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ASSIGNMENT

Course Code : MS-27


Course Title : Wage and Salary Administration Assignment
Code : MS-27/TMA/SEM - II/2016
Coverage : All Blocks
Note: Attempt all the questions and submit this assignment on or before 31st October, 2016
to the coordinator of your study centre.
1. Explain the concept and structure of compensation. Describe the functions and
responsibilities of compensation programme of an organization you are familiar with.
2. Explain the purpose and application of the payment of wages Act, 1936. Describe the
concept of deduction from wages and limits on the total amount of deduction can the fine be
deducted from wages of an employed persons? If so, subject to what conditions.
3. What do you understand by the concept of wages, explain the concept of basic wage
through examples. Why dearness is allowance an integral part of pay packet, explain how is it
administered?
4. Define “incentives”. Bring out their advantages and limitations. Explain the various
individual and group incentive plans and their respective merits and demerits.
5. Describe the tax planning for employee compensation in any organization you are familiar
with. Explain the tax implications of employee compensation package to the employer and
employees.

Answer
1. Explain the concept and structure of compensation. Describe the functions and
responsibilities of compensation programme of an organization you are familiar with.
Ans.: Compensation is a systematic approach to providing monetary value to employees in
exchange for work performed. Compensation may achieve several purposes assisting in
recruitment, job performance, and job satisfaction. Compensation plays an integral role in the
successful delivery of our strategic objectives. Attracting and retaining the most capable
employees on a global basis is central to our compensation strategy. The cornerstone of this is
the concept of pay for performance, within a sound risk management and governance
framework, and with due consideration of market factors and societal values. As we seek to
align compensation to evolving internal and external expectations, reward structures are
reviewed, and enhanced as needed, on a regular basis.
Compensation is a tool used by management for a variety of purposes to further the existance
of the company. Compensation may be adjusted according the the business needs, goals, and
available resources.
 Compensation may be used to:
 recruit and retain qualified employees.

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 increase or maintain morale/satisfaction.
 reward and encourage peak performance.
 achieve internal and external equity.
 reduce turnover and encourage company loyalty.
 modify (through negotiations) practices of unions.
Recruitment and retention of qualified employees is a common goal shared by many
employers. To some extent, the availability and cost of qualified applicants for open positions
is determined by market factors beyond the control of the employer. While an employer may
set compensation levels for new hires and advertize those salary ranges, it does so in the
context of other employers seeking to hire from the same applicant pool.
Morale and job satisfaction are affected by compensation. Often there is a balance (equity)
that must be reached between the monetary value the employer is willing to pay and the
sentiments of worth felt be the employee. In an attempt to save money, employers may opt to
freeze salaries or salary levels at the expence of satisfaction and morale. Conversely, an
employer wishing to reduce employee turnover may seek to increase salaries and salary
levels.
Compensation will be perceived by employees as fair if based on systematic components.
Various compensation systems have developed to determine the value of positions. These
systems utilize many similar components including job descriptions, salary ranges/structures,
and written procedures.
The components of a compensation system include
 Job Descriptions: A critical component of both compensation and selection systems,
job descriptions define in writing the responsibilities, requirements, functions, duties,
location, environment, conditions, and other aspects of jobs. Descriptions may be
developed for jobs individually or for entire job families.
 Job Analysis: The process of analyzing jobs from which job descriptions are
developed. Job analysis techniques include the use of interviews, questionnaires, and
observation.
 Job Evaluation: A system for comparing jobs for the purpose of determining
appropriate compensation levels for individual jobs or job elements. There are four
main techniques: Ranking, Classification, Factor Comparison, and Point Method.
 Pay Structures: Useful for standardizing compensation practices. Most pay
structures include several grades with each grade containing a minimum salary/wage
and either step increments or grade range. Step increments are common with union
positions where the pay for each job is pre-determined through collective bargaining.
 Salary Surveys: Collections of salary and market data. May include average salaries,
inflation indicators, cost of living indicators, salary budget averages. Companies may
purchase results of surveys conducted by survey vendors or may conduct their own
salary surveys. When purchasing the results of salary surveys conducted by other
vendors, note that surveys may be conducted within a specific industry or across
industries as well as within one geographical region or across different geographical

