Author: indiafreenotes

This is the oldest method of wage payment. “Time” is made a basis for determining wages of worker. Under this system, the wages are paid according to the time spent by workers irrespective of his output of work done. The wage rates are fixed for an hour, a day, week, a month or even a year (seldom used).

For example, a wage rate of Rs. 70 per day is fixed in an industrial unit. Two workers A and B attend work for 28 and 16 days respectively. The wages as per time wage system will be Rs. 1960 and 1120 for A and B respectively. This method of wage payment does not give weight age to the quantity of goods produced by the workers.

The supervisor may ensure that workers do not waste their time and the quality of goods is also maintained. There are no hard and fast rules for fixing rates of wages. These may be decided according to the level of the past higher positions may be paid higher rates and vice- versa.

Wages are calculated in the method as follows:

Earnings = T x R

where T stands for time spent and R is rate of pay.

Suitability of Time Wage System

Time wage system is suitable under following situations:

• When productivity of an employee cannot be measured precisely.
• Where quality of products is more important than the quantity produced.
• Where individual employees do not have any control over production.
• Where close supervision of work is possible.
• Where work delays are frequent and beyond the control of workers.

Advantage of Time Wage System

1. Simplicity

The method of wage payments is very simple. The workers will not find any difficulty in calculating the wages. The time spent by a person multiplied by the rate will determine his wages.

2. Security

Workers are guaranteed minimum wages for the time spent by them. There is no link between wages and output, wages are paid irrespective of output. They are not supposed to complete particular task for getting their wages. They are sure to set certain wages at the end of a specified period of time spent in working.

3. Batter Quality of Products

When workers are assured of wages on time basis, they will improve the quality of products. If wages are related to output, then workers may think of increasing production without bothering about quality of goods.

In this method, workers will concentrate on producing better quality of goods. In certain situations, only time wage system will be suitable. If some artistic nature products are produced, then this method will be most suitable.

4. Support of Unions

This method is acceptable to trade unions because it does not distinguish between workers on the basis of their performance. Any method which gives different wage rates or wages based on output is generally opposed by trade unions.

5. Beneficial for Beginners

Wage rate system is good for the beginners because they may not be able to reach particular level of production on entering employment.

6. Less, Wastages

The workers will not be in a hurry to push through production. The materials and equipment’s will be properly handled leading to less wastage.

Limitations pf Time Wage System

Time wage system suffers from the following drawbacks:

1. No Incentive for efficiency

This method does not distinguish between efficient and inefficient workers. The payment of wages is related to time and not output. Thus, the method gives no incentive for more production.

Efficient workers may start to follow inefficient persons because rates of pay are same. Rates of wages fixed in this method are also low because these are fixed by taken into account the output of dullest workers. Thus, this method does not provide incentive for efficiency.

2. Wastage of time

Workers may waste their time because they will not be following a target of production. Efficient workers may also follow slow workers because there is no distinction between them. This may lead to wastage of time.

3. Low production

Since wages are not related to output, production rate shall be low. The responsibility for increasing production may mostly lie on supervisors. Because of low production, overhead expenses per unit will go up, leading to higher production cost.

4. Difficulty to determine labour cost

Because wages are not related to output, employees find it difficult to calculate labour cost per unit. The output will go on varying from time to time while wages will remain almost same. Production planning and control will be difficult in the absence of a relationship between wages and output wages and output.

5. Difficult supervision work

Under this system, workers are not offered incentives for production. To get more worker from them, there will be need for greater supervision. More supervision may be required to maintain proper quality of goods also. In wage system supervision cost goes up to a great extent.

6. Employer-employee trouble

When all employees, irrespective of their merit are treated equally, there is likely to be a trouble between management and workers. Those employees, who are not satisfied with this method, may start disobeying order from their superiors.

An efficiency wage is a wage paid by a firm to its workers that is above the competitive wage (i.e., above the equilibrium wage determined by the market for that work) voluntarily in order to increase worker productivity and profits.

It is not used for payments above the competitive wage due to union power of workers or due to minimum wage laws.

The term efficiency wage is not used specifically either for the total wage paid or the difference between the wage paid and the market wage. Rather, it is used for the overall concept.

Definition of Efficiency Wage Theory / Hypothesis

The idea of the efficiency wage theory is that increasing wages can lead to increased labour productivity because workers feel more motivated to work with higher pay.

Therefore if firms increase wages some or all of the higher wage costs will be recouped through increased staff retention and higher labour productivity.

In theory, higher wages could cause increased labour productivity (MRP). In this case, the wage increases can pay for themselves.

Reasons for efficiency wage theory

1. Fear of losing jobs: “Shirking model”

The argument is that if workers are paid a higher wage, they have more to lose from being made redundant. Therefore, if they have a job with a wage significantly higher than benefits or alternative jobs, they will have greater motivation to impress their boss and keep it. Shapiro and Stiglitz posited that workers with a higher wage will work at an effort level which involves no shirking. This wage is above market-clearing levels.

2. Loyalty

Secondly, if workers receive a higher pay, they may just feel more loyalty towards the company and be willing to work harder and with more determination. By contrast, if they feel they are being exploited by a monopsonist employer, then they will do the minimum amount of work to get by, but try to take more breaks and not work as hard.

3. Labour market “Gift Exchange”
4. Akerlof (1982) saw the labour market has a ‘gift exchange’ where good labour relations depended on goodwill. FIrms could pay wages above market-clearing levels, and in return, workers would take on more responsibility and initiative.
5. Lower costs of supervision. JB Rebitzer (1995)

Rebitzer noted that lower wages were associated with higher levels of supervision. WOrkers receiving higher wages were more motivated and therefore needed less managerial supervision.

