Unit 3

Administering compensation systems

Content
Labour commission criteria Wage structure Components of wages Basic wages Dearness allowance HRA CCA, TA, TTA, NPA, LTC, Risk allowance etc Summary Reference

Report from National commission of labour

The Committee then identified the criteria that had to be considered in fixing wage differentials as: The degree of skill, The strain of work, The experience involved, The training required, The responsibility undertaken, The mental and physical requirements, The disagreeableness of the task, The hazard attendant on the work, and The fatigue involved.

Wage structure
Minimum wage Living wage Fair wage Market lead Market lag Market match Pay Design / Model
1. Determine the pay level policy 2. Design, conduct, & analyze surveys 3. Update the data 4. Construct the policy lines 5. Design ranges, flat rates, & / or incentives

Minimum Wage
A minimum wage is one which has to be paid by an employer to his workers irrespective of his ability to pay. According to the above committee, "Minimum wage is the wage which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the workers. For this purpose, minimum wage must provide some measure of education, medical requirements and amenities. " Subsequent to the committee's report, Government enacted legal provisions regarding minimum wages under the Minimum Wages Act. 1948. This Act does not define the concept of minimum wages but empowers the Central Government as well as State Governments to fix minimum wages from time to time. In 1957, Indian Labour Conference elaborated the concept of fixation of minimum wars which were termed as need-based minimum wages. For the calculation of wages, the Conference suggested the following guidelines:

Criteria Min Wage

1. The standard working class family should be taken to consist of three consumption units for the earner; the earnings of women, children and adolescents should be disregarded. 2. The minimum food requirements should be calculated on the basis of the net intake of2.700 calories per adult. 3. The clothing requirements should be estimated at a per capita consumption of 18 yards per annum per person. 4. In respect of housing. the norms should be the minimum rent charged by the Government in any area for houses provided under subsidised housing scheme for low-income groups. 5. Fuel. lighting and other miscellaneous items of expenditure should constitute 20 per cent of the total minimum wage.

Living Wage
Along with the minimum wage the Committee on Fair Wages has given the concept of living wage which has been defined as follows: "A living wage is one which should enable the earner to provide for himself and his family not only the bare essentials of food, clothing and shelter but a measure of frugal comfort including education for his children, protection against ill-health, requirements of essential social needs and a measure of insurance against the more important misfortunes including old age. " Living wage is more than the concept of minimum wage. Such a wage is determined keeping in view the national income and paying capacity of industrial sector. The Committee also observed that since the national income did not support the payment of living wage. it should be implemented in three phases. In the initial stage the wages to be paid to the entire working class were to be established and stabilized. In the second phase fair wages were to be established in the community and industry. In the final phase the working class was to be paid the living wage.

Fair Wage
The concept of fair wage is linked with the capacity of the industry to pay. The Committee has defined fair wage as follows: "Fair wage is the wage which is above the minimum wage but below the living wage. The lower limit of the fair wage is obviously the minimum wage: the upper limit is to be set by the capacity of the industry to pay. " Thus, fair wage depends on different variables affecting wage determination. Such factors are labour productivity prevailing wage rates, the level of national income and its distribution and the capacity of industry to pay. At present, the concept of fair wages is followed by the most business organisations.

Determining Pay Rates

Direct financial payments
base on two traditional factors & 1 neo factor
Pay for Time Pay for Performance Balance or Dent

Basic Pay
As the name suggests, this forms the very basis of your salary. This is the core of your salary, and many other components may be calculated based on this amount. Basic usually depends on your grade within the companys salary structure. Many deductions are also dependent on the basic for example, your contribution (and the matching component by your employer) to provident fund is 12% of your basic. Basic is paid out every month, and is a taxable component of your salary.

2006 pay revision by AP

2006 pay revision by AP

Dearness Allowance (DA)

The Dearness Allowance is paid out to compensate for increase in the general cost of living due to inflation.