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regions. Know which industry or geographic location the salary results pertain to
before comparing the results to your company.
2. Explain the purpose and application of the payment of wages Act, 1936. Describe the
concept of deduction from wages and limits on the total amount of deduction can the fine be
deducted from wages of an employed persons? If so, subject to what conditions.
Ans.: The Payment of Wages Act, 1936 has been enacted to regulate the payment of wages of
certain specified classes of workers. The Act provides for prompt and effectual remedy to the
workers against illegal and unjustified deductions from their wages. Further, the Act also
seeks to ensure timely payment of wages to workers and prescribes mode of payment of
wages to the employed persons.
The Payment of Wages Act regulates the payment of wages to certain classes of persons
employed in industry and its importance cannot be under-estimated. The Act guarantees
payment of wages on time and without any deductions except those authorised under the Act.
The Act provides for the responsibility for payment of wages, fixation of wage period, time
and mode of payment of wages, permissible deduction as also casts upon the employer a duty
to seek the approval of the Government for the acts and permission for which fines may be
imposed by him and also sealing of the fines, and also for a machinery to hear and decide
complaints regarding the deduction from wages or in delay in payment of wages, penalty for
malicious and vexatious claims. The Act does not apply to persons whose wage is Rs. 10,000
or more per month. The Act also provides to the effect that a worker cannot contract out of
any right conferred upon him under the Act.
The main objective of the Act is to avoid unnecessary delay in the payment of wages and to
prevent unauthorized deductions from the wages. Every person employed in any factory,
upon any railway or through sub-contractor in a railway and a person employed in an
industrial or other establishment.The State Government may by notification extend the
provisions to any class of persons employed in any establishment or class of establishment.
The benefit of the Act prescribes for the regular and timely payment of wages (on or before
7th day or 10th day of after wage period is greater than 1000 workers) and Preventing
unauthorized deductions being made from wages and arbitrary fines.
Wages are averaging less than Rs. 6500.00 per month only are covered or protected by the
Act by the amendment in 2005 by {Section 1(6)}.Wages means contractual wages and not
overtime wages. They are not to be taken into account for deciding the applicability of the
Act in the context of section 1(6) of the Act. Wages must be paid in current coin or currency
notes or in both and not in kind. It is, however, permissible for an employer to pay wages by
cheque of by crediting them in the bank account if so authorized in writing by an employed
person.
The provisions of the Act regarding the imposition of fines on the employed person are as
follows such as, The employer must exhibit on his premises a list of acts or omissions for
which fines can be imposed, Before imposing a fine on an employed person he must be given
an opportunity of showing cause against the fine, The amount of fine must not exceed 3
percent of the wages, A fine cannot be imposed on an employed person who is under the age

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of 15 years, A fine cannot be recovered by installments or after 90 days from the day of the
act or omission for which it is imposed, The moneys realized from fines must be applied to
purposes beneficial to employed persons.
Subsection 8(3), 10(1-A) & Rule 15} deals with Any person desiring to impose a fine on an
employed person or to make a deduction for damage or loss shall explain personally or in
writing to the said person the act or omission, or damage or loss in respect of which the fine
or deduction is proposed to be imposed, and the amount of fine or deduction, which it is
proposed to impose, and shall hear his explanation in the presence of at least one other
person, or obtain it in writing.
The procedure to employ a person has to follow for claiming deducted or delayed wages.If
contrary to the provisions of the Act any deduction has been made from the wages of an
employed person or any payment of wages has been delayed, he has to make an application
for claiming the same to the Authority appointed under the Act.Such application can be made
by the employed person himself or a legal practitioner or an official of a registered trade
union.Such application has to be made within a period of 12 months from the date on which
the date on which the deduction from the wages was made or from the date on which the
payment of the wages was due to be made.
There is a competent Authority to entertain and decide an application for payment of
subsistence allowance. The subsistence allowance payable to an employee placed under
suspension pending Departmental Enquiry is covered within the definition of wages given
under Section 2(6) of the Act and, therefore, the Authority is competent to entertain and
decide an application for payment of subsistence allowance.
The Authority under the Payment of Wages Act is a Court of summary jurisdiction having
powers to deal with the simple matter of delay in payment of wages or deduction from wages.
It is not within the competence of the Authority to decide the question of the status of an
employed person. The matter is a complicated question of law as also of fact. There is an
agreement between an employer and his employees authorizing the deduction of union
subscription from the salaries of the employer null and void under Section 23 of the Act,
Such agreement being beneficial and advantageous to the employees is not null and void
under Section 23 of the Act.
Employer's required to display the abstracts of the Act in his factory or establishment. Every
employer must display in his factory or establishment a notice containing the abstracts of the
Act and the rules made thereunder in English and also in the language understood by the
majority or the persons.
3. What do you understand by the concept of wages, explain the concept of basic wage
through examples. Why dearness is allowance an integral part of pay packet, explain how is it
administered?
Ans.: A wage is monetary compensation (or remuneration, personnel expenses, labor) paid by
an employer to an employee in exchange for work done. Payment may be calculated as a
fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate,
or based on an easily measured quantity of work done.