5. Attract higher quality labour

If a firm pays above the market clearing level, it will attract a better quality worker who will feel they can get a relatively better-paid job.

6. Nutritional theories

In developing economies at very low rates of pay, increasing wages can enable a reduction in absolute poverty better health, and nutrition lead to better quality labour.

Efficiency wage theory and involuntary unemployment

Shirking models of efficiency wage theory, state that employers have an incentive to pay a wage above the market clearing level. If this is the case, and efficiency wage payments are widespread then it can cause involuntary unemployment with wages above the equilibrium and wages.

However, in the case of monopsony, higher wages can increases wages without any cost of unemployment.

Examples of minimum efficiency wage

A test case for the minimum efficiency wage was in 1914 when Henry Ford introduced a five dollar day. Ford paid well above the market-clearing rate. He wanted to pay higher wages in order to

• Ban unions. A condition for high pay was no trade unions
• Compensate for boring work on his efficient assembly lines. Ford increased productivity by the revolutionary use of assembly lines, but was worried a low wage, workers would get bored and stop working.

Raff and Summers (1986) concluded that Ford’s five dollar day was consistent with what was expected of efficiency wage theories.

“There is vivid evidence that the five-dollar day resulted in substantial queues for Ford jobs. Finally, significant increases in productivity and profits at Ford accompanied the introduction of the five-dollar day.”

Raff, Summers “Did Henry Ford pay efficiency wages” (1986) NBER

Limitations of efficiency wage theory

• In practice, many factors determine worker morale and productivity, wages are just one of them. Often other factors are more important such as work conditions, management, e.t.c. If non-wage factors are negative, then higher wages may be insufficient to boost productivity.
• It depends on the reaction of other firms. If other firms also start paying above market clearing levels, then the gain from attracting the best quality workers will be lost.
• Firms with monopsony power may not need to pay higher wages to create the threat of workers losing their jobs.

An incentive scheme is a plan to motivate individual or group performance. An incentive scheme basically involves monetary rewards, i.e., incentive pay but also includes non-monetary rewards.

Incentives are variable rewards granted according to level of achievement of specific results. Incentives are payment for performance or payment by results.

In other words, an incentive plan must include in its purview the characteristics of time-based and output-based systems of wage payment.

There are a large number of such plans that are applied in industrial concerns these days. However, before these differ­ent types of plans are discussed, the various requirements of a sound wage-incentive system must be noted.

Types of Incentive Schemes: Individual and Group Incentive Scheme

The various types of incentives are classified into two broad categories: financial and non- financial. Here, we are concerned with financial incentives only. Financial incentives may further be classified as individual incentives and group incentives. Both are discussed now one by one.

1. Individual Incentive (PBR) Schemes

Under this plan, employees are paid on the basis of results”. The chief incentive plans included in this category are discussed in seriatim.

(i) Taylor’s Differential Piece Rate Plan

This plan was developed by F. W. Taylor, the father of scientific management. Under this plan, Taylor prescribed two piece work rates. One, a higher wage rate for those who reach the standard work. Second, a lower wage rate whose performance is below the standard.

The standard work is determined on the basis of time and motion studies. This wage plan encourages and rewards the employees who are efficient by giving them wages at a higher rate. At the same time, the plan penalizes those who are slow performers by paying them at a low wage rate.

(ii) Halsey Premium Plan

This plan, originated by F. A. Halsey, an American engineer, is a combina­tion of the time and the piece wage in a modified form. Under this plan, a guaranteed wage based on past experience is determined. If a worker saves time, he gets 50% of wages for time saved (called premium) in addition to normal wages. It is optional for the worker to work on the premium or not. Thus, this plan also provides incentive to efficient workers.

(iii) Rowan Premium Plan

This plan was developed by D. Rowan in 1901. This plan, to a large extent IS similar to that of Halsey Premium Plan. The only difference is in regard to the determination of the premium. Unlike a fixed percentage in case of Halsey plan, it considers premium on the basis of the proportion which the time saved bears to the standard time.

(iv) Emersson Efficiency Plan

Under this scheme, both standard work and day wage are fixed. Bonus is paid on the basis of worker’s efficiency. A worker becomes entitled to get bonus only when his/her efficiency reaches to 67%. The rate of bonus goes on increasing till he achieves 100% effi­ciency. Above 100% efficiency, bonus will be 20% of the basic rate plus 1% for each 1% increase in efficiency. In this way, at 120% efficiency, a worker receives a bonus of 40% and at 140% efficiency worker gets 60% of the day wage as bonus.

(v) Gantt Task and Bonus Plan:

This plan is devised by H. L. Gantt. This plan combines time, piece wage and bonus. Standard time, piece wage and high rate per piece are determined. A worker who cannot complete standard work within standard time is paid only the minimum guaranteed wage. A worker performing up to the standard level of work gets time wage plus a bonus @ 20% of normal time wage. If the worker exceeds the standard, he is paid a higher piece rate but there is no bonus.

The above mentioned various incentive schemes indicate that the incentive may vary along with variation in earning with changes in performance or output.

Thus, based on linkages between perfor­mance and incentive, the various incentive schemes (PBR) may be classified into the four types as follows:

• Incentives in the same proportion as performance.
• Incentives varying proportionately less than performance.
• Incentives varying proportionately more than performance
• Incentives varying in proportions that varies with levels of performance.

