WAGES AND SALARIES ADMINISTRATION

AZCARRAGA | CANDIDO | FRIALES | LIM

HUMAN RESOURCE MANAGEMENT

WAGES AND SALARIES DEFINED

• Wages – paid to blue-collar employees; paid daily, weekly or monthly; paid to jobs which can be measured in terms of money’s worth.• Salary – paid to white-collar employees; paid in monthly

basis; paid to employees whose contribution cannot be measured easily.• Compensation – a comparative term; includes wages and all

other allowances and benefits. (e.g. allowances, leave facilities, housing, travel, and non-cost such as recognition, privileges, and symbols of status)

WAGE AND SALARY ADMINISTRATION

• A group of activities involved in the development, implementation, and maintenance of a pay system.• An ongoing process of managing a wage and salary structure.

WHY DO WE NEED TO STUDY WAGE AND SALARY ADMINISTRATION?

• To have a scientific, rational, and balanced wage and salary structure.• In a salary administration, the employer should not feel

that the employees are paid more than they deserve and the employees should not feel that they are underpaid.

• One of the most important functions of Human Resources is the payment of the proper salaries and the wages to all company employees. The pay that the employees receive from their employer is the very reason for their being in the job.

• The function of the payroll in a company is usually the wage and salary administration and it is carried out by the Human Resources Department.

THE ROLE OF HUMAN RESOURCES IN THE PAYMENT OF

SALARIES

1. Classical Wage Theory

•This theory is based upon the fundamental concept that labor is a commodity and we have to pay the price according to supply and demand.

2. The Just Wage Theory of St. Thomas Aquinas

•A just wage is described as wage which permits the recipient worker to live in a manner in keeping with his position in the society.

THEORIES OF WAGES

3. The Wage Fund Theory

•This theory is expounded by John Stuart Mill and his followers based on the Malthusian theory of population and the law of diminishing returns.

4. Bargaining Theory of John Davidson

•This theory proposes that the labor is a commodity like anything that could be bought at a price by the user

THEORIES OF WAGES

5. The Marginal Productivity Theory

•This theory offers the best explanation of wages in modern industry

6. The purchasing Power Theory

•This theory tries to establish the relationship between wages and the level of economic activity.

THEORIES OF WAGES

7. Labor Theory of Value

•It emphasizes that labor is the source of all the products and that without this important component, there could be no goods for human consumption.

8. The Standard of Living Theory of Wages

•A recent development in the labor market is the theory of living wages that means that wages should be based on the cost of living.

THEORIES OF WAGES

• Once the worth of a job has been established, using one of the job ratings systems, the actual salary to be paid for each job must be determined. • A major factor in making the determination is the wage

survey.• Since salaries paid by other companies have an effect on

employment, morale and turnover rate, close attention is paid to the salary that is prevailing in the community and industry for specific jobs.

WAGE AND SALARY SURVEYS

WAGES AND SALARY SURVEYS

• A survey of employers in the same industry and the same area showing the wages and salaries they pay to their employees.• Wage and salary surveys are useful because they show

the prevailing compensation in a given city or other place, which may result in employers making upward or downward adjustments.

WAGES AND SALARY SURVEYS

• The actual salary to be paid for each job must be determined.• Wage survey is a major factor.• Informal surveys may be conducted through telephones

or informal interviews.• Formal surveys use questionnaires based on benchmarks

jobs.• The Human Resource Department are preparing sets of

questionnaires.

PROCEDURE IN CONDUCTING WAGE AND SALARY SURVEYS

1. Defining the Labor Market2. List of key Job Position3. Detailed Description of Jobs4. Collection of Salary Data5. Compilation of Salary Data6. Results of Survey

CONSIDERATIONS IN MAKING DECISIONS

• Whether the salaries will be above, below, or the same level.• Whether pay in a single rate for each job.• How many pay grades or salary ranges to use, and how

wide each pay grade should be.• The range of the amount in terms of money value.

DATA TREND GRAPH

• One tool that is often used to simplify the process in decision making is the use of two-dimensional graphs.• Horizontal line, where the points for key jobs are plotted.• Vertical line, where the range of pay is plotted.

TECHNIQUES IN INDICATING THE TREND OF THE DATA

PLOTTED.1. Eye Inspection- This technique is the least scientific and reliable as

this does not require scientific computations. It is more of a judgmental analysis.

