Types of wages and wage policies

Types of wages and wage policies– There are three main categories of wages

• Minimum wage: The lowest wage, determined by law or contract that an employer must pay an employee for a specified job. Minimum wages not only provide for the bare physical needs but also ensures some fulfillment of basic needs such as education, health, and other things. Minimum wage levels are determined either by law (Minimum Wages Act, 1948) or maybe the result of a wage settlement agreement between employee and employer. The minimum wage is generally the lowest hourly, daily, or monthly remuneration that employers must legally pay to workers.
• Fair Wage: Fair wages are somewhat above Minimum wage rates and aim to provide a “fair” wage for work done. Fair wages take the form of adjustable steps that move up according to the capacity of the industry to pay, and the prevailing rates of wages in the area of industry. Fair wages fall between the Minimum Wage and a Living Wage and are related to productivity. Fair Wages also advocate the “equal pay for equal work” philosophy, which says that work of equal skills or difficulty levels should receive equal or fair wages.
• Living Wage: Living wages can be defined as the wages that meet the normal needs of an average employee in the course of everyday life. Living wages should ideally enable the worker to meet basic needs (for an extended period of time or for a lifetime). These needs include shelter (housing) and other incidentals such as clothing and nutrition. The Living wage theory says that wages should not only be fair but also be sufficiently high to provide comfort and insurance against important misfortunes.

Wage Policies

Across the globe, the Government has always had an interest in and a great influence on the employer-employee relationship, particularly as it related to the issue of compensation. This has taken the form of wage policies and regulations focusing on minimum wage, mandatory benefits, and other aspects of compensation. In India, wage policies aim to create a structure around the national wage and salary system. The objectives of Government-regulated wage policies are:

• Promote economic growth, employment, productivity, capital formation, and price stability.
• Remove wage differentials between different industrial sectors.
• Set a minimum wage to ensure that workers in any industry or sector are able to purchase the basic necessities of life.

Government-set policies form the basic guidelines for organizations in determining a wage structure. Typically, organizations divide compensation into the following components in line with prevailing wage policies:

• Basic wage or salary: This is the base pay that is agreed upon for work performed and does not include any other components of compensation.
• Allowances: These are payments above the amount of the base wage or salary. Dearness Allowances (DA), which were introduced to protect workers against the effects of inflation, are included in this category as are other types of allowances
• Bonuses or Incentive Pay: Bonuses or other forms of incentive pay are over and above any base wages and allowances. They are usually paid as a lump sum at one time during the business year or may be paid at regular pre-decided intervals (e.g. incentives for quarterly sales) and their primary purpose is to improve performance.
• Benefits and other perks: Groups insurance (e.g. Life Insurance or Medical Insurance), Provident Funds, reduced rates for loans, paid vacation and holidays, subsidized food, and so on are all categories of fringe benefits or perks that employees sometimes receive from the employer as a part of the employment relationship.

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