The first of the above mentioned schemes is called the straight proportional scheme while the rest are nomenclature as differential or geared incentive scheme.

An employee’s performance, or say, output is not exclusively due to his own efforts but is influenced by some other factors also. For example, quality of raw material and equipments, their costs, timeliness of completion of job, etc. do also matter and count in one’s performance. Therefore, one’s performance must be measured in a holistic sense, taking all the factors into account. It has also been felt, over the years that incentives should be given on the basis of performance measured over an extended period of time (e.g. week, fortnight, month or longer) rather than by hour or day.

The underlying rationale is to sustain higher levels of productivity over a period of time and also maintain a measure of stability of employee performance and earnings. But, the duration between performance duration and incentive, i.e. reward should not be unduly lengthened; otherwise it may dampen em­ployee motivation. Therefore, it has been suggested that incentives should be given to the employ­ees at least on a monthly basis.

2. Group Incentive Schemes

The incentive schemes can be applied on a group basis also. Group incentive schemes are appropriate where jobs are interdependent. It is difficult to meaningfully measure indi­vidual performance and group pressures affect the performance of the members of the group. The chief group incentive schemes are discussed here.

(i) Profit-sharing

The concept of profit-sharing emerged towards the end of the nineteenth century. Profit-sharing, as the name itself suggests, is sharing of profit of organisation among employees. The International Co-operative Congress” held in Paris in 1889 considered the issue of profit-sharing and defined it as “an agreement (formal or informal) freely entered into by which an employee receives a share fixed in advance of the profits”.

The basic rationale behind profit-sharing is that the organisational profit is an outcome of the co-operative efforts of various parties, therefore, employees should also share in profits as shareholders share by getting dividend on their investment, i.e. share capital. The very purpose of introducing profit-sharing is to strengthen the loyalty of employees to the organisation. Thus, profit-sharing is regarded as a stepping stone to industrial democracy.

Both the share (percentage) of profit to be shared by employees and mechanism for its distribu­tion are determined in advance and also made known to the employees. In order to be eligible to participate in profit-sharing. An employee needs to serve for a certain number of years and, thus, earn some seniority. As regards the forms of profit-sharing, Metzger has classified these into three categories, namely,

• Current: Under this form, profits are paid to the employees in cash or by cheque or in the form of Stock option immediately after the determination of profits.
• Deferred: Profits are credited to employees’ accounts to be paid at the time of retirement or at a time of his dissociation from organisation due to reasons like disability, death, sever­ance, withdrawal from employment, etc.
• Combination: In this case, a part of employee share of profit is paid in cash or cheque or stock and the remaining part is deferred and credited to his/her account.

Employees receive their share in the organisational profit in the form of bonus. In India, the employee bonus is governed by the Payment of Bonus Act, 1965.

The major apprehensions expressed against profit-sharing is mat management may dress up profit figures, as is often done for tax evasion purposes, and deprive employees of their shares in profit. It is also commented that profit-sharing, being a long-term scheme, does not work as incentive due to the absence of immediate feedback about the efforts and rewards.

(ii) Co-partnership

In a way, co-partnership is an improvement over profit-sharing. In this scheme, employees also participate in the equity capital of a company. They can have shares either on the basis of cash payment or in lieu of other incentives payable in cash like bonus. Thus, under co-partnership scheme, employees become shareholders also by having company shares. Now, employ­ees participate in both —profits and management of the company.

The finer points of this scheme are that it recognizes the dignity of labour and also of a partner in the business. This would, in turn, develop a sense of belongingness among the employees and encourage them to contribute their best for the development of the organization.

(iii) Scanlon Plan

The Scanlon plan was developed by Joseph N. Scanlon, a Lecturer at the Massa­chusetts Institute of Technology in USA in 1937. The plan is essentially a suggestion scheme de­signed to involve the workers in making suggestions for reducing the cost of operation and improving working methods and sharing in the gains of increased productivity.

The plan is characterised by two basic features. First, both employees and managers can partici­pate in the plan by submitting their suggestions for cost-cutting methods. Second, increase in efficiency on account of cost-cutting is shared by the employees of the unit.

The Scanlon plan, wherever adopted, has been successful to encourage a sense of partnership among employees, improved employee-employer management relations, and increased motivation to work.

The criticism labelled against group incentive is that the incentive benefits being similar to all members of the group, the best performers may loose incentive. However, this can be overcome if group incentive scheme generates peer-level pressure for superior performance and also reduces the need for supervision. Stability in group may be a necessary condition to make the group incentive scheme successful.

As regards the ultimate impact of incentives on organisational performance, the research stud­ies” conducted in India report that incentive schemes have a positive impact on productivity, labour cost, and industrial relations. It is concluded that “money” has a “salutary” impact on production.

Payroll Processing

Payroll processing in HR is an elaborate process that involves a lot more than salary calculations. The process can be intimidating if you do not know how to go about it which is exactly why this handy guide will navigate you through the intricacies of payroll processing.

Meaning of Payroll Processing

Payroll processing is an essential business function that involves arriving at the ‘net pay’ of the employees after the adjustment of necessary taxes and deductions. For efficient payroll management process, the payroll administrator needs to plan the payroll process step-by-step.

Note:

Net pay = Gross income – Gross deduction

Here,

Gross income/Salary = Regular Income + Allowances + One-time payment/ Benefit

Gross deduction = Regular deductions + Statutory deductions + One-time deductions

What does Payroll Processing encompass?