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Wages are an example of expenses that are involved in running a business. Payment by wage
contrasts with salaried work, in which the employer pays an arranged amount at steady
intervals (such as a week or month) regardless of hours worked, with commission which
conditions pay on individual performance, and with compensation based on the performance
of the company as a whole. Waged employees may also receive tips or gratuity paid directly
by clients and employee benefits which are non-monetary forms of compensation. Since
wage labour is the predominant form of work, the term "wage" sometimes refers to all forms
(or all monetary forms) of employee compensation.
Wages are the most common earnings of people. Perceived by workers, clerks, managers, and
employees in general, wages and salaries constitute the core element in income for the
majority of active people. Similarly, many pension schemes are based on wage levels and
dynamics.
By contrast, the self-employed do not receive wages, but sell directly their labour in the
market. The property and enterprise owners obtain income from rents, dividends, and other
financial instruments' gains. The unemployed in certain countries and under constraints
receive public financial support.
Minimum wage is the minimum amount of compensation an employee must receive for The
concept of basic wages on which PF contribution is to be calculated has always been a
debatable issue. The Supreme Court has laid down two tests to determine whether a
component is included in the definition of basic wages or not. These are test of universality
and test of contingency.
Applying the test of universality, if a component is paid universally, necessarily and
ordinarily to all employees of a company, the same is included in the definition of basic
wages. Applying the test of contingency, if a component is paid subject to uncertain events
like overtime payment, the same is excluded from the definition of basic wages.
On the basis of these tests, the Delhi High Court recently held that canteen allowance paid to
all permanent employees would be included in the definition of basic wages. The Delhi High
Court also dismissed the argument taken by the company that canteen allowance falls under
any other similar allowance, which is excluded from the definition of basic wages. This
highlights another concern as to what constitutes commission or any other similar allowance,
which is excluded from the definition of basic wages whether the term any other similar
allowance has to be read along with commission or separately.
The industry would be keen to take a view that any other allowance is very wide in scope
and, thus, various cash allowances may fall under it and get excluded from the definition of
basic wages. On the other hand, the PF authorities seem to take a view that both these terms
are to be read together. This would narrow the scope of any other allowance by limiting
components in the nature of commission only to fall under it.
4. Define “incentives”. Bring out their advantages and limitations. Explain the various
individual and group incentive plans and their respective merits and demerits.

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Ans.: An incentive is something that motivates an individual to perform an action. The study
of incentive structures is central to the study of all economic activities (both in terms of
individual decision-making and in terms of co-operation and competition within a larger
institutional structure). Economic analysis, then, of the differences between societies (and
between different organizations within a society) largely amounts to characterizing the
differences in incentive structures faced by individuals involved in these collective efforts.
Ultimately, incentives aim to provide value for money and contribute to organizational
success.
An incentive is an object, item of value, or desired action or event that spurs an employee to
do more of whatever was encouraged by the employer through the chosen incentive.
Four kinds of incentives are available for employers to use at work. I’m sure that others
would categorize these incentives differently, but these four categories work for me.
 Compensation incentives may include items such as raises, bonuses, profit sharing,
signing bonus, and stock options.
 Recognition incentives include actions such as thanking employees, praising
employees, presenting employees with a certificate of achievement, or announcing an
accomplishment at a company meeting.
 Rewards incentives include items such as gifts, monetary rewards, service award
presents, and items such as gift certificates. An additional example is employee
referral awards that some companies use to encourage employees to refer job
candidates.
 Appreciation incentives include such happenings as company parties and celebrations,
company-paid family activity events, ice cream socials, birthday celebrations,
sporting events, paid group lunches, and sponsored sports teams.
Following are some of the important advantages of incentive plan:
(i) Increase in volume of output - Output of the firm increases as the workers are
motivated to increase their efficiency to get more wages.
(ii) Reduction of cost of production per unit - Cost of production per unit of output
declines due to decrease in labour cost and overheads per unit.
(iii) Reduction of labour turnover - Workers is rewarded properly for their efficiency
which results in reduction of labour turnover.
(iv) Reduction of idle time - Since the payment of wages is linked with efficiency, the
idle time costs are reduced to the minimum.
(v) Benefit to consumers - Reduction of cost of production per unit is passed on to the
consumers by reducing the selling price.
Disadvantages of Incentive Plans :
In spite of the above advantages, the incentive plans are not free from disadvantages. The
following are some of the important disadvantages:

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(i) Difficulty to fix standard time - Fixation of standard time for implementation of
incentive plans poses difficulty, particularly if the workers slow down deliberately
while under observation to get set a higher standard time.
(ii) More supervision required - As the workers want to speed up the work to get more
wages, more supervision is necessary to avoid decline in the quality of work and
wastage of raw materials.
(iii) Union opposition - Labour unions may oppose the incentive plan because it
weakens them and creates jealousies and greed among workers. This may lead to
strikes and lock-outs.
5. Describe the tax planning for employee compensation in any organization you are familiar
with. Explain the tax implications of employee compensation package to the employer and
employees.
Ans.: Employees receive compensation from a company in return for work performed. While
most people think compensation and pay are the same, the fact is that compensation is much
more than just the monetary rewards provided by an employer. According to Milkovitch and
Newman in their 2005 book, Compensation, it is “all forms of financial returns and tangible
services and benefits employees receive as part of an employment relationship.” The phrase
“financial returns” refers to an individual's base salary, as well as short- and long-term
incentives. “Tangible services and benefits” are such things as insurance, paid vacation and
sick days, pension plans, and employee discounts.
An organization's compensation practices can have far-reaching effects on its competitive
advantage. As compensation expert Richard Henderson notes, “To develop a competitive
advantage in a global economy, the compensation program of the organization must support
totally the strategic plans and actions of the organization.” Labor costs greatly affect
competitive advantage because they represent a large portion of a company's operating
budget. By effectively controlling these costs, a firm can achieve cost leadership. The impact
of labor costs on competitive advantage is particularly strong in service and other labor-
intensive organizations, where employers spend between 40 and 80 cents of each revenue
dollar on such costs. This means that for each dollar of revenue generated, as much as 80
cents may go to employee pay and benefits.
When you hire your first employee, you or your human resources (HR) department will need
to register for a payroll account. You also need to have all employees complete both the
federal and provincial copies of form TD1. These forms should be completed annually before
the end of the first pay period. They allow you to set the appropriate tax-deduction rates for
employees considering any deductions they are allowed, such as those for small children,
study, or the care of a disabled person living with them.
The employer has an obligation to deduct Canada Pension Plan contributions (CPP),
Employment Insurance premiums (EI) and income tax from remuneration paid in each pay
period. You will need to remit these deductions along with the employer’s share of CPP
(equal to the amount withheld from the employee) and EI (1.4 times the amount withheld).
These deductions must be remitted to the Canada Revenue Agency (CRA) on a regular basis.

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The CRA will assess a penalty if an employer:
 Fails to deduct the required amounts
 Deducts the amount but does not remit it
 Remits the amount after the due date (interest will be applied from the date the
payment was due)
Employers also have the responsibility to report employees’ income and deductions on the
appropriate payroll forms, T4 and T4A, which are due by the last day of February. The
employer is also obliged to complete and issue an ROE (Record of Employment) within five
days of when the employee stops working for the company.
When considering different types of employee benefits as part of an employee’s
compensation package, it is important to consider how these benefits are taxed. Some types
of employee benefits are taxable to the employee, which decreases the incentive to offer the
benefit as opposed to a slightly higher salary. Other employee benefits are not tax deductible
for the business, which increases the cost of the benefit to the company.
The best scenario is an employee benefit that is not taxable to the employee, but is tax
deductible for the business, such as a group disability and health care plan. The worst option
is a benefit which is taxable to the employee, but not (or only partially) tax deductible to the
employer.

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