Wage Policy
And
Wage Regulation
Machinery
Wage Concepts
• Wages means all remuneration (salary, allowance etc) expressed in terms of
money.
• It also includes:
– Any remuneration payable under any award or settlement between the parties
or order of court.
– Any additional remuneration payable under the terms of employment such as
bonus and any sum by reason of termination of employment of person
employed is payable under the law or contract of service.
• The term “wages” may be used to describe wage rates, straight-time
average/hourly earnings, gross average hourly earnings, weekly take-home
pay and annual earnings. Other types of benefits as well as pensions,
welfare funds, social security, vacations and holidays, are regarded as fringe
benefits. They are paid in addition to wages and form part of the total
labour costs.
• To cultivate harmonious industrial relations the government (by enacting
suitable labour legislations establishing wage boards etc), the employers
and trade unions (by collective bargaining agreements) and the industrial
jurisprudence (by giving suitable awards) have tried to implement a fair and
reasonable wage structure for the country based on wage differentials.
Minimum Wages
• A minimum wage is the lowest hourly, daily or monthly remuneration that
employers may legally pay to workers. The conception of minimum wages is
based on the principles of equity and social justice. Its underlying idea is
that “he who works is entitled to a fair remuneration which may enable him
to live a life consistent with human dignity”.
• Several countries have enacted a statutory minimum wage rate that sets a
price floor for certain kinds of labor. Legislative protection for workers to
receive a minimum wage, can be considered as the hall mark of any
progressive nation. It is one of the fundamental premises of decent work. In
India, the Minimum Wages Act, 1948 provides for fixation and enforcement
of minimum wages in respect of scheduled employments.
• The Act aims to prevent sweating or exploitation of labour. The Act also
requires the appropriate government (both at Centre and States) to fix
minimum rates of wages in respect of employments specified in the
schedule and also review and revise the same at intervals not exceeding five
years.
• With effect from November 2009, the National Floor Level of Minimum
Wage has been increased to Rs 100 per day from Rs 80 per day (which was
in effect since 2007).
Need-based Minimum wage
i. In calculating the minimum wage, the standard working-class family
should be taken to consist of three consumption units for one
earner; the earnings of women, children and adolescents should be
disregarded.
ii. Minimum food requirements should be calculated on the basis of
a net intake of 2700 calories for an average Indian adult of
moderate activity.
iii. Clothing requirements should be estimated at per capita
consumption of 18 yards per annum which could give for the
average worker’s family of four, a total of 72 yards.
iv. In respect of housing, the norm should be the minimum rent
charged by Government in the any area for houses provided
under the subsidized industrial housing scheme for low-income
groups; and
v. Fuel, lighting and other miscellaneous items of expenditure should
constitute 20 per cent of the total minimum wage.”
Living Wage
• Living wage as that appropriate for “the normal needs of the
average employee, regarded as a human being living in a
civilised community”. i.e. The living wage must provide not
merely for absolute essentials such as food, shelter and
clothing but for “a condition of frugal comfort estimated by
current human standards”.
• There are three possible ways of obtaining some indication
as to what constitutes a living wage.
– (i) It should be sufficient to purchase the minimum theoretical
needs of a typical family, calculated in accordance with some
more or less scientific formula.
– (ii) It should be sufficient to pay for a satisfactory basic budget, as
revealed by a survey of actual family expenditures.
– (iii) It should be comparable with a living wage already established
in similar circumstances.
Wage Policy
• Wage policy are principles acting as guideline for determining
a wage structure, legislation or government action calculated
to affect the level or structure of wages, or both for the
purpose of attaining specific objectives of social and
economic policies
• Initially as an economic issue it was mainly the concern of the
employer while the state was adopting the laissez faire policy.
But with the industrial progress and subsequent industrial
balance between employers, employees, wage bargain has
become a matter for three fold concern of the employer,
employee and the state.
• Wage policy is a democratic set up so that it can be enforced
by the govt. alone. Its implementation has to be secured
through employers and employees organisations at
bargaining table. i.e. by consensus
The wage policy may be viewed from 3
angles:
– At the macro economic level, the problem is that of
resolving the conflict between the objectives of an
immediate rise in the standard of living of workers,
additional employment and capital formation
– At the semi aggregate level, the problem is that of
evolving a wage structure which promotes economic
development
– At the plant level, the problem is that of a system
which provides incentives for increased productivity
and improved skills.
Economic Objectives of wage policy
• An important objective of any society is the
achievement of maximum economic welfare.
• In general, economic welfare will be maximized if the
highest and most stable standard of living possible for
each section of the community is attained.