2. The Least Squares- This uses the statistical formula. It presents more accurately the relationships between the money

value and the key jobs.

3. The Second Degree Curve- The trend Line will normally take the form of a curve, and may more accurately indicate the trend of the data.

THE DEVELOPMENT OF WAGE AND SALARY STRUCTURE

• Wage and Salary Structure

The hierarchy of jobs to where the pay rates are attached.

The Advantages:1. Affects the workers’ and standard of living.2. Eases the recruitment and maintenance of an effective labor

force.3. Develops employee morale and increases work efficiency.4. Represents cost and competitive advantage in the industry5. Helps in preparing budgetary allocations.6. Eliminates pay distortions and inequities in employee

compensation.7. Establishes an equitable salary range for various jobs.

WAGE STRUCTURE DESIGN

• The design of the wage and salary structure is the establishment of job classes and rate ranges. All jobs within a class are treated in the same way for purposes of economical administration.

GREEN CIRCLE RATE

• When employees’ salaries fall below the minimum of the pay grade for the job.• The decision to bring salaries to the minimum of the

grade should be based on the employees’ performance.

RED CIRCLE RATE

• Situation whereby the employee with high seniority is either so competent or has received so many increases that his salary is above the maximum of the pay grade.

• This can be handled in two-ways:1. Review the performance of the employee.2. If the performance review reveals the employee is not worthy

to be promoted and such salary increase was discreetly earned some obvious reasons, then the employee will not get the normal merit increase.

METHODS OF WAGE PAYMENT

•What is Wage Payment?• It is the way of giving financial compensation to the

workers for the time and effort invested by them in converting materials into finished products. • The main purpose of a formal wage and salary

management plan is to have a systematic method of payment to ensure that employees receive a fair wage and salary for the work they perform.

TWO METHODS OF PAYING SALARIES

• By the time worked• By the Amount of Work Produced

FIRST METHOD OF PAYING SALARIES

By the time worked- wages are computed in terms of unit of time.

• Day-Work methods of pay - include weekly, biweekly, or on a monthly basis.

- It is common to pay workers by the day and the term day work was adopted.

• Non-incentive Wage Plan – paying by the time worked.

• No matter how hard an employee works during an hour, the pay will be computed by the hourly rate and no more.

• Wages under this plan are computed by multiplying the number of hours worked by the rate hour:• H x R = W• H- Hours actually worked• R- Rate per hour in pesos• W- Total Wages earned

FIRST METHOD OF PAYING SALARIES

• Payment on the basis of time worked is more satisfactory under the following conditions:

1. Employees have little or no control over how much work they produce.

2. There is no clear-cut relationship between the effort made to produce the work and the amount of work produced.

3. Work delays occur often and are beyond the employees’ control.

4. Quality of work is very important.

5. Units of work produced cannot be distinguished and cannot be measured.

SECOND METHOD OF PAYING SALARIESBy Amount of Work Produced

• Incentive Wage Plan- a method of paying wages where earnings depend on how much work the employee completes or on a related factor, such as the quality of work.

• Piecework – most common incentive plan.

- piecework salaries are determined by the number of pieces produced or completed, and each piece is assigned a piece value that is called a piece rate.

• The formula for computing salaries under piecework is as follows:

• N x U = W• N- Number of units produced• U- Rate per unit in pesos• W- Wages earned per day or per week

SECOND METHOD OF PAYING SALARIES

Payment by piecework is satisfactory under the following conditions:

1. When a unit of completed work can be measured easily;

2. When there is clear relationship between a workers’ effort and the result of his effort;

3. When the quality of work is less important than quantity, or when quality standards are uniform and measurable.

4. When the flow of work is regular, breakdowns are few, and jobs follow a standard procedure, with few interruptions.

WAGE AND SALARY POLICIES

• These policy guidelines that will help the organization have better relationships with employees and develop a more comprehensive employee financial planning program.

CHARACTERISTICS OF THE WAGE AND SALARY POLICY

1. The wage and salary plan must be easily understood.

2. Salaries in the wage plan should be easily computed.

3. Salaries should be made relevant with effort.

4. Incentive wage plans should provide payment for incentive earnings to employees soon after they have been earned by efforts exerted to reach standards.

