2 of 27

Wage (Def.)

The remuneration paid to the worker is called wage.

It can be defined as the remuneration paid for the services rendered by the worker.

Remuneration paid under contract by an employer to an employee for the work performed by him.

3 of 27

Wage - Classification

Wages may be classified as:

Nominal Wages
Real Wages

4 of 27

Nominal Wages

Nominal wages are earnings of the workers (employees) expressed in terms of money.
These are paid in the form of cash and do not include other benefits given to the workers.
This is also called as Money Wage.

5 of 27

Real Wage

In addition to the cash payment real wages include:
The amount of necessaries,
Comforts,
Luxuries
Other benefits

which a worker gets in return of his effort and work.

6 of 27

Minimum Wage, Fair Wage and Living Wage

The fair wage committee in its report suggested three concepts of wages:
Minimum wage to improve the standard of living of people who live below the poverty line.

2. Fair wage assuring equal pay for equal work and

3. Living wage assuring maintenance of living standards in a locality.

7 of 27

Minimum wage

The wages that are paid to the workers so as to keep them alive are called the minimum wages.

Minimum wage is the wage to cover bare necessities of life i.e. food, shelter and clothing.

It may also provide a little for worker’s efficiency, e.g. for his health and education.

While deciding the minimum wage it is necessary to consider the cost of living.

8 of 27

Objectives of minimum wages are:

Minimum wage set up by Act is the lowest limit below which no worker shall be paid.
Objectives:

1. To protect weaker section of the working population, who are illiterate, ignorant and unorganised and whose bargaining power with the fully organised employer is too weak.

2. To prevent exploitation of workers and to secure a wage according to the values of the work done.

3. To promote peace in the industry.

4. To improve normal standard of living and welfare of the employees.

9 of 27

Living wage

It is the wage which ensures maintenance of living standard of an employee. Components of living wage are:

Bare necessities (food, cloth and shelter).

Insurance cover against ill health, disability, old age and other misfortunes.

Reasonable expenditure on children’s education.

Provisions for self-development and recreation.

Saving for future needs etc.

10 of 27

Fair wage

It is actually the wage which must be fair for the work of the worker.
The rates for the fair wage range between the minimum wage and living wage.
Fair wage fluctuates between two limits:
(i) Lower limit set by minimum wage act.

(ii) Higher limit set by firm’s capacity to pay.

Fair wage depends upon:
the location of industry
production capacity of the worker
availability of the worker
capacity of industry to pay
bargaining power of workers.

11 of 27

Characteristics of a Good Wage �or� Incentive System

1. This should guarantee an adequate minimum day-wage.

2. It must have the free consent of the workers.

3. It must reward the worker according to his capacity and merit.

4. It must be simple in its working so that it may be readily understood by workers.

5. It must not involve heavy clerical work and thereby increase the ultimate cost.

6. It should aim at increasing production without adversely affecting quality.

7. It should reduce wastage of material and careless use of plant, tools and equipment.

8. Incentive, bonus etc. should be payable along with the wages and not put off for future.

9. The system should be fair both to the employers and employees.

12 of 27

Wage premium plans

Methods of Wage Payment:

a) Time or Day Rate System

b) Straight Piece Work Rate System

c) Combination of Time Rate and Piece Rate System

d) Incentives

e) Profit Sharing System.

Notes for explanation will be uploaded on the portal.

13 of 27

Methods of Financial Incentive Payment

(1) Piece Rate System

(2) Cent Per Cent Premium

(3) Halsey Premium Plan

(4) Weir Premium Plan

(5) Bedaux Premium Plan

(6) Rowan Premium Plan

(7) Emerson Efficiency Plan

(8) Gantt’s Task And Bonus System

(9) Taylor’s Differential Piece Rate System

(10) Merric’s Multiple Piece Rate System

Notes for explanation will be uploaded on the portal.

14 of 27

Indirect expenses

Various overheads can be easily found out from various records, but some overhead charges require good knowledge and experience of the estimator. They are:

1. Depreciation

2. Obsolescence

3. Interest on capital

4. Idleness

5. Repair and maintenance

Calculation of Various Overheads

15 of 27

�1. Depreciation �

Efficiency and value of machine or asset constantly reduces with the lapse of time during use, which is known as “Depreciation”.

The initial cost of machine plus installing charges + repair charges + scrap value is charged against overheads and spread over the machine’s useful life.

“Depreciation Fund” or “Sinking Fund.”

16 of 27

�2. Obsolescence �

Old machine is efficient but becomes out of fashion.

Better machine comes in the market, whose production rate is very high.

Hence ‘Obsolescence’ is the depreciation of existing machinery or asset due to new and better invention, design, equipment or processes etc.

17 of 27

�3. Interest on Capital �

While preparing cost account, interest on capital invested is also considered.
The rate of interest is that, which would have been available, if that capital is deposited in some bank.
By charging the interest, cost of product increases.

18 of 27

Interest should be charged on the product produced, because:�

i. Real profit is not received until interest on capital is charged. Because manufacturer gets an amount equal to interest even when he does not work.

ii. The stock of raw and finished products cost more, because of the rent and interest on the blocked money.

iii. If the capital is borrowed for business, then the interest has to be paid. Similarly, if manufacturer himself provides capital he should be credited by a sum equal to the interest.

19 of 27

Some manufacturer do not charge interest on the invested capital.

They have the following points to advocate their view:

i. An interest is also the part of the profit, it should not be charged separately.

ii. It is charged to show less profit to deceive the consumer and to increase the cost of product.

iii. It complicates clerical work.

20 of 27

�4. Idleness �

Idleness in an industry may be of the following two kinds:

a. Idleness of machines

b. Idleness of workers

21 of 27

�a) Idleness of machines �

This is the time, when machines remain without doing any useful work.
Reasons:

a. Mechanical reasons: Examples of such reasons are breakdown of machines, power failure, accident etc.

b. Bad Planning: Machines may remain idle due to bad planning. Reasons for such idleness are not engaging the machine to their full capacities, providing more machines or lack of supervision.

22 of 27

�b) Idleness of worker �

In this category worker remains idle but he is paid for this duration also. Idleness of worker may be due to the following reasons:

a. Labour: In this category workers, do not perform useful work due to their personal reasons e.g. due to lockouts, strikes, accident, natural calls etc.

b. Mechanical: Examples of mechanical reasons when worker remains free, are power failure, breakdown of machines etc.

c. Supervisory: Due to poor supervision, sometimes worker wastes his time for waiting to receive the instructions from supervisor

in gossiping or wandering here and there

An estimator used to fix the percentage for the idleness effect based on his experience. He should also consider all the above factors causing idleness.

23 of 27

�5. Repair and Maintenance �

Repair is the process of bringing the defective machine into efficient working condition.
Every machine must be repaired.

Some money must be spent on it.

For increasing its life. - to keep the machine in good condition and to remove unnecessary delays in production.

For maintenance machines are cleaned, lubricated and checked thoroughly from time to time and to replace the worn-out parts.

24 of 27