirect monetary schemes have really benefited the employees.
The aspect that need to be looked into are;
a. Have the earning of the employee improved?
b. Have the benefits been able to attract and retain competent people?
c. Has the morale of employees gone up?
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Q.2) Explain the different types of incentive plan offered by organizations.

Time-based individual incentive schemes
a) Hasley or Wier plan
This plan devised by F.A.Hasley recognizes individual efficiency and pays bonus on the
basis of time saved. The main features of this plan are :
1) Standard time is fixed for each job or operation.
2) Time rate is guaranteed and the worker receives the guaranteed wages irrespective of
whether he completes the work in the time allowed or takes more time to do the same.
3) If the job is completed in less than the standard time, the worker is paid a bonus of
50% of time saved at time rate in addition to his normal time wages.
Total Earnings= Time taken X Hourly rate plus bonus
Bonus = 50% of the time saved
b) The Rowan Plan
This plan was introduced by D. Rowan. As in Hasley plan the bonus is paid on the basis of time
saved. But unlike a fixed % in case of Hasley plan it takes into account the proportion as follows:
Time Saved
Time Allowed
Thus, under this plan the bonus is that proportion of the wages of time taken which the time
saved bears to the standard time.
Bonus= Time saved
-------------------------------------- X Time taken X Hourly Rate + Bonus
Standard time or Time allowed

c) Emerson Efficiency Plan

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Under this plan the standard time for the job is determined scientifically and a minimum time
wage is guaranteed to all workers. Bonus is given at an increasing %beyond the prescribed level
of efficiency. Efficiency is measured by comparing the actual time taken with the standard time.
Total Wages=( Time taken X Time wage) +( % of bonus X Time taken X Time wages)

d) Bedeaux Point Plan

Under this plan the standard time is fixed scientifically and is expressed in terms of ‘B’. In
determining the B’s the time of operation and the rest time both are taken into account. Minimum
time wage is guaranteed to all the workers. The workers who complete their job within or more
than the standard time are paid at the normal time rate. Those who complete the job in less than
the standard time are paid bonus for the time saved.
Total wages= Standard time X Rate of Wages +75% of Rate of wage( Standard time-Actual time
Output based individual incentive schemes:
a) Taylor’s differential piece rate system
The main features of this plan are:
1) There shall be two piece work rates, one is lower and other is higher.
2) The standard of efficiency is determined either in terms of time or output based on time
and motion study.
3) If a worker finishes work in standard time he will be given high piece rate.
4) This system penalizes the slow worker by paying low rate because of low production,
rewards an efficient worker by giving high rate because of higher production.
b) Merrick’s Differential Piece rate system
There are three piece rates under this instead of two and workers producing below the standard
output are not penalized by low piece rate. Since the earnings increase with increased efficiency
the performance above the standard will be rewarded by more than one higher differential piece
rate. The basic features are:
1) Up to 83% of the standard output workers are paid at the ordinary piece rate.
2) 83% to 100% at 110% of the ordinary piece rate.
3) Above 100% at 120% of the ordinary piece rate.
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c) Gantt task and Bonus Plan

This plan combines time piece and bonus systems. The main features are:
1) Day wages are guaranteed.
2) Standard time for task is fixed and both time wages as well as a high rate per piece are
3) A worker who cannot finish the work on standard time are paid according to time basis.
4) If the worker reaches the standard time he will be paid the time wage plus the bonus at a
fixed % of normal time wage.
5) If the worker exceeds the standard he is paid a higher piece rate.
Accelerated Premium Bonus Plan
This plan is also known as sliding scale bonus plan because the premium is paid at varying rate
of increasing efficiency. As the efficiency of the worker increases his earnings would increase at
greater proportions. This plan is most suitable for foreman and supervisors because it will
stimulate them to get higher proportions from workers under their supervision but it is not
advisable to use it for the machine operators who may rush through work to earn more,
disregarding quality of production.

Q.3) Write short notes on:

 The Minimum Wages Act, 1948

 Payment of Wages Act, 1936

 The Minimum Wages Act, 1948

Object of the ActTo provide for fixing minimum rates of wages in certain employments

Fixation of Minimum Rates of Wages: The appropriate government to fix minimum rates
of wages. The employees employed in para 1 or B of Schedule either at 2 or either part of
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notification u/s 27. To make review at such intervals not exceeding five years the minimum
rates or so fixed and revised the minimum rates. Government can also fix Minimum Wages
for • Time work • Piece work at piece rate • Piece work for the purpose of securing to such
employees on a time work basis • Overtime work done by employees for piece work or time
rate workers.

