CALCULATION

BASIS FOR WAGE

wages calculation such

as:
There.are two bases for
Basis for Wage Calculatiou

Time Rate Wages

2 Efficiency Based Wages

1 Time Rate Wages

The time rate system is that system of wage payment in which the workers are paid
on the basis of time spent by them in the factory. Under this system, the workers and
employees are paid wages on the basis of the time they have worked rather than the volume
of output they have produced. Hence, according to this system, wages are paid on hourly,
weekly or monthly basis. Under time rate system, the wages earned by a worker is
determined by using the following formula.
Wages Earned = Time spent (Attended) x Wage rate per hour/day/week/month

Advantages of Time Rate System

The following are some of the important advantages of time rate system of wage payment:
1. Time rate system is simple to understand and easy to calculate.

2. Time rate system is quite useful for organizations that use costly inputs for quality
outputs.
3. Time rate system is beneficial for average and below workers.

4. Time rate system assures regular income and creates the

feeling of economic security
among the workers.
5. Time rate system does not discriminate the workers and is preferred by trade unions.
Disadvantages of Time Rate System
The following are some notable disadvantages of time rate system of wage payment.
1. Time rate system does not
help in increasing output and improving
no correlation between effort and reward.
efficiency as there is

2. Time rate system is not justifiable between efficient and inefficient workers and skilled
and unskilled workers.
 Time rate system pays for idle time, which increases the cost of production.
3.
Time rate system encourages a go-slow tendency among workers during working hours
4
and encourages thenm to work overtime.

6. It is difficult to estimate exact labor cost in advance.

6.
6.
It requires strict supervision to get the required quantity of output.

2 Efficlency Based Wages

An efficiency wage is a wage that is extended to an employee as a means of motivating
de employee to remain with the company rather than seek opportunities with competitors
or

even g another industry altogether. Along with increasing the chances of keepingg a
valued

employee, extension of this type of wage can also serve as the impetus for increasing the
the
gener productivity of the employee. This ia because the employee feela valued by
employer and is willing to put forth additional effort in response to that perception.
One of the characteristics of an efficiency wage is that the figure is not based solely on
the current standards set within the industry. Instead, the wage serves as a means of

meeting and exceeding that current standard. The increased wages help to attract more
qualified employees as well as provide them with a reason to remain with the company for
an extended period of time. This is in contrast to the idea of setting wages based on the
supply of potential employees in the area and the demand for employees that prevails locally,

While there are many different theories about the benefits of using an efficiency wage
strategy, there are four key advantages that employers seek to obtain with this model. The
first has to do with increasing productivity. Here, the idea is that employees who are well
compensated and feel that they are important to the company will expend more efforts in
their job responsibilities. In contrast, employees who feel unappreciated are
carrying out
maintain their positions and no more.
likely put forth the minimum effort required to
to
Over time, this mindset has a negative efeet on the profitability of the company, possibly to
the point of causing the business to fail.

Another advantage of the efficiency wage has to do with preventing high amounts of
turnover in the workplace. Companies expend time and resources training new employees
whenever a position becomes vacant and must be filled. By providing existing employees
with incentives to remain, these costs are kept to a minimum. This in turn benefits
everyone associated with the company over the long-term.

The use of an efficiency wage makes it possible to attract a wider range of qualified
candidates for the open position. With more options in terms of filling the position, the
employer is more likely to find someone who is obviously more qualified than the rest,
rather than having to settle for someone who meets the criteria, but offers little more. This
not only provides immediate benefit to the employer, but may also set the stage for
cultivating abilities and talents that ultimately are of service to the company over the years,
There is even nutritional benefit that is sometimes associated with the extension of
a

an effñiciency wage. Here, the issue has to do with the

ability of the employee to afforda
higher quality of foods and to live a lifestyle that is healthier. Assuming the employee does
maintain good health, he or she is less likely to miss days of work due to illness.
This
means that productivity is maintained without the need to ask other employees to
cover
essential tasks while one employee is out sick.

