Tag: University of Mumbai BMS Notes

The term wage policy refers to legislation or government action undertaken to regulate the level or structure of wage, or both, for the purpose of achieving specific objectives of social and economic policy.

A wage policy guides organizations in taking decisions on wage-related matters. At the organizational level, wage policies are framed, keeping in mind various regulatory requirements and the organizations own strategies.

The term wage policy refers to legislation or government action undertaken to regulate the level or structure of wage, or both, for the purpose of achieving specific objectives of social and economic policy. It involves all systematic efforts of the government in relation to a national wage and salary system, legislations, and so on to regulate the levels or structures of wages and salaries with a view to achieving economic and social objectives of the government.

The first step towards the evolution of wage policy was the enactment of the payment of Wages Act, 1936. The main objective of the Act is to prohibit any delay or withholding of wages legitimately due to the employees. The next step was the passing of the Industrial Disputes Act, 1947, authorizing all the State governments to set up industrial tribunals that would look into disputes relating to remuneration.

Another notable development that led to the evolution of wage policy was the enactment of the Minimum Wages Act, 1948. The purpose of the Act is the fixation of minimum rates of wages to workers in sweated industries such as woolen, carpet making, flour mills, tobacco manufacturing, oil mills, plantations, quarrying, mica, agriculture, and the like.

The Act was amended several times to make it applicable to more and more Industries. Then the Equal Remuneration Act, 1976, which prohibits discrimination in matters relating to remuneration on the basis of religion, region or sex was enacted. The Constitution of India committed the government to evolve a wage policy. Successive five-year plans have also devoted necessary attention to the need for a wage policy.

Following the recommendations of the First and Second Plans, the Government of India constituted wage boards for important industries in the country. A wage board is a tripartite body comprising representations from the government, owners, and employees. Technically speaking, a wage board can only make recommendations, and wage policies are normally implemented through persuasion.

In spite of legislations, tribunals, and boards, disparities in wages and salaries still persist.

Some of the disparities are:

1. Employees of MNCs are paid much more than their counterparts in host countries for identical work.
2. Different industries have different wage and salary structures resulting in disparities in remuneration for identical work.
3. Wide gaps exist between wages and salaries of employees in the organized sector and of those in the unorganized sector, the latter earning much less than the former.
4. Differences exist between earnings of employees in the government sector and those in the private sector.
5. Within the government sector, salary differences exist among employees of different departments.

The disparities are glaring. If an illiterate supervisor in leather processing unit can earn Rs. 12,000 plus per month and a half-yearly bonus, how much can a university professor earn? Rs. 10,000 and no bonus? If an auto driver can earn Rs. 3000 per month, how much should a temporary lecturer in a college earn? Rs. 5000 per month? And remain temporary forever. A sweeper in L&T is an Income tax assessee but a BE or an MBBS degree holder works for Rs. 800 per month in a small-scale unit or Rs. 1200 in a private nursing home, respectively.

In order to correct such disparities, the Government of India appointed a Committee headed by Mr Bhootalingam in 1979. The committee was to suggest regional and integrated wage policy covering all sectors of the economy. Soon after the committee submitted its report, it was criticized as anti-labor and impracticable.

Recent wage practices in India in the organised sector are such that dearness allowances are paid to neutralise at least partially, price increases, bonus paid as per the Bonus Act, and fringe benefits given under this Employees’ State Insurance Act and the Employees’ Provident Fund” Act. Wage Boards have attempted to settle wage disputes, taking into account the principle of fair wages first set forth by the Report of Committee on Fair Wages.

The Fair Wages Committee recommended that the “minimum wage should represent the lower limit of the fair wage, the upper limit being the capacity of industry to pay”. Between these two limits, the Committee suggested that the fair wage should depend upon – (i) productivity of labour; (ii) prevailing rates of wages in the same and similar occupations in the same neighbouring localities; (iii) level of the national income and its distribution, and (iv) place of the industry concerned in the economy of the country. The Committees’ recommendations are similar to the requirements laid down above.

Wage Policy

A rational wage policy is essential both on social and economic grounds. Without it there is a danger of unreasonable exploitation of workers leading to discontent which must result in disharmony between workers and management. Therefore, a sound wage policy is needed in the interest of workers, employers, the Government and the country.

