Wages means the payment that is made by an employer to his workers or employees as remuneration of their work that they have rendered for the employer. This remuneration may be weekly, fortnightly or monthly. Thus, wage means any monetary amount given by an employer to his employees for their services.
Yoder and Heneman, “Wages are the compensation of wage earners, the numerous employees who use the tools and equipment of their employers to produce goods and services that are sold by the employers.”
Wages in the widest sense mean any economic compensation paid by the employer under some contract to his workers for the services rendered by them. Wages, therefore, include family allowance, relief pay, financial support and other benefits. But in the narrower sense, wages are that price paid for the services of labour in the process of production and include only the performance wages or wages proper.
Wages Meaning: Eminent Authors, Wage Levels, Acts, Exceptions and Issues, Minimum Wage, Fair and Living Wage
Wages Meaning and Definition Given by Benham, Yoder and Heneman
Wages means the payment that is made by an employer to his workers or employees as remuneration of their work that they have rendered for the employer. This remuneration may be weekly, fortnightly or monthly. Thus, wage means any monetary amount given by an employer to his employees for their services.
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Wages have been defined as follows:
Benham, “Wages are a sum of money paid under contract by an employer to a worker for the services rendered.”
Yoder and Heneman, “Wages are the compensation of wage earners, the numerous employees who use the tools and equipment of their employers to produce goods and services that are sold by the employers.”
Wages in the widest sense mean any economic compensation paid by the employer under some contract to his workers for the services rendered by them. Wages, therefore, include family allowance, relief pay, financial support and other benefits. But in the narrower sense, wages are that price paid for the services of labour in the process of production and include only the performance wages or wages proper.
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Wages can be expressed in two ways. When they are expressed in terms of money paid to the worker they are called nominal wages. But when they are expressed in terms of their purchasing power with reference to some base year they are called real wages.
These wages are arrived at by making adjustment in the nominal wages for the rise or fall in the cost of living index. Thus, if the nominal wage of a worker in 1978 was Rs. 400 p.m. and in 1988 it is Rs. 900 p.m. but if the living in 1988 has become thrice as costly as in 1978, the real wage of the worker in 1988 is Rs. 300 only.
Thus, it may be concluded that wages are the returns paid by an employer to his employees for their services in form of cash or in kind. It includes allowances also wage may be daily, weekly, fortnight or monthly.
Wages Meaning – With Wage Levels and Structure
A wage or pay is the remuneration paid, for the service of labour in production, periodically to an employee/worker. “Wages” usually refer to the hourly rate paid to such groups as production and maintenance of employees (“Blue Collar Workers”). It is a general term referring to direct monetary compensation.
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From a financial perspective, wages are defined as the cash paid for some specified quantity of labour, in contrast with salaries. Wages are paid based on the wage rate (based on units of time), while salaries are paid periodically without reference to a specified number of hours worked. Given an established job description, wages can often be negotiated by workers through collective bargaining.
Economists define wages more broadly than just cash compensation and include any return on labour, such as goods that workers might create for themselves, returns in kind, or even the enjoyment that some derive from work. Even food hunted or gathered is considered wages and any return resulting from an investment in tools (such as an axe or a hoe) is deemed interest (a return on a capital investment).
Wage Levels:
The wage levels represent the money an average worker makes in a geographic area or in his organization. It is only an average as specific markets or firms and individual wages can vary widely from the average.
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Wage Structure:
The term wage structure is used to describe wage/salary relationships within a particular grouping. The grouping can be according to occupation or organization such as wage structure for craftsman (carpenters, mechanics etc.)
Under the Payment of Wages Act, 1936, Section 2 (vi), “any award of settlement and production bonus, if paid, constitutes wages.”
But under the Payment of Wages Act, 1948, “retrenchment compensation, payment in lieu of notice and gratuity payable on discharge constitute wages.”
Exceptions Wage means “any economic compensation paid by the employer under some contract to his workers for the services rendered by them”. It includes family allowance, relief pay, financial support and other benefits. In the narrower sense wages are the price paid for the services of labour in the process of production and include only the performance wages.