Here’s a list of tasks the payroll administrator needs to accomplish during payroll processing.

• Develop the organisation’s pay policy that includes flexible benefits, leave encashment policy, and more
• Define payslip components: basic and variable pay, HRA, LTA, etc.
• Collect other payroll inputs from the transport service provider or the food/canteen vendor
• Arrive at the net pay by calculating gross salary and deducting the statutory and non-statutory sums
• Finally, release employee salary.
• File returns and deposit dues such as TDS, PF, and more, with respective authorities.

Payroll in a Company

Preparing payroll involves a series of basic calculations to determine each employee’s base pay as well as deductions for state and federal taxes, and employee contributions to retirement funds and health insurance plans. This information is then transferred to individual employee paychecks as well as company records that facilitate the process of tracking information for internal and external tax and financial reporting. Developing a comprehensive and user-friendly payroll system will make your life much simpler when it’s time to fill our quarterly and annual tax forms. It will also provide you with clear and useful information for understanding your company’s financial activities.

1. Calculate each employee’s base pay by multiplying the number of hours worked for wage employees, or by referring to salary levels for salaried employees. If you use payroll software, your program will do these calculations for you. Pay wage employees who work more than 40 hours per week one and-a-half times their base pay rate for any overtime hours.
2. Calculate each employee’s state and federal deductions. Use federal tax tables or the percentage method to determine federal income tax withholding, and calculate Social Security and Medicare withholdings by multiplying base pay by .0565 as of 2012. Calculate state income tax according to your state’s specific income tax rates. Subtract withholding amounts from each employee’s gross pay. Also subtract the amounts of other paycheck deductions such as employee contributions to health insurance plans or retirement funds. Prepare paychecks that clearly show the information you have used to calculate each employee’s net pay, including regular and overtime hours, and tax and insurance withholdings.
3. Track payroll information and pay payroll taxes on time. Separate the amounts you have withheld from employee paychecks from general business funds, either by depositing them in a separate bank account until it is time to remit them, or keeping a running total of how much you owe so you don’t treat this money as regular operating capital. Make federal tax deposits according to the deposit schedule that the IRS gives you, based on your payroll volume. Complete state payroll tax forms quarterly.
4. Use payroll information in your business accounting to evaluate your company’s profitability and financial health. Divide payroll information relative to different tasks and departments. For example, if you own a retail grocery store, track the amount you spend on payroll in the meat department versus the amount you spend in the produce department. Compare these amounts to the revenue from each department to assess the profitability of each section.

Fringe benefits are a type of compensation provided to an employee outside of his normal wage or salary. Many years ago, employers began to understand that potential employees give great consideration to the wage or salary offered. In an effort to tempt a qualified individual to accept employment with the company, rather than going to a competing company, many employers began offering non-wage compensation in addition to the actual salary offered.

These fringe benefits, often in the form of employer-paid life and health insurance policies, retirement benefits, and other things that might aid in the recruitment of top quality, skilled workers. In fact, fringe benefits play a large role in keeping workers motivated to do quality work and increase production. Some fringe benefits may be classified as taxable income by the IRS.

Types of Fringe Benefit

Many employers offer employees an array of fringe benefits in addition to their salaries. Also considered “job-perks,” these benefits cost employers, who pay for such perks, and are therefore considered a portion of the employees’ salaries on their books, even if the benefits are not in the form of money, such as bonuses. There are many types of fringe benefit, and which types are offered often depends on the type of employer, and value of the employee’s position.

1. Taxable Fringe Benefits

According to the IRS, any fringe benefit provided by an employer may be taxable, unless it is specifically excluded from taxation. The IRS provides specific information regarding fringe benefits, including which are considered taxable. Some of the fringe benefits that may be taxable under certain situations often include payment of, or reimbursement for, things in an excessive amount. These include:

(i) Excessive Moving Expenses

If an employer reimburses or pays for an employee’s moving expenses, when the move was less than 50 miles from the employee’s current residence, may be taxed.

(ii) Excessive Mileage Reimbursement

Employer reimbursement for business-related driving of the employee’s private vehicle may be taxable if the total exceeds the IRS’ standard mileage rate.

(iii) Expense Reimbursement

Expense amounts reimbursed to an employee with the employee’s sufficient accounting, may be taxable.

(iv) Clothing Reimbursement

Employer reimbursement for clothing that is not strictly for work on the job, but which is suitable for everyday street wear, is taxable.

(v) Working Condition Benefits

Any equipment or supplies purchased by an employee that is used for work purposes exclusively, it is tax free. If the item is used for any personal purpose at all, it is taxable.

(vi) Excessive Education Expenses

Educational assistance for education that is not job-related, or which the amount exceeds the IRS allowable amount is taxable.

(vii) Awards and Prizes

Employee awards and prizes that are given in cash, are taxable, unless they are given to charity in the employee’s name. Valuable non-cash awards may also be taxable, unless the value is minimal.

2. Non-Taxable Fringe Benefits

There are many types of non-taxable fringe benefits that may be offered to employees without increasing their tax burden. Some of the most common tax-free types of fringe benefit provided to employees by private and public businesses include:

(i) Insurance Coverage

Insurance coverage is perhaps the most common fringe benefit provided to employees, though the structure of how insurance is paid for has changed in recent years. Insurance coverage may include employer-paid life insurance, health insurance, and short or long-term disability insurance. When an insurance coverage fringe benefit is offered, the employer most commonly shares the cost of premiums at a certain percentage, thus reducing the amount for which the employee is responsible. Of course, insurance coverage may be offered entirely at the employer’s expense. Some employers also offer health savings accounts to their employees, often matching the employees’ contributions to the plan.