6th Pay Commission on DA-2008

Current Status: Accepted; base using 2001 series works out to be 115.76. The installment of DA from 1-1-2006 will be paid as per suggestion of 6CPC The Commission did not accepted the demand for merger of dearness allowance with basic pay. Current Status: Accepted; As against the demand of various organizations to grant DA more frequently, Commission preferred to stick to old practice of sanctioning twice a year as on 1st January and 1st July payable with the salary of March and September, respectively. Current Status: Accepted; DA shall be admissible @ 2, 6, 9, 12 & 16% from 1-7-2006, 1-1-2007, 1-72007, 1-1-2008 & 1-7-2008, respectively

House Rent Allowance

the Commission recommended merger of C Class Cities (having population of 50,000 to 5 lakh) with `Unclassified Towns' (having population of less than 50,000). The existing population criterion for classifying towns and cities for purposes of HRA is being retained but population in the urban agglomeration should be taken into account for classifying a city for purposes of HRA. HRA in A-1 cities be paid at the rate of 30% of the total of revised pay in the running pay band and grade pay thereon. Erstwhile A, B-1 and B-2 categories are being merged.

HRA continued.

Grades of cities
Govt. has released a list of "X" and "Y" category of cities.It is shown below.
"X" Cities: Hyderabad, Delhi, Bengaluru, Greater Mumbai, Chennai, Kolkata.

Andhra Pradesh: Vijaywada, Warrangal, Visakhapatnam, Guntur Assam: Guhawati Bihar: Patna Chandigarh: Chandigarh Chhatisgarh: Durg-Bhilai Nagar, Raipur, Gujarat: Ahmedabad, Rajkot, Jamnagar, Bhavnagar, Vadodara, Surat Haryana: Faridabad (Only for HRA purpose) J & K: Srinagar & Jammu Jharkhand: Jamshedpur, Dhanbad & Ranchi Karnata: Belgaum, Hubali-Dharwad, Mangalore, Mysore

Transport Allowance
the existing condition which prohibits grant of Transport Allowance to the employees who have been provided with official accommodation within one Kilometer of the office is removed. Other conditions regulating the grant of this allowance shall remain unchanged. Physically disabled employees shall continue to draw this allowance at double the normal rates. This, however, will be further subject to the condition that Transport Allowance in the case of physically disabled employees shall, in no case, be less than Rs.1000 per month plus the applicable rate of dearness allowance. Employees in pay band PB-4 who are entitled to the use of official car for travel between residence and office may be given the option to draw transport allowance at a higher rate of Rs.7000 p.m. plus dearness allowance provided they give up the use of official car for travel between residence and office.

T A continued.

2005- Pay revision recommendations- AP on CCA

6th Pay Commission on CCA

City Compensatory Allowance (CCA): In Commission's view there was no justification for City Compensatory Allowance and hence recommended it to be abolished. Current Status: Accepted; State Governments: Continue to provide till the implementation.

Traveling Allowance
Travel entitlements Commission did not accept the employees demand to make changes in the travel entitlement for travel outside India. The Commission recommended to allow travel by any means of public transport for road travel between places connected by rail, with a condition that total fare does not exceed the train fare by the entitled class.

TA - continued.

TA - continued.

T.A. on Transfer- TTA

The Commission recommends that transportation of personal effects by road at the rates prescribed for `other places' should be allowed in respect of places connected by train as well without subjecting it to the extant restriction that these can not exceed 1.25 times of the eligible train fare

TTA

Daily Allowance
The rates of all the components of Daily Allowance shall automatically increase by 25% whenever the Dearness Allowance payable on the revised pay bands goes up by 50%. In case of stay or journey on Government ships, boats etc.or journey to remote places on foot/mules etc. for scientific/data collection purposes in organisations like FSI, Survey of India, GSI etc., daily allowance will be paid at rate equivalent to that provided for reimbursement of food bill. However, in this case the amount will be sanctioned irrespective of the actual expenditure incurred on this account with the approval of the Head of Department/Controlling Officer. For journey on foot, an allowance of Rs.5 per kilometer traveled on foot shall be payable additionally. This rate will also be increased by 25% whenever DA payable on revised pay scales goes up by 50%.

