Factors affecting wage structure
The fixation of wage structure depends upon the following factors.
1. Cost of living
The cost of living very much affects the wage structure. The increase in the cost of living reduces the purchasing power of the wage received by the employees. So, the wage structure should be such that, the workers are able to maintain a decent standard of living. The wage structure should take into account the current cost of living index.
2. Demand and supply
The demand and supply condition of labor greatly affects the wage rates. If there is high demand for labor, the wage rate may be higher. If the demand is less, the wage rate will be lower. But in recent years, this factor does not affect the wage rate. Since the wage rate once fixed cannot be reduced. (if the demand for labor is lesser.)
3. Ability to pay
If an organization gets high profit, it will be able to pay more to the employees. To start with, an organization pays a wage at a rate equal to that paid by the competitors. But in due course, the organization may get higher profit. In this case, they may pay higher wage rates.
4. Bargaining capacity of trade unions
In some organizations, there will be strong labor unions. Their bargaining power will be more. They can demand and get higher wage rates. If the labor union is not strong, the management may fix a lower wage rate.
5. Government regulations
State government regulations very much influence the wage rates. The government has to safeguard the interest of its citizens. So, if the wage structure is low, the government will step in. The government has enacted the minimum wages act. This fixes the minimum wages to be fixed in various types to industries. Payment of bonus act, Provident fund act, etc. are some of the acts connected with wage payment?
Components of wage
The following are their main components of wage.
1. Basic wage:
It represents the monetary value equivalent to the worthiness of the job. It does not include any allowances. It depends upon the nature of the job and the type of business. For every job or position of the employee, a scale of pay is fixed. For example, the scale of pay of a supervisor maybe 1500-50-2000.
This means, the basic pay for the post during the first year is Rs.1500. During the second year, the basic pay is 1500 + 50 = 1550 and so on. The maximum basic pay in this cadre is Rs.2000 (after 10 years).
2. Dearness allowance:
This allowance is given to compensate for the increase in the cost of living due to the rise in prices of different commodities. In our country, the price level of various essential items is measured by Price Index Number. (All India Working Class Consumer Price Index) Industrial workers, as well as Government employees, are given D.A based upon this number. D.A may be paid at a fixed rate or as a percentage of basic pay.
3. Bonus:
Bonus is the extra amount paid to the employees from the profit earned by the company. As per the bonus act, the minimum bonus to be paid to an employee is 8.33% of his yearly earnings.
4. Overtime payment:
This is the extra wage to be paid to workers when they work beyond normal working hours. Overtime wages will be double the normal wages.
5. Incentives:
The incentive is a reward given to a worker for his efficiency and hard work. It encourages and motivates a worker to produce more and better.
6. Other allowance:
This refers to the allowances other than the dearness allowance. These allowances are paid depending upon the nature of work, working conditions, etc. The allowances in this category are:
- House Rent Allowance (HRA)
- City Compensatory Allowance (CCA)
- Medical allowance
- Conveyance allowance
- Traveling allowance
- Hill allowance
- Night shift allowance
- Risk allowance
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