UNIT-IV

Course Name: BCOMH

Semester Number: V
Subject Code: BCOMH-502
Subject Name: Human Resource Management
Faculty Name: Himanshu Upadhyay
Designation: Assistant Professor

Unit-IV-BCOMH-502-Human Resource Management

 Compensation Management

Meaning of Compensation

Compensation is what employees receive in exchange for their contribution to the

organization. Generally, employees offer their services for three types of rewards. Pay
refers to the base wages and salaries employees normally receive. Compensation forms
such as bonuses, commissions and profit-sharing plans are incentives designed to
encourage employees to produce results beyond normal expectation. Benefits such as
insurance, medical, recreational, retirement, etc., represent a more indirect type of
compensation. So, the term compensation is a comprehensive one including pay,
incentives, and benefits offered by employers for hiring the services of employees. In
addition to these, managers have to observe legal formalities that offer physical as well as
financial security to employees. All these issues play an important role in any HR
department's efforts to obtain, maintain and retain an effective workforce.

Nature of Compensation

Compensation offered by an organization can come both directly through base pay and
variable pay and indirectly through benefits.
a) Base pay: It is the basic compensation an employee gets, usually as a wage or
salary.
b) Variable pay: It is the compensation that is linked directly to performance
accomplishments (bonuses, incentives, stock options).
c) Benefits: These are indirect rewards given to an employee or group of employees
as a part of organizational membership (health insurance, vacation pay, retirement
pension etc.)

Objectives of Compensation Planning

The most important objective of any pay system is fairness or equity. The term equity has
three dimensions.
a) Internal equity: This ensures that more difficult jobs are paid more.
b) External equity: This ensures that jobs are fairly compensated in comparison to
similar jobs in the labour market.
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.
In addition, there are other objectives also. The ultimate goal of compensation
administration (the process of managing a company's compensation programme) is to
reward desired behaviours and encourage people to do well in their jobs. Some of the

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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 behaviour: Pay should reward loyalty, commitment,
experience, risks taking, initiative and other desired behaviours. Where the
company fails to reward such behaviours, 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. Ease of operation: Compensation programmes must invariably satisfy
governmental rules regarding minimum wages, bonus, allowances, benefits, etc.
g. Comply with legal rules: The compensation management system should be easy
to understand and operate. Then only will it promote understanding regarding
pay-related matters between employees, unions and managers.

Factors Influencing Compensation Levels

The amount of compensation received by an employee should reflect the effort put in by
the employee, the degree of difficulty experienced while expending his energies, the
competitive rates offered by others in the industry and the demand-supply position within
the country, etc. These are discussed below.
a) Job needs: Jobs vary greatly in their difficulty, complexity and challenge. Some
need high levels of skills and knowledge while others can be handled by almost
anyone. Simple, routine tasks that can be done by many people with minimal
skills receive relatively low pay. On the other hand, complex, challenging tasks
that can be done by few people with high skill levels generally receive high pay.
b) Ability to pay: Projects determine the paying capacity of a firm. High profit
levels enable companies to pay higher wages. This partly explains why computer
software industry pays better salaries than commodity-based industries (steel,
cement, aluminum, etc.). Likewise, multinational companies also pay relatively
high salaries due to their earning power.

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 c) Cost of living: Inflation reduces the purchasing power of employees. To
overcome this, unions and workers prefer to link wages to the cost-of-living
index. When the index rises due to rising prices, wages follow suit.
d) Prevailing wage rates: Prevailing wage rates in competing firms within an
industry are taken into account while fixing wages. A company that does not pay
comparable wages may find it difficult to attract and retain talent.
e) Unions: Highly unionized sectors generally have higher wages because well-
organized unions can exert presence on management and obtain all sorts of
benefits and concessions to workers.
f) Productivity: This is the current trend in most private sector companies when
workers' wages are linked to their productivity levels. If your job performance is
good, you get good wages. A sick bank, for example, can't hope to pay
competitive wages, in tune with profit making banks.
g) State regulation: The legal stipulations in respect of minimum wages, bonus,
dearness allowance, allowances, etc., determine the wage structure in an industry.
h) Demand and supply of labour: The demand for and the supply of certain skills
determine prevailing wage rates. High demand for software professionals, R&D
professionals in drug industry, telecom and electronics engineers, financial
analysts, management consultants ensure higher wages. Oversupply kills demand
for a certain category of employees leading to a steep fall in their wages as well.

