CIA 1 Compensation Management

CIA – 1
COMPENSATION MANAGEMENT AND SOCIAL SECURITY
NAME- KURIAN S ABRAHAM
SUBMITTED TO- DR PANKAJ SHANKAR KUMBHAR
DEPT OF SOCIOLOGY AND SOCIAL WORK
TOPIC- COMPENSATION MANAGEMENT SYSTEM IN INDIAN

INDUSTRIAL CONTEXT
INTRODUCTION OF COMPENSATION MANAGEMENT
The creation and execution of appropriate employee compensation policies, plans, and
procedures are referred to as compensation management. In essence, it involves using a
methodical, scientific approach to pay people fairly, equitably, and logically for their job. The
reward of employees for their labour and contribution to achieving organizational goals is the
focus of compensation management.
CONCEPT OF COMPENSATION MANAGEMENT
When a company's employees work hard and in the appropriate way, its aims and objectives
can be attained. They should therefore be given the required care and compensation for their
labour, performance, services, etc. Organizations provide their employees a variety of
incentives, benefits, and services in addition to pay and salaries. While benefits such as life,
accident, and health insurance, a company's contribution to retirement benefits, retirement
benefits, costs incurred for employee welfare such as social security, etc. fall under indirect
compensation, money paid to employees in exchange for their work falls under direct
compensation.
All of these items are just the rewards that employees receive for their contributions to their
companies. Management of pay is a crucial task from the perspective of an organization. One
of the key areas of HRM is compensation management. Given that it could directly affect all
other areas, this is the one that requires the most care.
PROVISION UNDER COMPENSATION MANAGEMENT
Major provision under compensation management for organizations includes
1. Minimum Wages Act
This law was initially passed in 1948 to establish minimum salaries (Basic + Dearness
Allowance) for several types of workers, including unskilled, semi-skilled, skilled, and highly
skilled ones. The Act aims to stop the exploitation of labour while allowing workers to earn a
living in a decent manner. Minimum wage rates might vary from industry to industry and are
periodically announced by various states through their announcement in the official gazette.
Every employer must comply with Section 12 of the Act, which also forbids any improper
deductions from earnings and requires them to pay the minimum wages that apply to them
simultaneously.
2. House Rent Allowance (HRA)
In order to ensure that employees receive the greatest possible benefit from the income tax
laws, H.R.A. is often paid at a rate of about 50% of Basic + DA in metro areas (Mumbai,
Delhi, Kolkata, and Chennai) and 40% in non-metro areas. The Maharashtra Workmen's
Minimum House-Rent Allowance Act of 1983 and the West Bengal Workmen's House-rent
Allowance Act of 1974, respectively, are state-specific regulations that require every
establishment employing 50 or more people to pay a minimum of 5% of salaries (Basic +
DA) as an HRA allowance.
3. Employee’s Provident Fund & Miscellaneous Provisions Act (PF Act)
For a variety of reasons, this Act is at the top of the social security law list. The provisions of
this Act give employees some breathing room after they retire. The Act has undergone
changes over the years, despite being first passed in 1952. It addresses three crucial schemes:
 Employees’ Provident Fund Scheme (PF), 1952 – Provides retirement corpus

 Employees’ Deposit Linked Insurance Scheme (EDLI), 1976 – Provides insurance
cover
 Employees’ Pension Scheme (EPS), 1995 – Provides a monthly pension to retired
employees
STATUS OF COMPENSATION AS PER LEGAL FRAMEWORK FOR ORGANIZED
AND UNORGANIZED SECTOR.
According to the Periodic Labour Force Survey (PLFS) conducted by the National Sample
Survey Organization of the Ministry of Statistics & Programme Implementation in 2017–18,
there were roughly 47 crores of people employed nationwide, in both the organised and
unorganised sectors. The organised sector employs about 9 crore of those, while the
unorganised sector employs the remaining 38 crore.
The categories of the workers have been divided into three categories
 Establishments with 10 or more workers