(ii) Childcare Assistance

Childcare assistance is one fringe benefit that comes in handy for many families, and may increase attendance at work, as well as productivity. This is because parents have additional responsibilities in ensuring their children are well cared-for while they are at work. Many large employers are offering on-site childcare, either free of charge, or at a discounted price. This allows parents to concentrate on their work, knowing their children are close by, and being cared for. Some smaller employers, while unable to maintain an on-site daycare facility, offer a cost-share for daycare.

(vi) Physical Fitness

Some employers make it a priority to ensure their employees have access to gyms or fitness centers in order to promote a healthy lifestyle, which in turn increases attendance and productivity. Some companies maintain on-site fitness centers, where employees can work out on breaks or other off times, while others offer paid gym memberships, or memberships at a discounted price.

(v) Education Assistance

Education assistance in the form of tuition reimbursement, or other assistance in adding to an employee’s education or skill set, is one of the more popular types of fringe benefit offered by employers. Helping an employee gain new job-related skills or knowledge helps the company, as the employee is then able to work at a different level in his current position, or may become able to advance into new areas of the business.

The term ‘compensation’ refers to all forms of financial returns and tangible benefits that employees receive as part of the employment relationship.

In the era of globalization, where the business environment has become increasingly complex and challenging, structuring an effective compensation package to attract and retain talent is an important function of organizational effectiveness.

Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

In other words we can say that Compensation is the process of providing adequate, equitable and fair remuneration to the employees.

Compensation can be classified into two categories:

• Financial Compensation
• Non-Financial Compensation

1. Financial Compensation

Financial compensation is most popular and important compensation that is given in the form of money. It is the most important motivational factor that satisfies employees’ basic needs like food, clothing, etc.

It is further categorized into two parts:

1. Direct Compensation

Direct compensation means compensating employees by paying them money in the following forms:

• Wages: Wages means remuneration paid in cash for the work performed by an employee.
• Bonus: Bonus means extra cash paid to an employee for exceeding his performance or on completion of specified project or target.

Other financial incentives that are directly given to employees in the form of cash.

2. Indirect Compensation (Fringe Benefits)

Indirect compensation as the indirect financial and non- financial payments employees receive for continuing their employment with the company which are an important part of every employee’s compensation. Other terms such as fringe benefits, employee services, supplementary compensation and supplementary pay are used.

Armstrong says indirect compensation or employee benefits are elements of remuneration given in addition to the various forms of cash pay. They also include items that are not strictly remuneration such as annual holidays.

Management uses it ostensibly to facilitate its recruitment effort or influence the potential of employees coming to work for a company, influence their stay or create greater commitment, raise morale, reduce absenteeism in general and improve the strength of the organization by instituting a comprehensive programme in this area.

According to Chhabra, indirect or supplementary compensation involves ‘fringe benefits’ offered through several employee services and benefits such as housing, subsidized food, medical aid, creches and so on. It involves rewards provided by organizations to employees for their membership, attendance or participation in the organization.

Because of the increasing costs of fringe benefits, some people also label them as ‘hidden payroll.’ Benefits currently account for almost 40 per cent of the total compensation costs for each employee. The basic purpose of fringe benefits or supplementary compensation is to attract and maintain efficient human resources within the organization and to motivate them.

Types of Indirect Compensation

Below are some of the more popular indirect compensations offered by today’s organizations

(i) Social Security

This is a federally administered insurance system. According to law, both employer and employee must pay into the system, and a certain percentage of the employee’s salary is paid up to a maximum limit. How much is paid by employer and employee is calculated on the average monthly wage (weighted towards the later years). It is provided mainly to give financial security to employees when they retire.

(ii) Workers’ Compensation

It is meant to protect employees from loss of income and to cover extra expenses associated with job-related injuries or illness. The laws generally provide for replacement of lost income, medical expenses, rehabilitation of some sort of death benefits to survivors, and lump-sum disability payments.

(iii) Retirement Plans

Retirement and pension plans, which provide a source of income to people who have retired, represent money paid for past services. Private plans can be funded entirely by the organization or jointly by the organization and the employee during the time of employment.

One popular form of pension plan is the defined-benefit plan. Under this plan, the employer pledges to provide a benefit determined by a definite formula at the employee’s retirement date. The other major type of retirement plan is the defined contribution plan, which calls for a fixed or known annual contribution instead of a known benefit.

(iv) Paid Holidays

These comprise Christmas Day, New Year’s Day, Independence Day, Labour Day, etc. One relatively new concept is the floating holiday, which is observed at the discretion of the employee or the employer.

Another relatively new concept is referred to as personal time-off or personal days. Under this concept, organizations give employees a certain number of days with pay to attend to personal affairs. Normally these days can be taken at the employee’s discretion.

(v) Paid Vacations

Typically, an employee must meet a certain length-of-service requirement before becoming eligible for paid vacation. The time allowed for paid vacations generally depends on the employee’s length of service.

Unlike holiday policies that usually affect everyone in the same manner, vacation policies may differ among categories of employees. Most organizations allow employees to take vacation by the day or week but not in units of less than a day.

(vi) Other Benefits

Organizations may offer a wide range of additional benefits, including food services, exercise facilities, health and first-aid services, financial and legal advice, and purchase discounts. The extent and attractiveness of these benefits vary considerably among organizations. For example, purchase discounts would be especially attractive to employees of retail store or an airline.