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They are composed of two parts – the basic wage and other allowances. The basic wage is the remuneration, by way of basic salary and allowances, which is paid or payable to an employee in terms of his contract of employment for the work done by him. Allowances, on the other hand, are paid in addition to the basic wage to maintain the value of basic wages over a period of time. Such allowances include holiday pay, overtime pay, and bonus and social security benefits. These are usually not included in the definition of wages.
However, in India, different Acts include different items under wages, though all the Acts include basic wage and dearness allowance under the term wages. For example, under the Workmen’s Compensation Act, 1923, Section 2 (m), “wages for leave period, holiday pay, overtime pay, bonus, attendance bonus, and good conduct bonus” form part of wages.
Under the Payment of Wages Act, 1936, Section 2 (vi), “any award of settlement and production bonus, if paid, constitutes wages”.
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But under the Payment of Wages Act, 1948, “retrenchment compensation, payment in lieu of notice and gratuity payable on discharge constitute wages”.
The following type of remuneration, if paid, does not amount to wages under any of the Acts:
(i) Bonus or other payments under a profit-sharing scheme which do not form a part of the contract of employment.
(ii) Value of any house accommodation, supply of light, water, medical attendance, travelling allowance, or payment in lieu thereof, or any other concession.
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(iii) Any sum paid to meet special expenses entailed by the nature of the employment of a workman.
(iv) Any contribution to pension, provident fund, or a scheme of social security and social insurance benefits.
(v) Any other amenity or service excluded from the computation of wages by a general or special order of an appropriate governmental authority.
The institution of wages, the concept of earning livelihood by doing the work of some other, is one of the oldest institutions of the society. The remuneration was determined in the quantum of commodities to be exchanged for labour. With the advent of money, the wages are now paid in coins and/or in commodities. Etymologically, any remuneration paid for services is regarded as wages.
Beach visualizes seven elements or issues in administration of wage:
1. Pay levels – It relates to the problem as to whether the wage structure is high, average or low and are determined by competitive labour market and industry rates, financial position of the enterprise managerial policies and allied considerations.
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2. Internal pay structure – It relates to the hierarchy of pay rates, pay grades and job classification and revolves around the job evaluation.
3. Individual pay system – It relates to the classification of individuals into job titles and pay grades involving determination of how much compensation, they should be paid. This issue revolves around seniority and merit.
4. Payment by time – It relates to remuneration paid in terms of time spent on the job while payment by output involves financial compensation in terms of units of output as indicated by wage incentive plans.
5. Special issues related to salesman, managers and professional personnel – It relates to inventive plans, tax saving and fringe benefits, plans and pay plans in terms of qualifications and performance as compared to pay plans based on the intrinsic job content for other personnel in the organization.
6. Fringe benefit and pay supplements – It is in the form of insurance, pensions, paid holidays, bonuses, profit sharing and allied factors are significant components in the compensation system involving substantial labour costs to enhance the attractiveness of a job.
7. Control of wages and salaries – It is exerted by several measures such as a table of organization, annual review of job classifications, evaluation of incentive plans and careful budgeting of pay increases. Explicitly, the entire problem of wage and salary administration is likely to be solved by carefully considering these elements in organizational settings.
Wages Meaning – Minimum Wage, Fair and Living Wage
The term “wages” may be used to describe one of several concepts, including wage rates, straight-time average hourly earnings, gross average hourly earnings, weekly earnings, weekly take-home pay and annual earnings. Money paid to the workers is considered as his wages. 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 total labour costs.
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In the words of the British Ministry of Labour and National Services, wage is “the payment made to the workers for placing their skill and energy at the disposal of an employer, the method of use of that skill and energy being at the employer’s discretion and the amount to the payment being in accordance with terms stipulated in a contract of service”. Various terms that are currently in use in the payment system are “wages”, “pay”, “compensation” and “earnings”.