LTC & other benefits

The most welcome recommendation made by the Sixth Pay Commission was about the travel entitlements under LTC and official tours. Commission eliminated the distinction for entitlement between LTC and TA tours. However, Commission did not find it proper to pay daily allowances for travel on LTC. current status: Accepted The Commission did not alter the condition requiring travel to be performed in vehicles operated by the Government or any Corporation in the public sector run by the Central or State Government or a local body. current status: Accepted The most commendable recommendation in my opinion has been the encashment of Earned Leave upto 10 days along with LTC to the extent of total of 60 days, and non-deduction of these Earned Leaves from the maximum amount of Earned Leave (300 days) encashable at the time of retirement. current status: Accepted The Railways employees be allowed to avail of this encashment at the time of availing of passes for a maximum of 60 days in the entire career subject to the condition that successive encashment cannot be made before a minimum period of two years has elapsed.

Non-Practicing Allowance (NPA)

Accordingly, the Commissions recommends that Doctors should continue to be paid NPA at the existing rate of 25% of the aggregate of the band pay and grade pay subject to the condition that the Basic Pay + NPA does not exceed Rs.85,000.

Risk Allowance:
Risk Allowance is withdrawn. Employees be provided with free medical and life insurance of Rs.5 lakhs for employees in PB-1 pay band; Rs.7 lakhs for employees in PB-2 pay band; Rs.10 lakhs for employees in PB-3 pay band/higher pay bands/scales. The amount of the insurance should automatically be increased by 50% every time the DA payable on the revised pay goes up by 50%. The entire expenditure on paying premium for this insurance will be borne by the Government. The amount insured will be paid in case of any serious injury/death sustained in the course of employment and will be over and above the other benefits available to all categories of Government employees. These employees should also be provided with additional health benefits with mandatory health check-ups every quarter and enhanced leave, wherever the same is necessary for proper recuperation.

Holidays
The Government offices will remain closed only on the 3 National holidays. No other closed holidays be allowed. Restricted Holidays available to an employee shall be increased to 8 with the list of Restricted Holidays being suitably enlarged to include all the erstwhile Gazetted Holidays therein. Every Head of Department (HoD) should be allowed the option of declaring the office closed for a maximum of two Restricted Holidays in a year based on local considerations. The number of Casual Leave, Half Pay Leave and Earned Leave available to Government employees shall remain unchanged.

Kerala: Kozhikode, Kochi, Thiruvanathapuram Madhya Pradesh: Gwalior, Bhopal, Jabalpur, Indore Maharashtra: Amravati, Aurangabad, Nasik, Pune, Nagpur, Bhiwandi, Sholapur, Kolhapur Orissa: Cuttack, Bhubaneswar Punjab: Amritsar, Jalandhar, Ludhiana Ponmdicherry: Pondicherry Tamil Nadu: Salem,Tirruppur, Coimbatore, Tirucherapalli, Madurai Rajasthan: Bikaner, Jodhpur, Kota Jaipur Uttarakhand: Dehradun Uttar Pradesh: Moradabad, Meerut, Aligarh, Agra, Bareilly, Lucknow, Kanpur, Allahabad, Gorakhpur, Kanpur, Ghaziabad (for HRA purpose only)

Reference
William Muhs, Pay secrecy, University of Texas. Tenstep.Inc, Tossing the Coin - Pay Secrecy, article march2004. Gary & Peter, Do Co-Workers Wages Matter? Theory and Evidence on Wage Secrecy, Wage Compression and Effort, article, IZA,nov-2004. Empulse series, payroll preparation. http://payroll.naukrihub.com/compensation/payrollmanagement/components.html