2. Non-Financial Compensation

Non-financial compensation refers to compensating employee not in form of money but in some other forms that stimulate employees’ morale and also improve his performance.

It can be in the following forms:

• Job security
• Recognition
• Participation
• Pride in job
• Delegation of responsibility
• Other incentives

Types of Compensation: Prevalent in the Indian Industries

The basic types of compensation prevalent particularly in the Indian industries are:

• Basic pay
• Dearness or cost of living allowance
• Incentive payments
• Performance-based remuneration
• Bonus
• Fringe benefits and miscellaneous cash allowances.

1. Basic Pay

Basic pay universally constitutes the most important component of compensation. However, there are variations in the manner in which basic pay is determined and paid. It may be on daily, weekly or monthly basis. In India, under the Minimum Wages Act, 1948, both the central and state governments have fixed minimum daily rates of wages for a large number of sweated employments.

In the U.S.A., U. K. and France, there has been the practice of fixing hourly rates of wages for several categories of workers. In the organised sectors in India, the practice of prescribing monthly basic rates of wages under wage scales with provision of annual increments is widely prevalent.

Basic wages are significant for workers for a variety of reasons. Generally speaking, most other cash allowances made available to workers, such as dearness allowance, house rent allowance, city compensatory allowance, medical allowance and so on, are linked with the quantum of basic wages. Besides, contributions to social security funds such as provident and pension funds, gratuity and certain cash allowances are often linked to basic wages.

The quantum of basic pay is also taken into account in determining the scales of certain fringe benefits, such as housing accommodation, and travelling and leave travel allowances. Overtime payments for additional hours worked are also usually based on basic pay.

2. Dearness or Cost of Living Allowance

Dearness allowance or cost of living allowance, separate and distinct from basic pay, has been an important component of compensation in industrial and governmental employments in India and a number of Asian countries. The basic purpose behind the provision of dearness allowance is to offset the rise in prices of consumption goods and to protect the real wages from being encroached by price rise.

Starting during the Second World War period on a temporary and experimental basis, the system has become a permanent feature of the wage structure in Indian industries and governmental and semi-governmental employments.

In general, the quantum of dearness allowance payable to industrial workers as well as government and semi-government employees is linked with the fluctuations in the Consumer Price Index Numbers for industrial workers worked out by Labour Bureau, Ministry of Labour, and Government of India, which has been engaged in the task since 1946.

The specific schemes for the determination of D.A. have considerably varied from time to time. In its earliest form, flat rates on a graduated basis without any linkage to CPI numbers were prevalent. Subsequently, calculation of D.A. came to be made with reference to rise or fall in the CPI numbers calculated by either the central or state governments.

Initially, the percentage of neutralisation for the rise in prices was higher in low wage brackets tapering off gradually when wages rose. Later, a more or less consistent formula providing for neutralisation for rise in prices on a common percentage basis emerged for government and semi-government employees. However, the industrial establishments have their own separate schemes generally worked out on the basis of negotiations.

In many countries such as the U.S.A. and Australia, there are schemes of automatic revision of basic rates of pay when prices rise above the specified level. Many collective agreements in the U.S.A. contain escalator clauses to avoid frequent bargaining for revision of wage rates.

3. Incentive Payments

In a number of industrial undertakings, employees are in receipt of incentive payments. These incentive schemes are generally directly related to the quantum, and in some cases, to the quality of goods produced by individual employees or a group of them. The specific schemes vary from organization to organization, and with different sets of employees in the same organization.

There are schemes, such as the straight piece-rate system, in which the earnings of employees vary in the same proportion as increase in output. In many schemes, incentive payments are lower than the proportion of increase in output. There are also schemes in which incentive payments are higher in proportion to the increase in output. In a number of schemes, incentive payments vary in different proportions at different levels of output. Performance based remuneration described below may also be considered incentive payment.

4. Performance Based Remuneration

During more recent years, especially after the onset of globalization and competition, many categories of employees, particularly managerial and supervisory personnel, have been receiving performance based remuneration.

Such a remuneration is worked out on the basis of the outcome of performance appraisal of individual employees, which takes into account the level of their performance in such areas as extent of improvement in the quantity and quality of products or services, acquisition of skills and capabilities, regularity of attendance, relationship with co-employees, capacity to face challenging situations and extent of commitment to work.

The specific schemes of performance appraisal vary from organization to organization and different sets of personnel in the same organization. Based on performance appraisals, individual employees are allotted specific grades, and are remunerated and given inducements based on their performance. Performance appraisal also constitutes key to decisions in other areas of HRM such as promotion, transfer, demotion and even separation.

5. Bonus

Employees in a large number of industrial establishments in India have been in receipt of profit- sharing bonus. Initially, the practice of giving bonus to industrial workers started on an ad hoc basis primarily at the discretion of employers. However, during the course of time, it became a major bone of contention between employers and workmen, often resulting in industrial unrest and work stoppages.

Many disputes on the question of bonus came up for decision by industrial tribunals and even Supreme Court. In view of the mounting and regular unrest over the question, the Payment of Bonus Act was enacted in 1965. The Act specifies in some detail the formula for the calculation of bonus, and prescribes both the minimum and maximum bonus payable to specified categories of workers.

6. Fringe Benefits and Miscellaneous Cash Allowances

Apart from wages and salaries, incentive payments, dearness allowance and bonuses, employees are often in receipt of several types of indirect compensation or fringe benefits, both in cash and kind.