5. The method of payment should be stable and unvarying.

MORAL RENEWAL IN THE WORKPLACE

1.Know that leaders have limitations.

2. Choose character

3. Walk the talk

4. Avoid compromising

5. Use the same measures on yourself.

6. Face the mirror.

7. Show the mirror to your leaders.

8. Don’t just admit mistakes; correct them.

9. Have an improvement plan

10. Rebuild and don’t slide back.

 

 

LABORS AND WAGES

• In the past, the terms used to classify/describe the type of vocations are:• Blue Collar: Manual Laborers• White Collar: Office workers• Pink Collar: jobs associated with women (e.g. nursing,

secretarial, etc.)

LABOR AND WAGES

• In the present time, work roles are classified into 3 categories:• Skilled Labor: workers who received specialized training to do

their jobs; developed & improved a special skill; may or may not need to be licensed or certified by the state. This may be blue/white collars workers.• Unskilled Labor: workers who received no special training; have

few specific skills. These are blue collar workers.• Professionals: Perhaps the elite of the labor grades. Workers who

need to do an advanced degree to do their jobs. These are white collar workers.

• These are non-competing labor grades

THEORY OF WAGES AND SALARIES

• Traditional Theory of Wage Determination:• the law of supply and demand dictates salary.

• Theory of Negotiated Wages: • Employees who work in unions where the unions negotiates

salary on behalf of all workers fit into this theory.

OVERTIME PAY

• All employees required to work beyond eight hours in one workday is entitled to overtime pay. The basis of overtime pay is found in Article 87 of the Labor Code. • Article 87. Overtime work. Work may be performed beyond 8 hours a day

provided that the employee is paid for the overtime work an additional compensation equivalent to his regular wage plus at least 25% thereof. Work performed beyond 8 hours on a holiday or rest day shall be paid an additional compensation equivalent to the rate for the first 8 hours on a holiday or rest day plus at least 30% thereof.

OVERTIME PAY | OVERTIME WORK | WORKDAY

• Overtime Pay is the additional compensation payable to employee for services or work rendered beyond the normal eight hours of work.• OT Pay = OT rate x No. of hours in excess of the regular 8 hours of work

• Overtime Work. Any work performed beyond the normal 8 hours of work in one workday is considered as overtime work.

• Workday is the consecutive 24-hour period which commences from the time the employee starts to work and ends at the same time the following day. • To illustrate, if the employee regularly works from 8AM to 4PM, his regular

workday is the 24-hour period from 8AM to 8AM of the following day. Workdays do not necessarily corresponds to calendar days.

OVERTIME PAY RATES

• Overtime pay rates depend upon the day the work is performed, whether it is ordinary working day, special day, holiday or rest day.

COMPUTATION FOR OVERTIME PAY

• For ordinary working day:a. 25% of the hourly rate x the number of hoursb. 10% more on 125% (based on letter (a) above) if OT is

rendered between 10pm-6am• For holiday, special day and rest day:

a. 100% additional if work is done on 10 legal regular holidays (marked color red in the calendar) and 5 legal Muslim holidays (as declared by OMA)

b. 30% more if work is done on special holidays and Sundays

ADDITIONAL INFORMATION

• TYPES OF EMPLOYEE REWARDS• Service Awards• Employee of the Month• Attendance Awards• Safety Awards• Company Advancement

COLLECTIVE BARGAINING

• A process of negotiating an agreement regarding the terms and conditions of employment through system of shared responsibility and decision making between labor and management.

WHY IS COLLECTIVE BARGAINING AN IMPORTANT ASPECT OF LABOR-MANAGEMENT RELATIONS?

• Collective bargaining is important because it promotes the rights and ideals of labor.• A means of improving workers’ standard of living through just

compensation and humane working conditions• It guarantees security of tenure and employees promotion on

the basis of seniority• It defines the right and responsibilities of labor and management• It affords participation to labor in running an enterprise through

shared decision making, control, management, and ownership of the means of production.• It includes machinery for settling grievance or labor-disputes on

employment-related issues.

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CONCLUSION

• Compensation is a hot potato for the Human Resource Department. The motivation level of the employees to great extent lies in monetary rewards. • Hot Potato - A problem that is so controversial or sensitive that

those handling it risk unpleasant consequences.

• The major challenge that managers face today is retention of manpower and its major cause is that they are paid better in other organizations.