Most employers, nowadays, are interested in paying a fair wage to all workers
which is neither very high (affecting the company's profitability) nor very low
(where attracting and retaining people becomes difficult).

Wage Payment

Wage payment is a matter of great importance to workers. It determines their standard of

living, their attitude towards the company and influences their motivation to work. It is an
important issue from the employer's point of view as well, as their profit is affected by
the total wage bill.
Remuneration to labour, thus, is a complex problem and is often the bone of contention
between workers and employers. Employers want to keep down the wage rates and
employees want to see their wages rise continually. To strike a balance between the two,
it is necessary to select the system of wage payment carefully. An ideal system of wage
payment should have the following features.

Characteristics of Wage System

a) Simple: The system of wage payment should be simple and easily intelligible to
the worker. Above all, it must be perceived by employees as equitable.

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 b) Beneficial: The allocation of gains should be judiciously made among labour and
management on some equitable basis.
c) Equitable: Each worker should be paid fairly, in line with his effort, abilities and
training.
d) Guaranteed minimum wage: The system should guarantee a minimum wage (to
meet bare necessities and comforts of life) to every worker. Pay should be enough
to help an employee cover his basic needs.
e) Balanced: Pay, benefits and other rewards should offer a reasonable total
compensation package.
f) Incentive-oriented: The wage system should be such that the workers may feel
encouraged to produce more and earn more wages.
g) Quality output: The system must encourage the worker not only to increase the
quantum of output but also improve the quality of output.
h) Certainty: Wages should be paid in cash on a convenient date, time and place
during working hours. The system should not have any element of uncertainty.
i) Cost-effective: Pay should not be excessive, considering what an organization
can afford to pay.
j) Flexible: The system should be flexible to allow necessary changes, which may
arise from time to time.

Methods of Wage Payment

Generally speaking, there are two basic methods of wage payment.

▪ One method relates to the hours the employee is at work, regardless of his output
(time rate system).
▪ The other method is related to the production or output, regardless of the time
taken for production (piece rate system).
The other methods - Incentive Schemes - are only a variation of the two or combined
with time and piece rate systems.

Time Wage System

In this system, the worker is paid on the basis of time spent on the work irrespective of
the amount of work done. The basis of this time may be hour, day, week or month. This
is the oldest system and is widely employed in those organizations where:
i. Quality of work is more important that the volume;
ii. Measurement of work is not convenient (indirect labour);
iii. Production involves delay and interruption due to uncontrollable factors;
iv. Where the work requires a high degree of skill and dexterity;
v. Where work is of such nature that efficiency can only be measured by close
supervision.

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An improvement over simple time wage system may be found in High Wage Plan. This
system is similar to the above-mentioned system, except that the time rate is high, higher
than the time rate at ordinary level, in order to ensure a higher standard of performance,
from skilled and efficient workers.

Merits:
a) It is simple to understand and operate.
b) Workers are assured of guaranteed minimum wages irrespective of the output.
c) Suitable to beginners and learners.
d) For precision work (pattern making, tool making) where care is more significant
than speed, the time rate systems will help maintain the quality of products.
e) It is favoured by trade unions because it maintains worker's solidarity without
cleavage arising from differentiation in wages between efficient and inefficient
workers.

Demerits:

a) It makes no distinction between efficient and inefficient workers.

b) It offers very little to capable and efficient workers in the form of incentives to
increase production.
c) Management is made to spend more on assuring close supervision and thereby
prevent wastage of time.
d) Workers try to make the work last as long as possible so that they can earn more.
Thus, labour cost per unit is increased.
e) The system is unfair since wages and productivity are not correlated.