In Stroud’s judicial dictionary the wages has been defined as “wages are the personal earnings of the labourers and artisans.”
The Oxford English Dictionary defines “wages” as “a payment to a person for service rendered the amount paid periodically, especially by the day or week or month, for the time during which workman or servant is at employer’s disposal.” Webster’s Comprehensive Dictionary defines wages as “pay given for labour, usually manual or mechanical, at short stated intervals, as distinguished from salaries or fees.”
According to the Encyclopaedia of Social Sciences, “wages are remuneration for labour. Like interest and rent, wages are contractual incomes. Wage rates, whether piece rates or time rates or whether fixed in money or in goods, are agreed upon by the payers and the recipients of wages before the product is sold.”
The concept “earnings” relates to remuneration in cash and in kind paid to employees, as a rule, at regular intervals for time worked or work done together with remuneration for time not worked, such as for annual vacation, other paid leave or holidays. Earnings exclude employers’ contributions in respect of their employees paid to social security and pension schemes and also the benefits received by employees under these schemes. Earnings also exclude severance and termination pay.
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Wages, in the widest sense, means any economic compensation met by the employer under some contract to his employees for the services rendered by them. Normally, they are composed of two parts- the basic wage and other allowances. The basic wage is the remuneration, which is paid or payable to an employee in terms of his contract of employment for the work done by him.
Allowances, on the other hand, are paid in addition to the basic wage to maintain its value over a period of time. In India, however, different labour enactments include different items under the term “wages”, though all the enactments cover basic wage and dearness allowance.
When we speak of “wages”, we refer broadly to one of the three things, namely- (i) the settled wage rate per day, week or month (the rate per hour not being common in this country except for the calculation of overtime); (ii) the gross earnings for the days worked, which would include overtime payment, incentive payment, and allowances payable in cash or (iii) the take-home pay, which would be the gross earnings minus deductions of all kinds, such as social security deductions, tax deductions, if any.
Gross earnings may differ from the wage rate not only because of the specific additions mentioned above but because of the number of days or weeks on which a worker is able, or willing to secure employment. Absenteeism on the part of a worker can create a yawning gap between the wage rate for a month and the actual earnings in the month.
While overtime earnings, incentive payments, etc., raise earnings above the wage rate, absenteeism and short working depress earnings to levels well below the monthly wage rate in many cases. The net result- of these opposing influences varies from industry to industry, from unit to unit, and from time to time. Thus, earnings depend upon wage rates, premium payments, and the time worked or paid during the period for which earnings are computed.
The two terms often used interchangeably are “wages” and “salary”. If a worker is paid by the year, he is considered to be in receipt of a salary, not wages. If he is paid by the hour or day, he is stated to be in receipt of wages. If he is paid by the month, he is usually looked upon as salaried employee rather a wage-earner.
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Normally, the term “salary” is used for compensation to white-collar employees while the term “wage” is used to denote the payment made to blue-collar workers. A wage earner is usually a manual worker, while the salary earner is typically a routine clerical worker, a technical man, a professional man, or a manager.
The dictionary meaning of the word “salary” as a periodic payment to persons doing jobs other than mechanical has little relevance in the context of changing technology. It is likely that the conventional pay distinction between the blue- collar and the white-collar employees may disappear over a period of years.
Since 1948 several terms have acquired currency referring to the wage levels, viz. – (i) statutory minimum wage; (ii) the base or basic wage; (iii) the minimum wage; (iv) the fair wage; (v) the living wage; and (vi) the need-based minimum wage.
The first term owes its origin to the provision of the Minimum Wages Act, 1948; the second has found its place in industrial awards and judicial dicta of the courts; the next set of three terms have been introduced in the Report of the Committee on Fair Wages; and the last one in the Resolution of the 15th Session of the Indian Labour Conference held in July 1957.
It would be obvious that these wage concepts cannot be described in definite words because their contents are elastic and they are bound to vary from time to time and from country to country. It would be difficult and also inexpedient to attempt the task of giving an adequate precision to these concepts.
