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Unit 10: Compensation and Benefits

5. Any other amenity or service excluded from the computation of wages by general or Notes
special order of an appropriate governmental authority.
The term 'Allowances' includes amounts paid in addition to wages over a period oil time
including holiday pay, overtime pay, bonus, social security benefit, etc. The wage structure in
India may be examined broadly under the following heads:

Basic Wage

The base rate is the amount of pay (the fixed salary or wage) that constitutes the rate for the job.
It may be varied according to the grade of the job or, for shop floor workers, the level of skill
required.

While deciding the basic wage the following criteria may be considered: (i) Skill needs of the
job; (ii) Experience needed; (iii) Difficulty of work: mental as well as physical; (iv) Training
needed; (v) Responsibilities involved; (vi) Hazardous nature of job.
Base pay will be influenced by internal and external relativities. The internal relativities may be
measured by some form of job evaluation. External relativities are assessed by tracking market
rates. Alternatively, levels of pay may be agreed through collective bargaining with trade
unions or by reaching individual agreements.

Base pay may be expressed as an annual, weekly or hourly rate. This is sometimes referred to as
a time rate system of payment. Allowances as described later may be added to base pay. The rate
may be adjusted to reflect increases in the cost of living or market rates by the organization
unilaterally or by agreement with a trade union.

10.2.2 Allowances

Allowances are paid in addition to basic pay for special circumstances (living in London) or
features of employment (working unsocial hours). They may be determined unilaterally by the
organization but they are often the subject of negotiation.

Dearness Allowance (DA)

It is the allowance paid to employees in order to enable them to face the increasing dearness of
essential commodities. It serves as a cushion, a sort of insurance against increase in price levels
of commodities. Instead of increasing wages every I there is a rise in price levels, DA is paid to
neutralize the effects of inflation; when prices go down, DA can always be cut down to size.
DA is linked in India to three factors: the index factor, the time factor and the point factor.

Other Allowances

The other main types of allowances are:
1. Location Allowances: London and large town allowances to compensate for higher costs
of living.
2. Overtime Payments: Most manual workers are eligible for paid overtime as well as many
staff employees up to management level. Higher-paid staff may receive time off in lieu if
they work longer hours. Typically, organizations that make overtime payments give
time and a half as an overtime premium from Monday to Saturday, with double time paid
on Sundays and statutory holidays. Some firms also pay double time from around noon
on Saturday. Work on major statutory holidays such as Christmas Day and Good Friday
often attracts higher overtime premia.

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