• In order to secure this, it is necessary to achieve:
– Full employment and optimum allocation of all resources
– The highest degree of economic stability consistent with an
optimum rate of economic progress
– Maximum income security for all sections of the society
• The major objectives of wage policy must be aimed at
attaining these conditions.
Social Objectives of wage policy
• A given wage policy must be instrumental in
achieving:
– The elimination of exceptionally low wages
– The establishment of ‘fair’ labour standards
– The protection of wage earners from the effects of rising
prices
– The incentives for workers to improve their productive
performance
Objectives of a Wage Policy (By ILO)
• To abolish malpractices and abuses in wage
payment
• To set minimum wages for unorganised
workers having weak bargaining powers
• To provide for the workers a just share in the
economic development.
• To bring an efficient allocation and utilisation
of manpower through wage differentials.
Objectives of a Wage Policy (India)
1. To provide a minimum wage to workers employed in
sweated industries
2. To fix wage ceilings
3. To improve the existing wage structure
4. To control inflationary tendencies
5. To accelerate export promotion
6. Others1.
2.
3.
4.
To bring social justice and equal opportunities to workers
To maintain industrial peace
To provide guidance to wage fixation & revision authorities
To develop the skills of newly recruited industrial labour
and other manpower resources
In India wage policy is built around certain
cardinal principles
• Equal pay for equal work
• Living wages for all workers so that they live a decent wage
• Payment of wages on appointed dates without unauthorised
deductions
• Resolving wage related issues through collective bargaining
• Payment of statutory bonus at 8.33% as per legal provisions
• Ensuring a fair, equitable wage plan for various employees without
significant wage differences
• The capacity to pay ( according to Supreme court ruling ‘an
employer who cannot pay minimum wages has no right to exist’
• Determining fair wages over and above minimum wages with due
regard to (i) the productivity of labour (ii) the prevailing level of
wages (iii) the level of national income and distribution (iv) the
place of industry in the economy of the company
• To compensate for the rise in cost of living
The Wage Scenario
• The Indian Wage scene has been in a state of dismay due to
gross neglect of wage planning. Undue emphasis is laid only
on the financial aspect of the wage plan and changes in the
rapid economic developed is not incorporated. In the
absence of agreed and centrally evolved guidelines and
norms for wage fixation, the various Five Year Plans and the
Minimum Wages Act laid down their own criteria.
• The concept of minimum wages, fair wages living wages
and need based wages are not properly defined leading to
a wage structure without uniformity and coordination
between its various components.
• There is a wide variation in the wage rates for the same
kind of work in the same industry in the same region. The
daily wage rates widely various amongst the states. There is
gender bias in wage rates. The wage differentials do not
reflect any differences in skill, training and hazards
involved.
Five Year Plans And Wage Policy
• The First Plan (1951 to 1956) suggested that pre-war
levels of real wages should be restored as a first step
towards “living wage” through increased productivity.
• The Second Plan (1956 to 1961) stressed improvement
in wages through increased productivity stemming
from efficiency on the part of the workers, improved
layout of plants and improvement in management
practices.
• The Third Plan (1961 to 1966) reinforced the wage
policy of the preceding two plans with respect to
minimum wage fixation, reduction of disparities and
wage
differentials and stressed the role of
productivity in raising the living standard of the
workers.
• The Fourth Plan (1969 to 1974) did not provide a fresh
direction or any shift of the government’s wage policy.
Five Year Plans And Wage Policy
• The Fifth Plan (1974 to 1979) recommended that the
reward structure of the industrial employees in terms
of wage and non-wage benefits must be related to
performance records in industrial enterprises.
• The Sixth Plan (1980 to 1985) pointed out that there
were marked disparities with respect to wages
between the organized and unorganized, and urban
and rural sectors.
• The Seventh Plan (1985 to 1990) asserted that an
important aspect of labour policy related to the
formulation of an appropriate wage policy.
• The Eighth Plan (1992 to 1997) laid focus on
formulation of wage policy relating
to child labour,
bonded labour, rural labour, women labour and interstate migrant labour.
Limitations of a wage policy
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Socio-economic set up of our country
Enforcement in unorganized sector
Lack of unity among unions
Price rise almost beyond govt’s regulatory capabilities
Wages lag far behind labour productivity
Lesser number of workers in organised sectors take away bulk of
wages than unorganized sector
Wage income are consumption oriented rather than savings
oriented so increased wages would mean increased consumption.