Piece Rate System

Under Piece rate system, the workers are paid at a stipulated rate per piece or unit of
output. Here speed is the basis of payment, instead of time. In this system, the rate is
fixed per piece of work and the worker is paid according to the number of pieces
completed or the volume of work done by him, irrespective of time taken by him in
completing that work. Efficiency is, thus recognized in this system.
The method is applicable where:
a) Quality of work is not important,
b) Work is of a repetitive nature,
c) Job rate can be fixed satisfactorily,
d) There is sufficient demand for output to guarantee continuous work and
e) The job is a standardized one.

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Merits:

a) It provides encouragement for higher production by rewarding efficient workers

in a suitable way.
b) In their bid to earn more, workers will try to adopt better and more efficient
methods and thereby increase production. As a result, the general dexterity and
skill of the workers are enhanced.
c) Since wage rate is fixed per unit, it is easy to prepare quotations, estimates and
budgets.
d) Idle time will be reduced to the minimum, as workers are not paid for wasted time
on the job.
e) Workers take great care in maintaining machines and tools properly because their
breakdown would cause work stoppages and reduce their earnings.
f) Cost of supervision is less, as the workers do not require supervisors to oversee
their efforts. Higher earning for increased production automatically compels them
to work with zeal and enthusiasm.

Demerits:

a) Under the straight piece-wage plan, no minimum remuneration is guaranteed. If

due to reasons beyond one's control, delays occur in performance of the jobs, the
concerned worker would have to go without any remuneration.
b) Beginners and average workers will not be able to earn reasonable wages because
of their inability to complete the work as fast as their experienced counterparts do.
c) Quantity will be over-emphasized at the cost of quality unless close supervision is
maintained.
d) Piece rates are unsuitable in circumstances where work is intermittent and job
cannot be standardized.
e) Since wages are linked with output, there will be a tendency among workers to
labour hard and overstrain themselves to record higher and higher output to get
increased wages thereof. Overwork affects the health of the workers.
f) Since capacities of workers differ widely, their earnings as per piece-rates also
vary widely causing dissatisfaction among them.
g) Trade unions very often oppose this system on ethical grounds that it will lead to
rivalry among workers and destroy brotherly feeling among them.

Types of Piece Rate System

The Piece Rate System can be classified infield into three categories:
a) Straight Piece Rate
b) Piece Rates with guaranteed time rates and
c) Differential Piece Rates.
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 a) Straight piece rate: In this method payment is made on the basis of a fixed
amount per fixed units produced without regard to the time taken. Thus,
Earnings = Number of units x rate per unit
The Fixation of piece rate generally depends upon:
▪ The comparable time rate for the same class of workers;
▪ The expected output in given time.
b) Piece rate with guaranteed time rate: In this system, workers are paid minimum
wages on the basis of time rates. A piece rate system with guaranteed time rate
may include any one of the following:
▪ If earnings on this basis of piece rate is less than the guaranteed minimum
wages, the workers will be paid on the basis of time rate. On the other
hand, if earnings according to piece rate is more, the workers will get
more.
▪ Guaranteed wages according to time rate plus a piece rate payment for
units above a required minimum.
▪ Piece rate with a fixed dearness allowance or cost of living bonus.
c) Differential piece rate: In this scheme, the rate per piece is increased, as the
output level is increased. That is, there is more than one-piece rate system. In
other words, the increase in rates may be proportionate to the increase in output.
By this system, inefficient workers are encouraged to earn more. This system is
suitable where:
▪ The work is of repetitive nature.
▪ Output can be identified with individual workers.

Fringe Benefits

The term 'fringe benefits' refers to the extra benefits provided to employees in addition
to the normal compensation paid in the form of wage or salary.
Many years ago, benefits and services were labeled 'fringe' benefits because they were
relatively insignificant or fringe components of compensation. However, the situation
now is different, as these have, more or less, become important components of a
comprehensive compensation package offered by employers to employees.