What is a subsistence wage in one country may appear to be much below the subsistence level in another; the same is true of a fair wage and a living wage. What is a fair wage in one country may be treated as a living wage in another, whereas what may be regarded as a living wage in one country may be no more than a fair wage in another. Several attempts have nevertheless been made to describe generally the contents of these respective concepts from time to time.
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1. Minimum Wage:
The practice of minimum wage regulation is generally considered to have first developed in New Zealand and Australia around the turn of the century. Initially it was used in these two countries as part of the procedure for the prevention and settlement of industrial disputes. At about the same time there were also experiments in using minimum wage regulation to eliminate ‘sweating’ – that is the payment of exceptionally low wages.
There can be three kinds of minimum wage:
i. A minimum wage notified by the government under the Minimum Wages Act, 1948 for different scheduled employments; or
ii. A minimum wage drawn by an unskilled worker in an organised industry as a result of a wage settlement which is purely the result of hard bargaining or even of coercive bargaining; or
iii. Need-based minimum wage determined as per the norms prescribed by the 15th Session of Indian Labour Conference.
The basic minimum wage is the bare subsistence wage; above that is fair wage; and beyond the fair wage is the living wage. The content of the minimum wage is not fixed and static. It is dynamic and is bound to vary from time to time and place to place. The International Labour Organisation (ILO) lists three criteria for fixing the minimum wage.
These are:
a. The needs of workers;
b. The capacity to pay; and
c. Wages paid for comparable work elsewhere in the economy or more generally the standard of living of other social groups.
There is already in existence a Minimum Wages Act, 1948. It lays down norms and procedures for the determination and fixation of wages in the industrial services and agricultural sectors. There are certain procedures and mechanisms through which minimum wages have come to be fixed and revised for various industries and categories of workers. However, there is lack of effective implementation of the Act, particularly in the rural sector. Further, the revision of wages has been tardy and given to long delays.
2. Fair Wage:
The Committee on Fair Wages stated that the fair wage was something between a minimum wage and a living wage. The Committee envisaged that while the lower limit of the fair wage must obviously be the minimum wage, the upper limit is equally set by what may broadly be called the capacity of the industry to pay.
This will depend not only on the present economic position of the industry but on its future prospects. Between these two limits the actual wages will depend on – (i) the productivity of labour; (ii) the prevailing rates of wages in the same or similar occupations in the same or neighbouring localities; (iii) the level of the national income and its distribution; and (iv) the place of the industry in the economy of the country.
Fair wage is something above the minimum wage, which may roughly be said to approximate to the need-based minimum, in the sense of a wage which is adequate to cover the normal needs of the average employee regarded as a human being in a civilised society. Fair wage is not a living wage. It lies between the minimum wage and the living wage which is the goal.
3. Living Wage:
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.
It is a difficult task to fix a living wage in terms of money as it differs from country to country and from time to time, according to national economy and social policies. The Directive Principles of State Policy of the Constitution of India enumerates the concept of living wage and provides that the state shall endeavor to secure to all workers a living wage.
The Committee on Fair Wages observed that the concept of living wage has influenced the fixation of wages in all economically advanced countries and was a very old and well-established one.
It would thus be obvious that the concept of a living wage is not a static concept; it is expanding. A living wage will provide the workmen with the highest state of industrial efficiency, and will enable him to provide his family with all the material things which are needed for their health and physical well-being enough to enable him to qualify to discharge his duties as a citizen.
In an inflationary situation, there is bound to be erosion of the purchasing power of earnings or money wages. To raise real wages, labour leaders place considerable emphasis upon the need to increase money wages more than enough to compensate for the rise in the cost of living.
It is no doubt true that unless money wages rise as fast as consumer prices, it would result in an erosion of real wages. No wage policy can remain viable in a state of persistent inflation, and every effort is required to be made to contain inflation if any wage policy is to be meaningful. In underdeveloped economies where the workers are undernourished, a higher money wage, if it gives them a higher real wage, may improve their health and efficiency and may lead to higher productivity.