Each business must look at its own set of circumstances and determine if the use of an
eficiency wage would provide beneficial. Once it has been determined that this approach
would be advantageous, determining how and when to implement the strategy should be
considered carefully. This often involves looking at the potential of each employee under
consideration and deciding if this additional investment. in the employee/employer
relationship would yield the desired benefits.

Advantages of Eficiency Based Wages

Work as an inducer for worker to produce more.

Here reward is related to efforts.

This method is fair to all as inefficient workers are penalized and efficient workers are
rewarded.

Disadvantages ofEfficiency Based Wages

In an effort to produce more and earn more workers may exert themselves to fatigue.
Workers feel insecure in efforts this system because they as will lose wages for the
period of absence. This system requires an up-to-date record of output produce by each
worker which increase the clerical works.
 INCENTIVE SCHEME
An incentive scheme is a formal scheme used to promote or encourage specfic actions
or behavior by a specific group of people during a defined period of time. Incentive programs
are
particularly used in business management to motivate employees and in sales to attract
and retain customers. Setting up an incentive scheme for employees, HR must remember
that pay and financial benefits are not the only things that may improve staff
performance.
Other key motivators include job security, job satisfaction, good working conditions and
appropriate training.
 BONUS SCHEMES
1. Individual Bonus Scheme

An individual bonus scheme will set out targets or objectives over a period of 12
months. Bonuses such as this will usually be agreed as part of the performance appraisal
process progress will be reviewed regularly.
Types of Individual Bonuses
i) Productivity Bonus: Traditionally this is been used in the manufacturing industry and
is otherwise known as piecework, where the number of items produced over a certain
period of time determines the bonus paid. However, recently more organisations have
taken this approach, for example, the number of calls taken by a call centre worker
during an hour's period

a) Quality Bonus: Similar to productivity, a quality bonus can be accessed on the

number of defects on products during a period of time. As with productivity, many
industries are now taking this approach, for example, reducing the number of
customer complaints within a supermarket

b) Targets: A well-used tactic within internal and external sales environments. Target
bonuses are paid if an individual hits a sales figure within a certain period, usually
monthly, quarterly or annually. The figure can be a percentage increase on the
previous period or a pre-defined target based on expectations

2.Team Bonus Schemes

Team based bonus schemes have proven to be very popular as they help to increase
productivity and rapport within a department. Advantages of this are usually when a team
does well the company also benefits. In addition, a team reward system helps to create a
good competitive environment within each department. Team bonuses can be used in a
variety of industries such as sales, manufacturing, clerical and retail.
 GROUP BONUS SCHEMES
A group bonus scheme is when a group of workers that are working together are
rewarded completed. This could encourage team spirit and less or given a bonus pay to get
the job supervision while working.
Such group bonus scheme is applicable where:

I t is desirable to create a spirit.

team

) It is not possible to measure the production of individual workers

It is desired to reward both direct and indirect workers.

The output depends upon the combined effort of a team.

The features of group bonus scheme are:

Bonus is payable for the efficiency of a team of workers.

 i) Bonus is paid for joint effort of the team over and above the target fixed.

i) Bonus is distributed to the individual workers on a pre-determined percentage basis or in

specified proportions.
(iv) The object of the scheme is to developa team spirit for increased production and lower
cost per unit.

Advantages
lt encourages co-operation and develops a team spirit among the workers.

i) It reduces supervising work.

i) Absenteeism is reduced.
iv) It requires less clerical work and the use of forms and records is reduced because the
production of the group and not of the individuals is to be recorded.

Disadvantages
1) The share of inefficient workers may be the same as that received by more efficient
workers of the group.

i) Efficient workers are penalized for the inefficiency of the other members of the group.

EFFECT OF VARIOUS LABOUR LAWS ON WAGES

Indian labour law makes distinction between people who work in "organized" sectors
a

and people working in "unorganized sectors". The laws list the different
industrial sectors to
which various labour rights apply. People who do not fall within these sectors, the ordinary
law of contract apply.

