Unit 3 Pay Administration

8/3/2019 Unit 3 Pay Administration

1/34

Unit 3

Administering compensation systems


2/34

Content

Labour commission criteria

Wage structure

Components of wages

Basic wages Dearness allowance

HRA

CCA, TA, TTA, NPA, LTC, Risk allowance etc

Summary Reference


3/34

Report from National commission of labour

The Committee then identified the criteria that had to beconsidered 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.


4/34

Wage structure

Minimum wage

Living wage

Fair wage

Market lead

Market lag

Market match

Pay Design / Model1. Determine the pay level policy

2. Design, conduct, & analyzesurveys

3. Update the data

4. Construct the policy lines

5. Design ranges, flat rates, & / orincentives


5/34

Minimum Wage

A minimum wage is one which has to be paid by an employer to his workersirrespective of his ability to pay. According to the above committee, "Minimumwage 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, minimumwage must provide some measure of education, medical requirements andamenities. "

Subsequent to the committee's report, Government enacted legal provisionsregarding minimum wages under the Minimum Wages Act. 1948. This Act does notdefine the concept of minimum wages but empowers the Central Government aswell as State Governments to fix minimum wages from time to time.

In 1957, Indian Labour Conference elaborated the concept of fixation of minimumwars which were termed as need-based minimum wages.

For the calculation of wages, the Conference suggested the following guidelines:


6/34

Criteria Min Wage

1. The standard working class family should be taken to consist ofthree

consumption units for the earner; the earnings of women, childrenand

adolescents should be disregarded.

2. The minimum food requirements should be calculated on the basisof 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.


7/34

Living Wage

Along with the minimum wage the Committee on Fair Wages has given theconcept of living wage which has been defined as follows:

"A living wage is one which should enable the earner to provide for himselfand his family not only the bare essentials of food, clothing and shelter but ameasure of frugal comfort including education for his children, protectionagainst ill-health, requirements of essential social needs and a measure ofinsurance against the more important misfortunes including old age. "

Living wage is more than the concept of minimum wage. Such a wage isdetermined keeping in view the national income and paying capacity ofindustrial sector. The Committee also observed that since the national incomedid not support the payment of living wage. it should be implemented inthree 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.


8/34

Fair Wage

The concept of fair wage is linked with the capacity of theindustry to pay. The Committee has defined fair wage asfollows:

"Fair wage is the wage which is above the minimum wage

but below the living wage. The lower limit of the fair wageis obviously the minimum wage: the upper limit is to be setby the capacity of the industry to pay. "

Thus, fair wage depends on different variables affectingwage determination. Such factors are labour productivityprevailing 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.


9/34

Determining Pay Rates

Direct financial payments

base on two traditional factors & 1 neo factor

Pay for Time

Pay for Performance

Balance or Dent


10/34

Basic Pay

As the name suggests, this forms the very basis of your salary.This is the core of your salary, and many other componentsmay be calculated based on this amount. Basic usuallydepends on your grade within the companys salary structure.

Many deductions are also dependent on the basic forexample, your contribution (and the matching component byyour employer) to provident fund is 12% of your basic.

Basic is paid out every month, and is a taxable component ofyour salary.


11/34

2006 pay revision by AP


12/34

2006 pay revision by AP


13/34

Dearness Allowance (DA)

The Dearness Allowance is paid out to

compensate for increase in the general cost of

living due to inflation.


14/34

6th Pay Commission on DA-2008

Current Status: Accepted; base using 2001 series works out to be 115.76. Theinstallment of DA from 1-1-2006 will be paid as per suggestion of 6CPC

The Commission did not accepted the demand for merger of dearnessallowance with basic pay.

Current Status: Accepted;

As against the demand of various organizations to grant DA morefrequently, Commission preferred to stick to old practice of sanctioningtwice a year as on 1st January and 1st July payable with the salary ofMarch and September, respectively.

Current Status: Accepted;

DA shall be admissible @ 2, 6, 9, 12 & 16% from 1-7-2006, 1-1-2007, 1-7-

2007, 1-1-2008 & 1-7-2008, respectively


15/34

House Rent Allowance

the Commission recommended merger of C Class Cities(having population of 50,000 to 5 lakh) with `UnclassifiedTowns' (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 inthe urban agglomeration should be taken into account forclassifying a city for purposes of HRA.

HRA in A-1 cities be paid at the rate of 30% of the total ofrevised pay in the running pay band and grade pay thereon.