Three Concepts of Wages:

Three concepts of wages are commonly used in discussions on wage policy, and the same concepts were also explained by the Fair Wages Committee, namely:

1. Minimum wage,
2. Living wage, and
3. Fair Wage.

These are broadly based on the needs of the workers and the capacity of employers to pay, as also on the general economic conditions prevailing in a country.

1. Minimum Wage:

A minimum wage is said to be a wage which is sufficient to satisfy at least the minimum needs, of at least a frugal and steady workers. According to the Committee on Fair Wages, the minimum wage is an irreducible or minimum amount regarded necessary for the bare sustenance of the worker and his family and for the preservation of his efficiency at work.

In most countries, like ours, Minimum Wages Legislation has fixed minimum wages for specified occupations, especially where sweating and exploitation of labour had been prevalent. In fixing a minimum wage both the need of the workers and the capacity of the industry to pay are taken into account. From the social point of view, an industry which cannot even afford to pay a basic minimum wage has no justification for existence in the long-run.

2. Living Wage:

It is a wage which should offer an employee incentive to work and produce enough in quantity, without sacrificing quality, so that the payment of such a wage is justifiable by the industry. The living wage for a worker should be such as to include not merely the cost of maintenance for himself but also for supporting his family.

As such, living wage should include provision for the following:

1. Bare necessaries such as food, clothing and shelter;
2. A measure of frugal comfort includes:

(a) education for children

(b) protection against ill-health

(c) requirements of essential social needs

(d) a measure of insurance against the more important misfortunes including old age.

3. Some margin for self-development and recreation.

The concept of living wage, to be realistic, should be linked with economic conditions and the size of the family. While determining expenditure under various heads, attention should be paid to the changes in the cost of living as prices fluctuate from time to time.

3. Fair Wage:

While living wage is the cherished goal and the ultimate aim or target, a fair wage is a step towards a living wage. In the narrow sense, a wage rate is fair if it is equal to the rate prevailing in the same area and industry. In the wider, sense, fair wage is the predominant rate available for similar jobs and occupations throughout the country or in all industries.

The demand for a fair wage is also reflected in the slogan ‘equal pay for equal work’ In simple terms, it is the wage equal to that received by employees performing equal work, demanding equal skill, equal difficulty and equal unpleasantness. Equal work is considered not only in the same job but also work in similar and comparable jobs. Fair wage is positively higher than the minimum wage, but it may be lower than the living wage.

The actual fixation of a fair wage depends upon the productivity of labour, prevailing rates of wages, level of national income, capacity of the industry to pay, wage differentials in corresponding places and the importance of industry in relation to the national economy.

Wage Policy Objectives of Sound Wage Policy

The objectives of a sound/ideal wage and salary policy are manifold.

A sound wage policy promotes industrial relations, protects against price rise, and serves many more purposes:

1. Establish good labour relations
2. Decide on appropriate wages
3. Decide wages based on the individual’s capability
4. Develop a pre-determined scheme for payment of wages
5. Establish linkages of wage payment with performances
6. Maintain parity of wages with other organizations
7. Provide for incentive payment
8. Guarantee minimum wages
9. Provide for neutralization of price rise
10. Develop wage structures that can attract talent.

The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 has been enacted with the main objective of protecting the interest of the employees after their retirement and their dependents after death of the employee. The Act provides insurance to workers and their dependents against risks of old age, retirement, discharge, retrenchment or death.

The objective of this act is to provide substantial security and timely monetary assistance to the employer and their family members. This act covers all the state of India except Jammu and Kashmir. It applies to any factory or any other establishment employing 20 or more persons with the permission of central, according to central government’s official gazette. But the central government is empowered to apply this provision to any employing less than 20 persons with prior notification at least 2 months before.

EPF Applicability

The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 extends to whole of India except the state of Jammu & Kashmir.

It applies on every establishment employing 20 or more persons & engaged in industry specified in Schedule I of the Act or any other activity notified by the Central Government.

It applies to all departments / branches of an establishment wherever situated.

Any establishment employing even less than 20 persons can be covered voluntarily under section 1(4) of the Act.