Minimum Rates of Wages: Such as Basic rates of wages etc. Variable DA and Value of
other concessions etc. Sec. 4

Procedure for fixing and revising Minimum Rates of Wages: Appointing Committee
issue of Notification etc. Sec. 5

Composition of Committee: Representation of employer and employee in schedule

employer in equal n umber and independent persons not exceeding 1/3rd or its total number
one such person to be appointed by the Chairman. Sec. 9

Payment of Minimum Rates of Wages: Employer to pay to every employee engaged in

schedule employment at rate not less than minimum rates of wages as fixed by Notification
by not making deduction other than prescribed. Sec.12


To be fixed by the hour, by the day or by such a longer wage-period works on any day in excess
of the number of hours constituting normal working day.

Payment for every hour or for part of an hour so worked in excess at the overtime rate double of
the ordinary rate of (1½ times or for agriculture labour) {Section 5}

Wages of workers who works for less than normal working days :Save as otherwise
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hereinafter provided, be entitled to receive wages in respect of work done by him on that day
as if he had worked for a full normal working day. Sec.15

Wages for two class of work: Where an employee does two or more classes of work to each
of which a different minimum rate of wages is applicable, wages at not less than the
minimum rate in respect of each such class. Sec. 16

Maintenance of registers and records:

• Register of Fines – Form I Rule 21(4)
• Annual Returns – Form III Rule 21 (4-A)
• Register for Overtime – Form IV Rule 25
• Register of Wages–Form X, Wages slip–Form XI, Muster Roll–Form V Rule 26
• Representation of register – for three year Rule 26-A Sec. 18

Claims by employees
• To be filled by before authority constituted under the Act within 6 months.
• Compensation upto 10 times on under or non-payment of wages {Section 16}

Minimum time rate wages for piece work: Not less than minimum rates wages as fixed

Claims by employees:• To be filed by before authority constituted under the Act within 6

Penalities Offence Punishment: For paying less than minimum rates of wages.
Imprisonment upto 6 months or with fine upto Rs.500/-
Sec. 20 For contravention of any provisions:

pertaining to fixing hours for normal

working day etc.
Imprisonment upto 6 months
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Object of the Act

To regulate the payment of wages of certain classes of employed persons

Time of payment of wages

The wages of every person employed is paid. When less than 1000 persons are employed shall be
paid before the expiry of the 7th day of the following month. When more than 1000 workers,
before the expiry of the 10th day of the following month.
Wages to be paid in current coins or currency notes

a. All wages shall be paid in current coins or currency notes or in both.

b. After obtaining the authorization, either by Cheque or by crediting the wages in employees
banks Account
Deduction made from wages

Deductions such as, fine, deduction for amenities and services supplied by the employer,
advances paid, over payment of wages, loan, granted for house-building or other purposes,
income tax payable, in pursuance of the order of the Court, Provident Fund contributions,
cooperative societies, premium for Life Insurance, contribution to any fund constituted by
employer or a trade union, recovery of losses, Employees State Insurance contribution etc.

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 {Section 9}
Deduction for damage or loss
Sruthi Geetha 24


For default or negligence of an employee resulting into loss. Show cause notice has to be given
to the employee. {Section 10}

1 . On contravention of Section 5 (except Subsection .4), Section 7, Section 8 (except Subsection
8), Section 9, Section 10 (except Subsection 2) and Section 11 to Section 13
Fine not less than Rs. 1000, this may extend to Rs. 5000. On subsequent conviction fine not less
than Rs. 5000, may extend to Rs. 10000. On contravention Section 4, 5(4), 6, 8 (8), 10(2) or
Section 25 fine not less than Rs. 1000. - may extend to Rs. 5000. On subsequent on conviction
fine not less.
2. For failing to maintain registers or records; or Willfully refusing or without lawful excuse
neglecting to furnish information or return; or Willfully furnishing or causing to be furnished any
information or return which he knows to be false or Refusing to answer or willfully giving a false
answer to any question necessary for obtaining any information required to be furnished under
this Act
Fine which shall not be less than Rs. 1000 but may extend to Rs. 5000 – On record conviction
fine not less than Rs. 5000, may extend to Rs. 10000.
For second or subsequent conviction, fine not less than Rs. 5000 but may extend to Rs. 10000.

3. Willfully obstructing an Inspector in the discharge of his duties under this Act; or
Refusing or willfully neglecting to afford an Inspector any reasonable facility for making any
entry, inspection etc. Willfully refusing to produce on the demand of an inspector any register or
other document kept in pursuance of this Act; or preventing any person for appearance etc

Fine not less than Rs.1000 extendable upto Rs.5000 – On subsequent conviction fine not less
than Rs.5000 – may extent to Rs.10,000

4. On conviction for any offence and again guilty of Contravention of same provision. Failing or
neglecting to pay wages to any employee
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Imprisonment not less than one month extendable upto six months and fine not less than Rs.2000
extendable upto Rs.15000.
Additional fine upto Rs. 100 for each day