Features of Fringe Benefits

a) They are supplementary forms of compensation.

b) They are paid to all employees (unlike incentives which are paid to specific
employees whose work is above standard) based on their membership in the
organization.
c) They are indirect compensation because they are usually extended as a condition
of employment and are not directly related to performance.
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 d) They help raise the living conditions of employees.
e) They may be statutory or voluntary. Provident fund is a statutory benefit whereas
transport is a voluntary benefit.

Need for Fringe Benefits

Most organizations in India have been extending fringe benefits to their employees, year
after year, due to the following reasons:
a) Employee demands: Employees demand more and varied types of fringe benefits
rather than pay hike because of reduction in tax burden on the part of employees
and in view of the galloping price index and cost of living.
b) Trade union demands: Trade unions compete with each other for getting more
and newer varieties of fringe benefits to their members. If one union succeeds in
getting one benefit, the other union persuades management to provide a new one.
Thus, the competition among trade unions within an organization result in more
and varied benefits.
c) Employer's preference: Employers also prefer fringe benefits to pay-hike, as
fringe benefits motivate employees to give their best to the organization. It
improves morale and works as an effective advertisement.
d) As a social security: Social security is a security that society furnishes through
appropriate organization against certain risks to which its members are exposed.
These risks are contingencies of life like accidents and occupational diseases.
Employer has to provide various benefits like safety measures, compensation in
case of involvement of workers in accidents, medical facilities, etc., with a view
to provide security to his employees against various contingencies.
e) To improve human relations: Human relations are maintained when the
employees are satisfied economically, socially and psychologically. Fringe
benefits satisfy the worker's economic, social and psychological needs. Consumer
stores, credit facilities, canteen, recreational facilities, etc., satisfy the worker's
social needs, whereas retirement benefits satisfy some of the psychological
problems about the post-retirement life. However, most of the benefits minimize
economic problems of the employee.

Objectives of Fringe Benefits

The important objectives of fringe benefits are:

a) To create and improve sound industrial relations.
b) To motivate the employees by identifying and satisfying their unsatisfied needs.
c) To provide security to the employees against social risks like old age benefits and
maternity benefits.

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 d) To protect the health of the employees and to provide safety to the employees
against accidents.
e) To promote employees' welfare.
f) To create a sense of belongingness among employees and to retain them. Hence,
fringe benefits are called golden handcuffs.
g) To meet the requirements of various legislations relating to fringe benefits.
In order to have a sound benefits programme there are certain essential requirements. The
programme should be based on specific objectives that are in line with organizational
philosophy and policies. It should be affordable and cost-effective. Through surveys and
committees, a benefit package can be developed to meet employees' needs.

Types of Fringe Benefits

The fringe benefits offered by various organizations in India may be broadly classified
into five categories. These are discussed below:

a) Payment for time not worked: This category includes: (a) hours of work, (b)
paid holidays, (c) shift premium, (d) holiday pay and (e) paid vacation.
i. Hours of work: Section 51 of the Factories Act, 1948, specifies that no
adult worker shall be required to work in a factory for more than 48 hours
in any week. Section 54 of the Act restricts the working hours to 9 on any