EPF Eligibility

Employees drawing salary / wages at the time of joining up-to Rs. 6,500/- per month are governed by the provisions of the Act;

Employees drawing salary / wages more than Rs. 6,500/- per month may also be brought under the purview of the Act at the discretion of the management and by furnishing a joint undertaking to the Provident Fund Commissioner;

Employees engaged through the Contractor in or in connection with the work of an establishment are also covered under the purview of the Act.

This act covers three major schemes:

(i) Employees provident fund scheme.

(ii) Employees’ pension scheme.

(iii) Employees deposit linked insurance scheme.

Employee’s Contribution

An employee is eligible for membership of Employee Provident Fund from the very 1st date of joining in any establishment getting salary up to Rs6500 Provident fund contribution is recovered at 12% of wages from employee salary. The pension is that which represents a person has retired. To avail pension a person should have 10years of continues service and with age of 50years or more will receive pension amount on monthly basis after the age of 58. A member is eligible to apply for withdrawing his provident and pension fund only after 2 months from the date of registration, provident that he/she is not employed during those 2months. Employer’s Contribution: Employer is also required to contribute towards provident fund, the deduction rate is same as employee’s contribution i.e. 12% of the wages. Of this 12%, 3.67% goes to Provident Fund and the balance of 8.33% goes to Pension Fund.

Thus, Employee Provident Fund grants the employee to have a regular income through a pension. These are the important facts of Employee Provident Fund and Miscellaneous Provisions Act,1952.

The Employees’ Provident Fund Organisation (abbreviated to EPFO), is an organisation tasked to assist the Central Board of Trustees. Employees’ Provident Fund is a statutory body established by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 and is under the administrative control of the Ministry of Labour and Employment, Government of India.

EPFO assists the Central Board in administering a compulsory contributory Provident Fund Scheme, a Pension Scheme and an Insurance Scheme for the workforce engaged in the organised sector in India. It is also the nodal agency for implementing Bilateral Social Security Agreements with other countries on a reciprocal basis. The schemes cover Indian workers as well as International workers (for countries with which bilateral agreements have been signed. As of now 19 Social Security Agreements are operational). The EPFO’s apex decision making body is the Central Board of Trustees (CBT).

On 1 October 2014, the government of India launched Universal Account Number for Employees covered by EPFO to enable PF number portability.

The total assets under management are more than ₹11 lakh crore (US$157.8 billion) as of 2018 .

Broadbanding is a job grading structure that falls between using spot salaries vs. many job grades to determine what to pay particular positions and incumbents within those positions. While broadbanding gives the organization using it some broad job classifications, it does not have as many distinct job grades as traditional salary structures do. Thus, broadbanding reduces the emphasis on ‘status’ or hierarchy and places more of an emphasis on lateral job movement within the company. In a broadbanding structure an employee can be more easily rewarded for lateral movement or skills development, whereas in traditional multiple grade salary structures pay progression happens primarily via job promotion. In this way, broadbanding is a more flexible pay system. This flexibility, however, can lead to internal pay relativity problems as there is not as much control over salary progression as there would be within a traditional multi-level grading job (structure).

Organisations with broadband pay structures have broader salary ranges but there are fewer one of them this type of structure is found in flattened organisations where there is a reduced chance of promotion in terms of responsibility. Broadbanding allows organisations to increase pay and offer opportunities for training without promoting employees.

Broadband pay structures aren’t as sensitive to changing market conditions and also allow skills to more easily develop because there’s an increased emphasis placed on jobs without traditional areas of responsibility, such as managers.

Broadbanding is defined as a strategy for salary structures that consolidate a large number of pay grades into a few “broad bands“

In a broadband pay structure, the numbers of salary grades are consolidated into fewer, but broader, pay ranges. In broadbanding, the spread of the pay ranges is wider and there is less overlap with other pay ranges.

Broadbanding evolved because organizations want to flatten their hierarchies and move decision-making closer to the point where necessity and knowledge exist in organizations. In flattened organizations, fewer promotional opportunities exist so the broadbanding structure allows more latitude for pay increases and career growth without promotion.

Benefits of Broadbanding

Broadbanding has been successfully implemented in large, hierarchical organizations which attempted to flatten their organizations and remove levels of management. For example, organizations that had eight levels of management could eliminate four levels, widen the salary ranges of the remaining four levels, and simply slot each manager into one of those ranges.