These include housing facilities and house rent allowance, city compensatory allowance, leave-travel facilities, medical facilities and allowances, educational facilities and allowances for the children of employees, social security benefits such as sickness benefit, provident fund, gratuity and pension, concessional availability of electricity and food-grains, transport facilities, supply of uniforms and so on.

The nature and scale of fringe benefits vary widely from organization to organization. To the employer, they are a part of labour cost. In many organizations, they constitute a substantial portion of labour cost, surpassing even the wage bill.

Many of these fringe benefits are made available to employees voluntarily by the employers; many have been the outcome of collective agreements and many others have been statutorily imposed. Many employers, owning large-scale industrial establishments and also those having their establishments in remote and isolated areas, provide housing accommodation to their employees and have also established well-equipped hospitals and dispensaries.

Gary Dessler and Biju Varkkey have preferred to keep various forms of compensation into two main categories direct financial payments such as wages, salaries, incentives, commission and bonuses, and indirect financial payments such as employer-paid insurance and leave travel concessions. Joseph J. Martocchio has classified seven types of monetary or core compensation in the context of practices in the U.S.A.

These are as follows hourly pay, annual salary, cost of living adjustments, seniority pay, merit pay, incentive pay and person-focused pay, pay-for-knowledge and skill-based pay. Practices in regard to forms of compensation or their combinations vary from organisation to organisation depending on a set of internal and external factors.

Performance Standards are the establishment of organizational or system standards, targets, and goals to improve public health practices.  Standards may be set based on national, state, or scientific guidelines, benchmarking against similar organizations, the public’s or leaders’ expectations, or other methods.

Developing Performance Standards

While performance elements tell employees what they have to do, the standards tell them how well they have to do it. The first article in this series defined and reviewed the characteristics of critical, non-critical, and additional performance elements. This article reviews the principles of writing good standards that can be used effectively to appraise employee performance of those elements.

A performance standard is a management-approved expression of the performance threshold(s), requirement(s), or expectation(s) that must be met to be appraised at a particular level of performance. A Fully Successful (or equivalent) standard must be established for each critical element and included in the employee performance plan. If other levels of performance are used by the appraisal program, writing standards for those levels and including tem in the performance plan is not required by is encouraged so that employees will know what they have to do to meet standards higher than Fully Successful.

Example of Performance Standards for PA Positions

(i) Develops project objectives, budgets, work plans and implementation strategies:

• Consistent with departmental goals
• Communicates clearly to all levels
• Falls within budget guidelines
• Can reasonably be accomplished in specified time frame
• Follows up and resolves problems in timely manner to keep project on track.

(ii) Analyzes synthesizes and communicates financial information and data in complex account structures; uses data to develop budget and financial plans:

• Uses appropriate sources of information
• Uses the most recent data
• Meets specified deadlines
• Conclusions and recommendations are justified by the data
• Federal, state and university guidelines are followed

(iii) Designs/develops and negotiates contracts with clients and vendors:

• Contracts are clear, complete and reflect the needs of the unit
• Negotiation skills are such that the best value is achieved for the institution
• Solutions are effective and mutually acceptable
• Good client and vendor relationships are maintained
• Contracts are consistent with all federal, state and university policies and procedures

(iv) Develops policies and/or interprets and implements all federal, state, local and university policies, procedure and regulations:

• Policies are clearly written and include all necessary components
• All pre-approval steps have been followed to include necessary in-put from concerned parties
• Sufficient research is conducted to provide accurate background knowledge necessary to the process of development and/or interpretation
• Communication regarding policies is done in a timely manner to all affected groups and in an unambiguous, customer friendly manner

(v) Performs management duties with accountability and authority for the strategic direction of the department:

• Planning, budget, staffing, resource allocation, policy development, staff supervision, etc.
• The unit is in compliance with governmental and university policies and procedures
• Staff morale remains high
• Complaints about personnel, leadership and work of department are minimal
• Organizational goals are achieved in timely manner

(vi) Assists students with academic problems and/or advises students regarding degree requirements:

• Works with students in a customer oriented manner
• Gives accurate information
• Keeps updated on requirement changes and keeps students informed
• Knows and utilizes resources to resolve problems

Security is an essential part of any transaction that takes place over the internet. Customers will lose his/her faith in e-business if its security is compromised. Following are the essential requirements for safe e-payments/transactions:

• Confidentiality: Information should not be accessible to an unauthorized person. It should not be intercepted during the transmission.
• Integrity: Information should not be altered during its transmission over the network.
• Availability: Information should be available wherever and whenever required within a time limit specified.
• Authenticity: There should be a mechanism to authenticate a user before giving him/her an access to the required information.
• Non-Repudiability: It is the protection against the denial of order or denial of payment. Once a sender sends a message, the sender should not be able to deny sending the message. Similarly, the recipient of message should not be able to deny the receipt.
• Encryption: Information should be encrypted and decrypted only by an authorized user.
• Auditability: Data should be recorded in such a way that it can be audited for integrity requirements.

Measures to ensure Security

Major security measures are following:

• Encryption: It is a very effective and practical way to safeguard the data being transmitted over the network. Sender of the information encrypts the data using a secret code and only the specified receiver can decrypt the data using the same or a different secret code.
• Digital Signature: Digital signature ensures the authenticity of the information. A digital signature is an e-signature authenticated through encryption and password.
• Security Certificates: Security certificate is a unique digital id used to verify the identity of an individual website or user.