 Establishments with 20 or more workers
 Workers engaged in unorganised sector
The ESI Act of 1948 is Social Security legislation that applies to all factories and notified
businesses that employ ten or more people and are situated in ESI notified areas; it does not,
however, extend to the unorganised sector. Employees covered by the ESI Scheme and eligible
for all benefits under the ESI Act, 1948, earn up to Rs. 21,000 per month (Rs. 25,000 in the case
of disabled individuals). The ESI Scheme has currently been expanded to 575 districts across 35
States and Union territories. As of 31.03.2020, there were 3.41 crore insured people enrolled in
the ESI scheme, and 13.24 crore people were beneficiaries. Employers are responsible for
paying ESI contributions at a rate of 4 percent, of which employees or workers contribute 0.75
percent of their wages and employers contribute 3.25 percent. They are eligible for all ESI Act
benefits as a result of their contributions.
The benefits of social security to the workers employed in organised sector establishments
with 20 or more workers under the Employees’ Provident Fund and Miscellaneous Provisions
Act, 1952 are extended through following three schemes:
 The Employees’ Provident Funds Scheme, 1952;

 The Employees’ Pension Scheme, 1995;
 The Employees’ Deposit Linked Insurance Scheme, 1976.
For the workers engaged in the Unorganised sector, social security benefits are being
addressed through the Unorganised Workers’ Social Security Act, 2008. The Act empowers
the Central Government to provide Social Security benefits to unorganised sector workers by
formulating suitable welfare schemes on matters relating to (i) life and disability cover, (ii)
health and maternity benefits, (iii) old age protection and (iv) any other benefit as may be
determined by the Central Government.
REFLECTION AS A HR STUDENT, CONCLUSION AND WAY FORWARD.
Compensation management comprises concepts, plans, and perspectives that are different
from traditional wage and salary administration in today's liberalised and globally connected
business world. To attract and keep talented human resources as a knowledge base now
requires entire compensation management.
A compensation plan is dynamic rather than rigid and fixed since it is influenced by
numerous dynamic factors. In order to evaluate and assess the compensation plan,
compensation management should have a mechanism for doing so. Following plan
implementation, results will be seen in terms of end-result variables like increased production
or intervening factors like employee morale and satisfaction. The latter variable is more
significant, though. In this context, the compensation plan review is required. If it doesn't turn
out as planned, the plan should be reviewed and given a new appearance.
REFERENCE
D, A. (2019, December 10). Compensation Management: Meaning, Concept, Objectives and
Functions. Economics Discussion. https://www.economicsdiscussion.net/human-
resource-management/compensation-management/32258
Banerji, O. (2021, October 9). Labour legislation for compensation management for service
sector employees in India. iPleaders. https://blog.ipleaders.in/labour-legislation-for-
compensation-management-for-service-sector-employees-in-india

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CIA – 1

COMPENSATION MANAGEMENT AND SOCIAL SECURITY

NAME- KURIAN S ABRAHAM

SUBMITTED TO- DR PANKAJ SHANKAR KUMBHAR

DEPT OF SOCIOLOGY AND SOCIAL WORK

TOPIC- COMPENSATION MANAGEMENT SYSTEM IN INDIAN

INTRODUCTION OF COMPENSATION MANAGEMENT

CONCEPT OF COMPENSATION MANAGEMENT

Major provision under compensation management for organizations includes

1. Minimum Wages Act

2. House Rent Allowance (HRA)

3. Employee’s Provident Fund & Miscellaneous Provisions Act (PF Act)

 Employees’ Provident Fund Scheme (PF), 1952 – Provides retirement corpus

 Establishments with 10 or more workers

 The Employees’ Provident Funds Scheme, 1952;

REFLECTION AS A HR STUDENT, CONCLUSION AND WAY FORWARD.

D, A. (2019, December 10). Compensation Management: Meaning, Concept, Objectives and

Functions. Economics Discussion. https://www.economicsdiscussion.net/human-

sector employees in India. iPleaders. https://blog.ipleaders.in/labour-legislation-for-

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