With broadbanding, a manager can more easily encourage his/her employees to broaden their skills and abilities. This is valuable to organizations because employees with broad skills and abilities are critical for the success in a total quality/continuous improvement environment. In contrast, the jobs in traditional organizations are narrow and specialized. In order for employees to advance in pay and responsibility, they have to further develop their specialized skill. Thus, a bias exists against the broadening of skills.

New Pay

The New Pay’ is an approach to focusing investment in employee reward, which can be located in the ‘best practice’ (or ‘normative’) tradition of thinking. This can be contrasted with a ‘contingency’ approach matching decisions to the circumstances of institutions and people and attempts to adopt what has been termed a ‘configurational’ perspective. That approach emphasises ensuring that with lots of moving parts involved in the employment relationship those designing and administering reward management remain actively aware of the ‘open systems’ characterising all levels of an economy. We address this ‘systems thinking’ in the book, raising awareness of the way that, while the employment relationship is indeterminate (there is no algorithm for programming its outcomes), there is an interplay of forces and interests that seek to regulate it.

Irrespective of overall merits, New Pay thinking highlights that reward management is of strategic importance to all organisations; that it is a highly visible medium through which to communicate organisational values and priorities when seeking a return on investment in employing people. Where claims need particular testing is in relation to the proposition that ‘base’ pay (salary, wages) should focus on recognising the potential value an employee may contribute to an employer, whereas variable pay (commissions, bonuses, profit and other forms of ‘sharing’ plans) should recognise outcomes from the application of employee knowledge and effort. And that together these fixed and variable elements should act as an incentive to attract, retain and motivate high performance among the kinds of workforce members an employer requires to realise corporate strategic goals.

Contract employees, also called independent contractors, contract workers, freelancers or work-for-hire staffers, are workers hired for a specific project or length of time by a company for a set fee. Often, contract employees are hired due to their expertise in a particular area, like writing or illustration, that internal employees at the company do not have. Contract employees are usually hired for projects that require niche expertise for a short-term project. Rather than hire a full-time, long-term employee with that expertise, the company chooses to hire a contractor for the duration of the project.

Contract employees

• Tax form: Contract employees receive a 1099 tax form, and their taxes are not automatically deducted from their paychecks.
• Work duties: Contract employees perform a specific task or role on a short-term project.
• Training: Contract employees receive training and instruction exclusively for their projects.
• Work hours: Contract employees can typically choose the days and hours they work.
• Pay: Contract employees are often paid after a project has been completed rather than on a set payment schedule.
• Travel: If travel is required for work, the contract employee is usually responsible for their travel expenses.
• Benefits: Contract employees typically do not receive benefits like health insurance or life insurance.
• Time off: Contract employees do not receive paid time off.

Duties of the Contractor and a Principal Employer

The law looks at contractual workers differently from regular employees. Hence, the duties of a contractor are different than that of a principal employer.

Wages

• The contractor is responsible for the worker, his conditions of employment, and payment of wages. The wage period is to be fixed by the contractor and must not exceed one month.
• If the establishment has less than 1000 employees, payment must be done before the 7th day of the last day of the wage period. If the worker’s last day is the 30th of June, the payment must be done by the 7th of August.
• If there are more than 1000 employees, payment can be done before the 10th day of the expiration of the wage period.

Duties of a Principal Employer

While hiring contractual workers, the employer has to:

• Register the establishment to hire contractual workers.
• Hire workers only from licensed contractors.

In a situation where either of these two conditions is not satisfied, the workman employed will not be considered a contractual labourer and will be considered to have been employed directly by the employer. The employer also has a duty to ensure that the Contractor complies with applicable labour laws.

Rights of the Contractual Employee

Working Hours

A contractual employee can be made to work for only 48 hours a week, and 9 hours a day. In case of overtime, he/she is entitled to a wage twice the ordinary rate. The period of work hours must be notified to the workers. If a contractual worker has worked for a period of 240 days or more, he/she is entitled to annual leave with wages, with one day leave for every 20 days of work.

Safety and Health

In line with the duties of the employer, contractual factory workers have the right to i) obtain information relating to health and safety at work ii) receive training given for health and safety at work.