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 day. In some organizations, the numbers of working hours are less than the
legal requirements.
ii. Paid holidays: According to the Factories Act, 1948, an adult worker
shall have weekly paid holidays, preferably Sunday. When a worker is
deprived of weekly holidays, he is eligible for compensatory holidays of
the same number in the same month. Some organizations allow the
workers to have two days' holidays in a week.
iii. Shift premium: Companies operating second and third shifts, pay a
premium to the workers who are required to work during the odd hour's
shift.
iv. Holiday pay: Generally, organizations offer double the normal rate of the
salary to those workers, who work during holidays. Paid vacation:
Workers in manufacturing, mining and plantations who worked for 240
days during a calendar year are eligible for paid vacation at the rate of one
day for every 20 days worked in case of adult workers and at the rate of
one day for every 15 days worked in case of child workers.
b) Employee security: Physical and job security to the employee should also be
provided with a view to ensure security to the employee and his family members.
When the employee's services get confirmed, his job becomes secure. Further, a
minimum and continuous wage or salary gives a sense of security to the life. The
Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of
Bonus Act, 1965, provide income security to the employees.
i. Retrenchment compensation: The Industrial Disputes Act, 1947,
provides for the payment of compensation in case of lay off and
retrenchment. The non-seasonal industrial establishments employing 50 or
more workers have to give one month's notice or one month's wages to all
the workers who are retrenched after one year's continuous service. The
compensation is paid at the rate of 15 days wage for every completed year
of service with a maximum of 45 days wage in a year. Workers are
eligible for compensation as stated above even in case of closing down of
undertakings.
ii. Lay off compensation: In case of lay off, employees are entitled to lay off
compensation at the rate equal to 50% of the total of the basic wage and
dearness allowance for the period of their lay off except for weekly
holidays. Lay off compensation can normally be paid upto 45 days in a
year.
c) Safety and health: Employee's safety and health should be taken care of in order
to protect the employee against accidents, unhealthy working conditions and to
protect the worker's productive capacity. In India, the Factories Act, 1948,
stipulated certain requirements regarding working conditions with a view to

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 provide safe working environment. These provisions relate to cleanliness,
disposal of waste and effluents, ventilation and temperature, dust and fumes,
artificial humidification, over-crowding, lighting, drinking water, latrine, urinals
and spittoons. Provisions relating to safety measures include fencing of
machinery, work on or near machinery in motion, employment of young persons
on dangerous machines, striking gear and devices for cutting off power, self-
acting machines, casing of new machinery, prohibition of employment of women
and children near cotton openers, hoists and lifts, lifting machines, chains, ropes
and lifting tackles, revolving machinery, pressure plant, floors, excessive weight,
protection of eyes, precautions against dangerous fumes, explosive or
inflammable dust, gas, etc. Precautions in case of fire, power to require
specifications of defective parts or test of stability, safety of buildings and
machinery, etc.
d) Workmen's compensation: In addition of safety and health measures, provision
for the payment of compensation has also been made under Workmen's
Compensation Act, 1923. The Act is intended to meet the contingency of
invalidity and death of a worker due to an employment injury or an occupational
disease specified under the Act at the sole responsibility of the employer. The Act
covers the employees whose wages are less than Rs 500 per month. Amount of
compensation depends on the nature of injury and monthly wages of the
employee. Dependents of the employee are eligible for compensation in case of
death of the employee.
e) Health benefits: Today, various medical services like hospital, clinical and
dispensary facilities are provided by organizations not only to employees but also
to their family members.
Employees State Insurance Act, 1948, deals comprehensively about the health
benefits to be provided. This Act is applicable to all factories, establishments
running with power and employing 20 or more workers. Employees in these
concerns and whose wages do not exceed Rs 1,000 per month are eligible for
benefits under the Act. Benefits under this Act include:
i. Sickness benefit: Insured employees are entitled to get cash benefit for a
maximum of 56 days in a year under this benefit.
ii. Maternity benefit: Insured women employees are entitled to maternity
leave for 12 weeks (six weeks before the delivery and six weeks after the
delivery) in addition to cash benefit of 75 paise per day or twice of
sickness benefit, whichever is higher.
iii. Disablement benefit: Insured employees, who are disabled temporarily or
permanently (partial or total) due to employment injury and/or
occupational diseases are entitled to get the cash benefit under this head.