India's labor laws underwent a major update in the Industrial Disputes Act of 1948.
Since then, an additional 45 national laws expand or intersect with the 1948 act and
another 200 state laws control the
relationships between the worker and the company.
These laws mandate all aspects of
employer-employee interaction, such as companies must
keep 6 attendance logs, 10 different accounts for overtime
wages and file 5 types of annual
returns. The scope of labour laws extend from
regulating the height of urinals in workers
washrooms to how often work space must be lime-washed.
a
Inspectors can examine
workspace anytime and declare fines for violation of any labour laws and
regulations.
The Payment of Wages Act 1936 requires that employees receive
wages, on time and
without any unauthorized deductions. Section 6 requires that
people are paid in money
rather than in kind. The law also provides the tax
withholdings the employer must deduct
and pay to the central or state government before distributing the wages.
 The Minimum Wages Act 1948 sets wages for the different economic sectors that it
states it will cover. lt leaves a large number of workers unregulated. Central and state

gOvernments have discretion to set wages according to kind of work and location and they
range between as much as INR 143 to 1120 per day for work in the so-called central sphere.
State governments have their own minimum wage schedules.

The Payment of Gratuity Act 1972 applies to establishments with 10 or more workers.
Gratuity is payable to the employee if he or she resigns or retires. The Indian government
mandates that this payment be at the rate of 15 days salary of the employee for each
completed year of service subject to a maximum of INR 1000000.

The Payment of Bonus Act 1965, which applies only to enterprises with over 20 people,
requires bonuses are paid out of profits based on productivity. The minimum bonus 1s
currently 8.33 per cent of salary.

MEANING OF PAY ROLL

set period of time or on a given date. Payroll is usually managed by the accounting
department of Payroll is the sum total of all compensation that a business must pay to its
employees for a a business. Small-business payrolls may be handled directly by the owner or
an associate.

Payroll can also refer to the list of employees of a business and the amount of
compensation that is due to each of them. Payroll is a major expense for most businesses
and is almost always deductible as such.

PREPARATION OF PAY ROLL

Preparing payroll involves a series of basic caleulations to determine each employee's
base pay as well as deductions for state and federal taxes and employee contributions to
retirement funds and health insurance plans. This information is then transferred to
individual employee paychecks as well as company records that facilitate the process of
tracking information for internal and external tax and financial reporting. Developing a
comprehensive and user-friendly payroll system will make your life much simpler when it's
time to fill our quarterly and annual tax forms. It will also provide you with clear and
useful information for understanding your company's financial activities.

Step 1:
Calculate each employee's base pay by multiplying the number of hours worked for
Wage employees, or by referring to salary levels for salaried
employees. If you use payroll
 software, your program will do these calculations for you. Pay wage employees who
more than 40 hours per week one and-a-half times their baso
wort
pay rate for nany overtime houra.

Step 2:
Calculate each employee's state and federal deductions. Use federal tax tables or
the
percentage method to determine federal income tax withholding and calculate Social Security
and Medicare withholdings by multiplying base pay by .0565 as of 2012. Calculate state
income tax according to your state's specific income tax rates. Subtract withholding
amounts from each employee's gross pay. Also subtract the amounts of other
paycheck
deductions such as employee contributions to health insurance plans or retirement
funds.
Prepare paychecks that clearly show the information you have used to calculate each
employee's net pay, including regular and overtime hours and tax and insurance
withholdings.
Step 3:
Track payroll information and pay payroll taxes on time. Separate the amounts you
have withheld from employee paychecks from general business funds, either by depositing
them in a separate bank account until it is time to remit them, or keeping a running total
of how much you I owe so you don't treat this money as regular operating capital. Make|
federal tax deposits according to the deposit schedule that the IRS gives you, based on your
payroll volume. Complete state payroll tax forms quarterly.

Step 4:
Use payroll information in your business accounting to evaluate your company's
profitability and financial health. Divide payroll information relative to different tasks and
departments. For example, if you own a retail grocery store, track the amount you spend on
payroll in the meat department versus the amount you spend in the produce department.
Compare these amounts to the revenue from each department to assess the profitability of
each section.