Social Security

Contractual workers are covered under the Employees’ State Insurance Act, 1948 and entitled to social security cover if they draw up to Rs.15,000/- in monthly wages. The employer has to register with the Employee State Insurance (ESI) corporation and is responsible to insure the workers. In the ESI scheme, the employer contributes 4.75% of the wages payable to employees, while the employee contributes 1.75% of his/her wages. Workers earning less than Rs. 137/- a day as daily wages are exempted from payment of their share of contribution. Workers under the scheme can avail medical benefits, sickness benefits, maternity benefits, disablement benefits and dependant benefits. The Unorganized Workers’ Social Security Act, 2008 provides contractual workers in the unorganized sector with the benefits of Social Security Schemes like Indira Gandhi National Old Age Pension Scheme, Janani Suraksha Yojana, etc. However, registration under the Act is not mandatory and hence the Act hasn’t been implemented properly.

Retirement benefits

After retirement, contractual workers are entitled to provident fund benefits under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 ; if they completed five years in employment under a single employer, they are eligible for gratuity under the Payment of Gratuity Act, 1972.

Other benefits

In case a worker is injured in the course of employment but not covered under the ESI scheme, he/she can claim compensation under the Workmen’s Compensation Act, 1923. Similarly, if a female contractual worker is not covered under ESI, she can claim maternity leave (26 weeks for birth of first 2 children) with wages under the Maternity Benefit Act, 1961 (provided she worked in an establishment for not less than 80 days in a year prior to the date of her expected delivery).

During 1980s and early 1990s spreadsheets had been used to manage compensation information of the employees (for each manager one spreadsheet including its subordinate’s data) which had been static (changes in data as bottleneck), arduous (when it comes to be aggregated with other data at different managerial levels) and time-consuming -months of efforts.

e-compensation is intended to generate a fair salaries culture within the corporation, based on complying with performance evaluation components and the measurement system. The purpose of this model is to provide greater salary incentives for employees who follow company guidelines and achieve results in accordance with clear instructions.

Employee welfare

e-compensation seeks to encourage the performance of employees, recognizing efficiency and effectiveness, strengthening organizational culture, promoting professional development and teamwork through personalized, objective and equitable compensation.

e-compensation establishes a win-win situation which benefits the company, its employees, shareholders and clients, striving to obtain a high-performance culture of effectiveness and efficiency in all products and services.

Recognize the achievements of your employees.

e-compensation is a methodology that measures performance and compensation, in terms of both quality and quantity, including all levels of the organization when objectives have been defined in a clear and transparent manner.

To compensate individuals in an objective and fair manner, the performance of the employee should be assessed on a regular basis, so that the company assures permanent improvement. The Compensation model set forth allows important savings in payroll costs when compared with the results obtained.

The methodology applied in e-compensation assures fairness in salaries, recognition and added value to the efforts made by everyone in your organization to obtain its goals. 

A golden parachute is an agreement between a company and an employee (usually an upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. These may include severance pay, cash bonuses, stock options, or other benefits. Most definitions specify the employment termination is as a result of a merger or takeover, also known as “change-in-control benefits”, but more recently the term has been used to describe perceived excessive CEO (and other executives) severance packages unrelated to change in ownership (also known as a golden handshake).

Arguments for and against

Support

• Proponents of golden parachutes argue that the parachutes provide benefits to stockholders:
• Make it easier to hire and retain executives, especially in industries more prone to mergers.
• Help an executive to remain objective about the company during the takeover process, and possible loss of position after takeover.
• Dissuade takeover attempts by increasing the cost of a takeover, often part of a poison pill strategy.
• it helps the CEO to implement long-term targets thereby increasing revenue of the organization.

Opposition

• Dismissal is a risk in any occupation, and executives are already well compensated.
• Executives already have a fiduciary responsibility to the company, and should not need additional incentives to stay objective.
• Golden parachute costs are a very small percentage of a takeover’s costs and do not affect the outcome.
• Benefits create perverse incentives.

A golden handshake is a clause in an executive employment contract that provides the executive with a significant severance package in the case that the executive loses their job through firing, restructuring, or even scheduled retirement. This can be in the form of cash, equity, and other benefits, and is often accompanied by an accelerated vesting of stock options. According to Investopedia, a golden handshake is similar to, but more generous than a golden parachute because it not only provides monetary compensation and/or stock options at the termination of employment, but also includes the same severance packages executives would get at retirement.