Therefore economic growth may not be affected positively as it
depends upon rate of investment possible through savings
Ever increasing addition to workforce yet dearth of skilled labour
High wages may force employers to shift towards capital intensive
methods
High wages reduce capital for growth
Institutional Mechanism for Wage Determination
• Public policy and legislative framework provides the
basis for wage determination. Within the
framework of public policy and legislative
framework, wages are determined through one or
more of the following methods:
– Unilaterally by employers,
– Through collective bargaining between employer and
union
– Pay Commissions for civil service,
– Wage boards for select industries, and
– Adjudication by a third party where wage disputes
remain unsolved through negotiation and conciliation.
Need for Wage Regulation Machinery
• To stop unscrupulous employers, who are in stronger
bargaining position to hire workers at exceptionally low
wages and ruthlessly exploit them, specially in India,
where a major chunk of Indian work force constitute of
unskilled workers
• It leads to a forced redistribution of the employers
income to the employees which increases the
purchasing power of millions and gives a boost to the
economy
• A minimum wage along with some provisions of
education, medical and other amenities is necessary
to uplift workers from the poverty level and help
maintain efficiency of workers to achieve targets of
production.
Legal Framework
• The legal framework for the payment of wages/salaries is
governed mainly by four legislations besides the guidelines
for managerial remuneration. These are:
– The Payment of Wages Act, 1936 - was enacted with a view to
prevent the exploitation of workers from unfair deductions in
wages
– The Minimum Wages Act, 1948 - fixes statutory minimum wages
in sweated industries
– The Payment of Bonus Act, 1965 – provides for payment of bonus
on the basis of profits or on the basis of production or
productivity.
– The Equal Remuneration Act, 1976 - ensures equal remuneration
to men and women workers for same work or work of a similar
nature.
The industrial disputes Act of 1947 provides for dealing for disputes
relating to wages
Collective Bargaining in India
• Collective bargaining is a process whereby standards are
created to govern labour relations – including, particularly,
wages and working conditions.
• ILO Conventions No. 87 and 98 establish the right of workers
to organise and bargain collectively.
• In India, union density is about 6 per cent of the labour force
in the country.
• Trade Union Act does not provide for statutory recognition of
collective bargaining (though some state government
legislations provide for it) and legislation puts a premium on
adjudication rather than collective bargaining.
• Refusal to bargain collectively, in good faith, with recognized
trade unions is, however, made an “unfair labour practice”
under section 2(ra)/Schedule V of the Industrial Disputes Act
and is punishable under section 25(u) with imprisonment for
a term which may extend to six months or with fine which
may extend to Rs. 1000 or with both.
Pay Commissions (India)
• The pay structure of the Central Government employees is based on the
recommendations of Pay Commissions set up by the Central Government.
• While some state governments also broadly follow the recommendations
of the Central Pay Commissions for their employees, also a few other state
governments set up their own pay commissions.
• During the past 50 years, Government of India has set up five pay
commissions.
• The first two Central Pay Commissions stressed that the minimum wage
must satisfy a social test and that wages above the minimum should be
‘fair’.
• The major requirements of a sound pay system quoted by the Third Pay
Commission included inclusiveness, comprehensibility and adequacy.
• The problem with pay commissions is twofold: first, they are not able to
relate recommendations with the principles they enunciate, second,
governments usually tend to take economic decisions on political
considerations.
Wage Boards
• The Wage Boards have a long history in the Indian
Industrial Relations Systems. As early as 1931 the
Royal Commission on Labour recommended the
setting up of Wage Boards for determination of
wages.
• The Wage Boards were set up: to provide better
climate for industrial relations; to represent
consumers/public interests; to standardize wage
structure throughout the industry concerned; and
to align the wage settlements with the social and
economic policies of the Government.
Composition of Wage Boards
• It is a tripartite body representing the interests of
labour, management and public. The labour and
management representatives are nominated in equal
numbers by the government and are generally selected
from the particular industry which is investigated. The
board is chaired by a judge.
• The board operates within the parameters of the scope
of enquiry, profile of industry, structure of
employment, special features of the industry, export,
financial capacity, productivity, allowances and
amenities, financial implications of revised wage on
industry.
• The Boards of are 2 types (i) Statutory (ii) Non
Statutory. They are set up by a central resolution of the
Central Government and come to an end with the
submission of the report.
Functions of Wage Boards
• The wage boards are required to
– Determine which categories of employees (manual, clerical,
supervisory etc) are to be brought within the scope of wage
fixation
– Work out a wage structure based on the principles of fair wages
– Suggest a system of payment by results
– Work out the principles that should govern bonus to workers in
industries.
– Recommend minimum wage, differential cost of living
compensation, regional wage differential, gratuity, hours of work
etc.
• In evolving the wage structure, the board takes into account – the
needs of the industry, the requirement of social justice, the need for
adjusting wage differentials, the possibility of linking productivity
with wages, extending the system of payments by results.