Secure Electronic Transaction

It is a secure protocol developed by MasterCard and Visa in collaboration. Theoretically, it is the best security protocol. It has the following components:

• Card Holder’s Digital Wallet Software: Digital Wallet allows the card holder to make secure purchases online via point and click interface.
• Merchant Software: This software helps merchants to communicate with potential customers and financial institutions in a secure manner.
• Payment Gateway Server Software: Payment gateway provides automatic and standard payment process. It supports the process for merchant’s certificate request.
• Certificate Authority Software: This software is used by financial institutions to issue digital certificates to card holders and merchants, and to enable them to register their account agreements for secure electronic commerce.

6 e-commerce security strategies

Install HTTPS protocols

These protocols have increased their popularity in recent years, compared to traditional HTTP, more vulnerable than HTTPS. The HTTPS protocol has been used normally in parts of the website intended for payments, due to the need to armor the information of customers and companies.

At present, however, the use of these protocols has become widespread. Now they are needed in the entire website, which has condemned the old HTTP protocols to ostracism, so to speak.

Parallel to these protocols, it is also essential to install SSL certificates (secure sockets layer), responsible for protecting data in transit during the payment process. In addition, the installation of HTTPS servers has a positive effect on user confidence during navigation.

Implements CVV and AVS verification systems

Payment processing is one of the most sensitive aspects of e-commerce cybersecurity. Businesses should exercise extreme caution, especially when credit or debit cards are involved.

Requiring the CVV (Card Verification Value) code is a highly recommended practice. And it is for two reasons:

• Increase security in online payments. Requiring CVV codes makes it much more difficult to process a fraudulent transaction.
• Cybercriminals may have stolen a credit card number, but not the physical card (although this last scenario is possible, it is very minority).

Perform periodic backups

This is another of the most effective e-commerce security strategies. And it certainly doesn’t require hiring industry professionals.

Simply install UpdraftPlus, BackupBuddy, BoldGrid Backup, BackWPup, and other security plugins and make regular copies of e-commerce databases. It is extremely important to make regular backups of your site’s data. Among the biggest threats to our e-commerce are not only malware or phishing. There is also human error.

While there are ways to manually back up your data, it’s easy to forget or stop doing so systematically. Consequently, the use of plugins and backup tools is required to shield databases and all sensitive e-commerce information.

Use of multilayer security or Multi-Layered

Multilayered security means the use of different measures, such as the installation of a firewall, which provides an initial defense against cyber threats.

In addition, the use of a CDN (content delivery network) allows an extra layer of security to be added, since this system diversifies the copies of data in several geographical points.

This measure is also useful for preventing DDoS (denial-of-service attack) attacks. Without a doubt, one of the most important e-commerce security strategies.

Performs transaction monitoring

What are the best e-commerce security strategies?

When we talk about monitoring transactions, you may imagine a group of professionals locked in a room full of screens and computer equipment, reviewing each transaction online. This is not necessary! Setting up alerts for suspicious movements in transactions is enough.

One of the most popular is to block a transaction when the billing and shipping addresses do not match. This is an anomaly that could hide some kind of fraud or credit card theft.

Avoid storing credit/debit card information

Beyond e-commerce security and encryption techniques and tools, the best online stores use common sense to protect their customers.

The best way to avoid credit and debit card information leaks is to not store them. We know: credit card numbers and customer names are essential to facilitate quick payment. However, it is not necessary to store them on online servers.

Today, moreover, such storage would violate the rules set out in the PCI standards. The loss of this information not only compromises the reputation of e-commerce users: it also puts financial institutions and companies at risk.

An excellent alternative is to use payment gateways such as PayPal, WePay, Skrill, Stripe or Authorize.net. In this way, sensitive information will be the responsibility of these platforms, which also have better security protocols than conventional e-commerce.

In computing, encryption is the method by which plaintext or any other type of data is converted from a readable form to an encoded version that can only be decoded by another entity if they have access to a decryption key. Encryption is one of the most important methods for providing data security, especially for end-to-end protection of data transmitted across networks.

Encryption is widely used on the internet to protect user information being sent between a browser and a server, including passwords, payment information and other personal information that should be considered private. Organizations and individuals also commonly use encryption to protect sensitive data stored on computers, servers and mobile devices like phones or tablets.

Benefits of Encryption

The primary purpose of encryption is to protect the confidentiality of digital data stored on computer systems or transmitted via the internet or any other computer network. A number of organizations and standards bodies either recommend or require sensitive data to be encrypted in order to prevent unauthorized third parties or threat actors from accessing the data. For example, the Payment Card Industry Data Security Standard requires merchants to encrypt customers’ payment card data when it is both stored at rest and transmitted across public networks.

Modern encryption algorithms also play a vital role in the security assurance of IT systems and communications as they can provide not only confidentiality, but also the following key elements of security:

Authentication: The origin of a message can be verified.

Integrity: Proof that the contents of a message have not been changed since it was sent.

Non-repudiation: The sender of a message cannot deny sending the message.

Types of Encryption

(1) Symmetric key / Private key

In symmetric-key schemes, the encryption and decryption keys are the same. Communicating parties must have the same key in order to achieve secure communication.

(2) Public key

In public-key encryption schemes, the encryption key is published for anyone to use and encrypt messages. However, only the receiving party has access to the decryption key that enables messages to be read, Public-key encryption was first described in a secret document in 1973, before, then all encryption schemes were symmetric-key (also called private-key).