The term originated in Britain in the mid-1960s. It was coined by the city editor of the Daily Express, Frederick Ellis. It later gained currency in New Zealand in the late 1990s over the controversial departures of various state sector executives.

Typically, “golden handshakes” are offered only to high-ranking executives by major corporations and may entail a value measured in millions of dollars. Golden handshakes are given to offset the risk inherent in taking the new job, since high-ranking executives have a high likelihood of being fired and since a company requiring an outsider to come in at such a high level may be in a precarious financial position. Their use has caused some investors concern since they do not specify that the executive has to perform well. In some high-profile instances, executives cashed in their stock options, while under their stewardship their companies lost millions of dollars and thousands of workers were laid off.

Remuneration is payment or compensation received for services or employment. This includes a base salary and any bonuses or other economic benefits that an employee or executive receives during employment.

Remuneration often refers to the total compensation received by an executive, which includes not only the person’s base salary but options, bonuses, expense accounts and other forms of compensation.

The amount of remuneration and the form it takes is dependent on many factors, including:

• The employee’s value to the company: Whether the person is full-time vs. part-time, holds an executive position vs. entry-level, etc.
• The job type: whether it is salaried vs. hourly pay, whether the earnings are commission vs. base pay, tipped positions, etc.
• The company’s business model: Some companies offer bonuses or employee stock options while others do not.

Types of Remuneration

Remuneration refers to the monetary rewards that an employee receives, but these rewards can take different forms. For example, some positions pay a salary, while others pay by the hour. Many sales positions offer a commission on the sales made by an employee or a percentage of the amount sold. Some of these commissioned positions offer a base salary, whereas others are solely dependent on commission. Many positions in the foodservice and hospitality industries rely on tips, as their base pay does not meet the minimum wage.

Another type of remuneration is deferred compensation, which sets aside an employee’s earnings to be redeemed at a later date. One common example of this is a retirement plan.

Remuneration also refers to the benefits an employee receives from his or her company. These can come in the form of health insurance, gym memberships, the use of a company mobile device or company car or others, depending on the company. If an employee is injured or becomes disabled during employment, he or she is also entitled to workers’ compensation.

These curves are usually meant for professional, scientific or other highly qualified personnel, linking increases in their salary over a considerable long time to their increased maturity, expertise and experi­ence. It is also possible to have more than one rate of progression to reward employees based on their potential and actual performance.

One way to understand the wage curve is as follows. The labour supply of each individual is positively correlated to wages, therefore the higher is the hourly wage offered, the more hours an individual is willing to work. However, there is a limit to which every person would be willing to sacrifice an hour of leisure or rest, for an hour’s worth of wages. Let’s say that X is the maximum number of hours a person can work, and $A is the minimum hourly wage rate he expects in return. Any wage $B, greater than $A, will increase the worker’s daily wage without increasing the hours of work. So if you need more hours of work than X, you need to hire more people.

Say you need to purchase Y hours of labour from the labour market. Let us assume that Y = 4X. This means that Y is four times as much as one labourer’s maximum labour offer. If you pay $A an hour then you can hire 4 labourers to work for X hours each. However, depending on the labour market conditions, other options are open:

Say that there are not very many jobs in the labour market, unemployment is high and a lot of people are under-employed (working much fewer than X hours). In this situation the going rate is likely to be lower than $A as it is very unlikely that an employee would be asked to work for X hours. You would save money by hiring more than 4 labourers with each of them working fewer than X hours.

Say the labour market is tight and most people are already working X hours a day. It is very hard to find people who are not already earning $A an hour, and because of that you must match the money offer elsewhere in order to get someone to work for you. The wage level in this scenario would be higher than the earlier scenario.

In short, the lower unemployment is and the fewer laborers there are available, the higher the wages. The contrary is true when unemployment is high. This is the essence of the wage curve.

Implications of wage curve

It is utilised to explain why within a country, some regions suffer worse unemployment than others. Labourers could, but, for whatever reasons, are unwilling to migrate from regions with high unemployment, low wage areas to low unemployment, high wage areas.

