Importance and objective of Wage and salary administration

What is wage and salary administration? Wage and salary administration is essentially the application of a systematic approach to the problem of ensuring that employees are paid in a logical, equitable and fair manner.

Wage and salary administration

Wage and salary are often discussed in loose sense, as they are used interchangeably, But Indian labour Organisation (ILO) defined the term wage as “the remuneration paid by the employer for the services of hourly, daily, weekly and fortnightly employees”

It also means that remuneration paid to production and maintenance or blue collar employees.

Type of Wage 

There are many types of wages which are mention below in article with their meaning.


The term salary is defined as the remuneration paid to the clerical and managerial personnel employed on monthly or annual basis. This distinction between wage and salary does not seem to be valid in these days of human resources approach where all employees are treated as human resources and are viewed at par.

As such, the term wage and salary can be defined as the direct remuneration paid to an employee compensating his services to an organisation. Salary is also known as basic pay.


Earnings are the total amount of remuneration received by an employee during a given period. These include salary, dearness allowance, house rent allowance, city compensatory, other allowances, overtime payment etc.

Nominal Wage

It is the wage paid or received in monetary terms. It is also known as money wage.

Real Wage

Real Wage is the amount of wages arrived after discounting nominal wage by the living cost. It represents the purchasing power of money wage.

Take Home Salary

It is the amount of salary left to the employee after making authorized deductions like contribution to the provident fund, life insurance premium, income tax and other charges.

Minimum wages

It is the amount of remuneration which could meet the “normal needs of the average employee regarded as a human being living in a civilized society.”

It is defined as the amount or remuneration “which may be sufficient to enable a worker to live in reasonable comfort, having regard to all obligations to which an average worker would ordinarily be subjected to.”

Statutory Minimum wages

It is the amount of remuneration fixed according to the provisions of the Minimum wages act 1948.

The need-based Minimum Wage

It is the amount of remuneration fixed on the basis of norms accepted at the 15th session of the Indian labour conference held to New Delhi in July , 1957.

The conference recommended that minimum wages should ensure the minimum human needs of industrial workers.

The Living wage

Living wage is higher than fair wage. Provides for bare essential plus frugal comforts.

According to the committee on fair wages, the living wage is the highest amount of remuneration and naturally it would include the amenities which a citizen living in a modern civilized society is entitled to expect, which the economy of the country is sufficiently advanced and the employer is able to meet the expanding aspirations of his workers.

The Fair wages

Fair wage equals to the rate prevailing in the same trade and in the neighborhood, or equal to the predominant rate for similar work throughout the country.

Incentive wages

This is the amount of remuneration paid to a worker over and above the normal wage as an incentive for employee’s contribution to the increased production or saving on time or material.

Wage Rate

It is the amount of remuneration for a unit of time excluding incentives, overtime pay, etc.

Standard Wage rate

It is the amount of wage fixed for a unit of time fixed on the basis of job evaluation standards.

Need for sound Salary Administration

Management has to formulate and administer the salary policies on sound lines as:

  • Most of employees satisfaction and work performance are based on pay.
  • Internal inequalities in pay are more serious to certain employees.
  • Employees compare their pay with that of others.
  • Employees act only to gross external inequities
  • Employee comparisons of pay are uninfluenced by levels of aspiration and pay history
  • Employees compare the pay of different employees with their skill, knowledge, performance.

Objective of wages and salary administration

The objective of wage and salary administration are numerous and sometimes conflict with each other.

The important among them are:

Objective 1: To Acquire Qualified Competent Personnel

Candidates decide upon their career in a particular organisation mostly on the basis of the amount of remuneration the organisation offers. Qualified and competent people join the best-paid organisation. As such, the organisation should aim at payment of salaries at the level, where they can attract competent and Qualified people.

Objective 2: Objectives of Salary at Model Xerox

The objectives of salary at model Xerox are as follows:

  • To Support skills need by the organisation
  • To pay for contribution and not time
  • To reward for behavior built on organisation values and leadership attributes.
  • To provide flexibility for Individuals
  • To mix between fixed and variable pay
  • To recognize individuals and teams
  • To attract and retain talent

Objective 3: To retain the present Employees

If the salary level does not compare favorably with that of others similar organisation, employees quit the present one and join other organisations. The organisation must keep the wage levels at the competitive level, in order to prevent such quits.

Objective 4: To secure Internal and External Equity

Good rewards reinforce desired behavior like performance, loyalty, accepting new responsibilities and change etc.

Objective 5: To keep labour and Administrative Costs

In line with the ability  of the organisation to pay.

Objective 6: To protect in public as progressive Employers

And to comply with the wage legislation.

  • To pay according to the content and difficulty of the job and in tune with the effort and merit of the employees.
  • To Faciliate Pay roll – administration of budgeting and wage and salary control.
  • To simplify Collective Bargaining – Procedures and negotiations.
  • To promote Organisation – feasibility.

At last words, Wages and salary administration is require for manage human resources in an organisation. And they also serve legal complances of wages act in organisation.

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