Erstwhile A, B-1 and B-2 categories are being merged.


16/34

HRA continued.


17/34

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.


18/34

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


19/34

Transport Allowance

the existing condition which prohibits grant of Transport Allowance to theemployees who have been provided with official accommodation within oneKilometer 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 thenormal rates.

This, however, will be further subject to the condition that Transport Allowance inthe case of physically disabled employees shall, in no case, be less than Rs.1000per month plus the applicable rate of dearness allowance.

Employees in pay band PB-4 who are entitled to the use of official car for travelbetween residence and office may be given the option to draw transportallowance at a higher rate of Rs.7000 p.m. plus dearness allowance provided theygive up the use of official car for travel between residence and office.


20/34

T A continued.


21/34

2005- Pay revision recommendations- AP

on CCA


22/34

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.


23/34

Traveling Allowance

Travel entitlements

Commission did not accept the employees demandto make changes in the travel entitlement for traveloutside India.

The Commission recommended to allow travel byany means of public transport for road travelbetween places connected by rail, with a condition

that total fare does not exceed the train fare by theentitled class.


24/34

TA - continued.


25/34

TA - continued.


26/34

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 bytrain as well without subjecting it to the

extant restriction that these can not exceed

1.25 times of the eligible train fare


27/34

TTA


28/34

Daily Allowance

The rates of all the components of Daily Allowance shall automaticallyincrease by 25% whenever the Dearness Allowance payable on the revisedpay bands goes up by 50%.

In case of stay or journey on Government ships, boats etc.or journey toremote places on foot/mules etc. for scientific/data collection purposes inorganisations 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 Headof Department/Controlling Officer.

For journey on foot, an allowance of Rs.5 per kilometer traveled on footshall be payable additionally. This rate will also be increased by 25%

whenever DA payable on revised pay scales goes up by 50%.


29/34

LTC & other benefits

The most welcome recommendation made by the Sixth Pay Commission was about the travel entitlementsunder LTC and official tours. Commission eliminated the distinction for entitlement between LTC and TAtours. 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 theGovernment or any Corporation in the public sector run by the Central or State Government or a localbody.


The most commendable recommendation in my opinion has been the encashment of Earned Leave upto10 days along with LTC to the extent of total of 60 days, and non-deduction of these Earned Leaves fromthe maximum amount of Earned Leave (300 days) encashable at the time of retirement.


The Railways employees be allowed to avail of this encashment at the time of availing of passes for amaximum of 60 days in the entire career subject to the condition that successive encashment cannot bemade before a minimum period of two years has elapsed.


30/34

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 thecondition that the Basic Pay + NPA does not

exceed Rs.85,000.


31/34

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.10lakhs for employees in PB-3 pay band/higher pay bands/scales.

The amount of the insurance should automatically be increased by 50% every timethe 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 availableto all categories of Government employees.

These employees should also be provided with additional health benefits withmandatory health check-ups every quarter and enhanced leave, wherever thesame is necessary for proper recuperation.


32/34

Holidays

The Government offices will remain closed only on the 3National holidays.

No other closed holidays be allowed.

Restricted Holidays available to an employee shall be

increased to 8 with the list of Restricted Holidays beingsuitably enlarged to include all the erstwhile GazettedHolidays therein.

Every Head of Department (HoD) should be allowed theoption of declaring the office closed for a maximum oftwo Restricted Holidays in a year based on localconsiderations.

The number of Casual Leave, Half Pay Leave and EarnedLeave available to Government employees shall remainunchanged.


33/34

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)


34/34

Reference

William Muhs, Pay secrecy, University of Texas.

Tenstep.Inc, Tossing the Coin - Pay Secrecy, article march-2004.

Gary & Peter, Do Co-Workers Wages Matter? Theory andEvidence on Wage Secrecy, Wage Compression and Effort,article, IZA,nov-2004.

Empulse series, payroll preparation.

http://payroll.naukrihub.com/compensation/payroll-management/components.html
http://payroll.naukrihub.com/compensation/payroll-management/components.htmlhttp://payroll.naukrihub.com/compensation/payroll-management/components.htmlhttp://payroll.naukrihub.com/compensation/payroll-management/components.htmlhttp://payroll.naukrihub.com/compensation/payroll-management/components.htmlhttp://payroll.naukrihub.com/compensation/payroll-management/components.htmlhttp://payroll.naukrihub.com/compensation/payroll-management/components.html

Documents

Unit 3 Pay Administration