One of the reasons why unemployed labourers would not want to migrate to other areas with plenty of jobs is because of home-ownership. The worker might be deterred from moving because of the costs involved in selling off their home and moving. Blanchflower and Oswald have found that the unemployment rate is positively correlated to home-ownership rate in a cross-country study.

However recently some micro econometric evidence suggests that the relationship between home-ownership and unemployment is slightly more complicated. People who are employed are more likely to be able to afford a mortgage, and are therefore more likely to have bought their own home. The evidence indicates that the employed home-owners are less likely to become unemployed, and they are also more likely to be employed in jobs with high stability and therefore less likely to change jobs. The unemployed home-owners are more likely to find jobs within the local areas, and less likely to find jobs which would necessitate a move. The overall picture suggests that although home-owners are reluctant to move around, they are more often than not employed, and therefore not contributing to the unemployment rate.

A cafeteria plan is an employee benefit plan that allows staff to choose from a variety of pre-tax benefits. Employees can contribute a portion of their gross income before any taxes are calculated and deducted. Plans normally include options such as insurance benefit and benefits that help employees with various life events such as adoption.

A cafeteria plan gets its name from a cafeteria but has nothing to do with food. Just as individuals make food selections in a cafeteria, employees can choose the benefits of their choice before payroll taxes are calculated from a pool of options offered by their employers. These plans become more useful as diversity within workforces continues to grow and employees seek more personalized benefits that are tailored to their needs.

A cafeteria plan is a type of employee benefit plan offered in the United States pursuant to Section 125 of the Internal Revenue Code. Its name comes from the earliest such plans that allowed employees to choose between different types of benefits, similar to the ability of a customer to choose among available items in a cafeteria. Qualified cafeteria plans are excluded from gross income. To qualify, a cafeteria plan must allow employees to choose from two or more benefits consisting of cash or qualified benefit plans. The Internal Revenue Code explicitly excludes deferred compensation plans from qualifying as a cafeteria plan subject to a gross income exemption.

If the cafeteria plan discriminates in favor of highly compensated employees, the highly compensated employees will be required to report their cafeteria plan benefits as income. The second exception is that if “the statutory nontaxable benefits provided to key employees exceed 25 percent of the aggregate of such benefits provided for all employees under the plan,” then the key employees must report their cafeteria plan benefits as income. Effective January 1, 2011, eligible employers meeting contribution requirements and eligibility and participation requirements can establish a “simple” cafeteria plan. Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan.

Features and benefits

Employees of employers with cafeteria plans may obtain such benefits as health insurance, group-term life insurance, voluntary “supplemental” insurance (dental, vision, cancer, hospital confinement, accident, etc.), and flexible spending accounts through the plan. Though some cafeteria plans offer an explicit choice of cash or benefits, most today are operated through a “salary redirection agreement”, which is a payroll deduction in all but name. Deductions under such agreements are often called pre-tax deductions. Salary redirection contributions are not actually or constructively received by the participant. Therefore, those contributions are not generally considered wages for federal income tax purposes, nor are they usually subject to Federal Insurance Contributions Act tax (FICA) and Federal Unemployment Tax Act (FUTA).

Reasons for implementing a Section 125 plan are primarily for the tax savings advantages for the employer and employee. Both parties save on taxes and therefore increase their spendable income. Employees’ pretax contributions are not subject to federal, state, or social security taxes. Employers save on the employer portion of FICA, FUTA, and workers’ compensation insurance premiums.

A cafeteria plan may permit an employee to revoke an election during a period of coverage and to make a new election only in limited circumstances, such as a change in status event. A change in status event includes changes in the number of an employee’s dependents.

John Davidson has given this theory, and according to him, the wages are determined on the basis of a bargaining capacity of workers or their unions and employers. If the trade union is stronger, then the wages will be high, and if the employer is powerful, the wages tend to be low.

Earlier theories of wages have been rendered invalid or atleast inadequate, as a result of collective bargaining by trade unions. Collective bargaining provides an example of what is sometimes called bi-lateral monopoly, the trade union being the monopolist supplier and the employer’s association, the monopolist buyer of a particular kind of labour. Level of wages in an industry depends on the bargaining strength of the trade union concerned.

The power of a trade union depends on the size of its membership, the size of its fighting fund and the extent of the dislocation to the national economy it can cause by a strike. In times of full employment, the union will be in a strong position, in a depression they will be weaker.