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 iv. Dependant's benefit: If an insured person dies as a result of an
employment injury sustained as an employee, his dependents who are
entitled to compensation under the Act, shall be entitled to periodical
payments referred to as dependent’s benefit.
v. Medical benefit: This benefit shall be provided to an insured employee or
to a member of his family where the benefit is extended to his family. This
benefit is provided in the following forms:
▪ Out-patient treatment, or attendance in a hospital, dispensary,
clinic or other institutions; or
▪ By visits to the home of the insured person; or
▪ Treatment as in-patient in a hospital or other institution.
An insured person shall be entitled to medical benefits during any week
for which contributions are payable, or in which he is eligible to claim
sickness or maternity benefit or eligible for disablement benefit.
f) Voluntary arrangements: However, most of the large organizations provide
health services over and above the legal requirements to their employees free of
cost by setting up hospitals, clinics, dispensaries and homeopathic dispensaries.
Company's elaborate health service programmes include:
i. Providing health maintenance service, emergency care, on the job
treatment care for minor complaints, health counselling, medical
supervision in rehabilitation, accident and sickness prevention, health
education programmes, treatment in employee colonies, etc.
ii. Medical benefits are extended to employee family members and to the
retired employees and their family members.
iii. Small organizations which cannot set up hospitals or large organizations
(in those places where hospitals cannot be set up because of various
reasons) provide the medical services through local hospitals and doctors.
Sometimes they provide the facility of reimbursement of medical expenses
borne by the employees.
g) Welfare and recreational facilities: Welfare and recreational benefits include:
(a) canteens, (b) consumer societies, (c) credit societies, (d) housing, (e) legal aid,
(f) employee counselling, (g) welfare organizations, (h) holidays homes, (i)
educational facilities, (j) transportation, (k) parties and picnics and (1)
miscellaneous.
i. Canteens: Perhaps no employee benefit has received as much attention in
recent years as that of canteens. Some organizations have statutory
obligation to provide such facilities as Section 46 of the Factories Act,
1948, imposes a statutory obligation to employers to provide canteens in
factories employing more than 250 workers. Others have provided such
facilities voluntarily. Foodstuffs are supplied at subsidized prices in these

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 canteens. Some companies provide lunchrooms when canteen facilities are
not available.
ii. Consumer stores: Most of the large organizations located far from the
towns and which provide housing facilities near the organization set up the
consumer stores in the employee’s colonies and supply all the necessary
goods at fair prices.
iii. Credit societies: The objective of setting up of these societies is to
encourage thrift and provide loan facilities at reasonable terms and
conditions, primarily to employees. Some organizations encourage
employees to form cooperative credit societies with a view to fostering
self-help rather than depending upon money lenders, whereas some
organizations provide loans to employees directly.
iv. Housing: Of all the requirements of the workers, decent and cheap
housing accommodation is of great significance. The problem of housing
is one of the main causes for fatigue and worry among employees and this
comes in the way of discharging their duties effectively. Most of the large
factory’s organizations, e.g., sugar mills, are located very far from towns,
at places where housing facilities are not available. Hence most of the
organizations have built quarters nearer to factory and have thus provided
cheap and decent housing facilities to their employees, whilst a few
organizations provide and/or arrange for housing loans to employees and
encourage them to construct houses.
v. Legal aid: Organizations also provide assistance or aid regarding legal
matters to employees as and when necessary, through company lawyers or
other lawyers.
vi. Employee counselling: Organizations provide counselling service to the
employee regarding their personal problems through professional
counsellors. Employee counselling reduces absenteeism, turnover,
tardiness, etc.
vii. Welfare organizations, welfare officers: Some large organizations set up
welfare organizations with a view to provide all types of welfare facilities
at one centre and appoint welfare officers to provide the welfare benefits
continuously and effectively to all employees fairly.
viii. Holiday homes: As a measure of staff welfare and in pursuance of
government's policy, a few large organizations established holiday homes
at a number of hill stations, health resorts and other centres with low
charges of accommodation, so as to encourage employees to use this
facility for rest and recuperations in a salubrious environment.
ix. Educational facilities: Organizations provide educational facilities not
only to the employees but also to their family members. Educational

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 facilities include reimbursement of tuition fees, setting up of schools,
colleges, hostels, providing grants-in-aid to the other schools where a
considerable number of students are from the children of employees.
Further, the organizations provide rooms and libraries for the benefit of
employees.
x. Transportation: Many large Companies provide conveyance facilities to
employees, from their residence to the place of work and back, as most
industries are located outside town and all employees may not get quarter
facility.
xi. Parties and picnics: Companies provide these facilities with a view to
inculcating a sense of association, belongingness, openness and freedom
among employees. These activities help employees to understand others
better.
xii. Miscellaneous: Organizations provide other benefits like organizing
games, sports with awards, setting up of clubs, community service
activities, Christmas gifts, Diwali, Pongal and Pooja gifts, birthday gifts,
leave travel concession annual awards, productivity/performance awards,
etc.
h) Old age and retirement benefits: Industrial life generally breaks joint family
system. The saving capacity of the employees is very low due to lower wages,
high living cost and increasing aspirations of the employees and his family
members. As such, employers provide some benefits to the employees, after
retirement and during old age, with a view to create a feeling of security about the
old age. These benefits are called old age and retirement benefits. These benefits
include (a) provident fund, (b) pension, (c) deposit linked insurance, (d) gratuity
and (e) medical benefit.
i. Provident fund: This benefit is meant for economic welfare of the
employees. The Employee's Provident Fund, Family Pension Fund and
Deposit Linked Insurance Act, 1952, provides for the institution of
Provident Fund for employees in factories and establishments. Provident
Fund Scheme of the Act provides for monetary assistance to the
employees and/or their dependents during post-retirement life. Thus, this
facility provides security against social risks and this benefit enables the
industrial worker to have better retired life. Employees in all factories
under Factories Act, 1948, are covered by the Act. Both the employee and
employer contribute to the fund. The employees on attaining 15 years of
membership are eligible for 100% of the contributions with interest.
Generally, the organizations pay the Provident Fund amount with interest
to the employee on retirement or to the dependents of the employee, in
case of death.

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ii. Pension: The Government of India introduced a scheme of Employees
Pension Scheme for the purpose of providing Family Pension and Life
Insurance benefits to the employees of various establishments to which the
Act is applicable. The Act was amended in 1971 when Family Pension
Fund was introduced in the Act. Both the employer and the employee
contribute to this fund. Contributions to this fund are from the employee
contributions to the Provident Fund to the tune of 1.1/3% of employee
wage.
Employee's Family Pension Scheme, 1971, provides for a Family Pension
to the family of deceased employee as per the following rates:
This scheme also provides for the payment of a lumpsum amount of Rs
4,000 to an employee on his retirement as retirement benefit and a
lumpsum amount of Rs 2,000 in the event of death of an employee as life
insurance benefits.
iii. Deposit linked insurance: Employees deposit linked insurance scheme
was introduced in 1976 under the P.F. Act, 1952. Under this scheme, if a
member of the Employees Provident fund dies while in service, his
dependents will be paid an additional amount equal to the average balance
during the last three years in his account. (The amount should not be less
than Rs 1000 at any point of time). Under the employee's deposit linked
insurance scheme, 1976 the maximum amount of benefits payable under
the deposit linked insurance is Rs 10,000.
iv. Gratuity: This is another type of retirement benefit to be provided to an
employee either on retirement or at the time of physical disability and to
the dependents of the deceased employee. Gratuity is a reward to an
employee for his long service with his present employer.
The Payment of Gratuity Act, 1972, is applicable to the establishments in
the entire country. The act provides for a scheme of compulsory payment
of gratuity by the managements of factories, plantations, mines, oil fields,
railways, shops and other establishments employing 10 or more persons to
their employees, drawing the monthly wages up to Rs 1,600 per month.
Gratuity is payable to all the employees who render a minimum
continuous service of five years with the present employer. It is payable to
an employee on his superannuation or on his retirement or on his death or
disablement due to accident or disease. The gratuity payable to an
employee shall be at the rate of 15 days wage for every completed year of
service on part thereof in excess of six months. Here the wage means the
average of the basic pay last drawn by the employee. The maximum
amount of gratuity payable to an employee shall not exceed 20 months'
wage.

Unit-IV-BCOMH-502-Human Resource Management

v. Medical benefit: Some of the large organizations provide medical
benefits to their retired employees and their family members. This benefit
creates a feeling of permanent attachment with the organization to the
employees even when they are no longer in service.

Unit-IV-BCOMH-502-Human Resource Management