Human Resource Management
LESSON ONE
By the end of the lesson the student should be able to:
a) explain the meaning of remuneration
b) describe the elements of remuneration policy
c) the types of pay structures and the role of job evaluation in determining remuneration
REMUNERATION
It is the payment made to workers. It is normally inform of wages, salaries and allowances.
Wages
A wage is the remuneration paid to the labourer engaged in production the term wages refers to the hourly rate paid to blue collar workers; for example, production and maintenance employees. Rules determining how wages may be paid are specified in the wages act of 1986. This removed all the previous restrictions on employers paying the workers by means other than cash although the actual method of payment is a matter for negotiations. Under the act, it is generally illegal to deduct money from an employee’s pay or for the firm to require the employee to pay back money received in wages except in the following circumstances;
(i) Deductions for income tax and national insurance or if a courts has ordered that part of a person’s wages be paid to a third party. For example, fine or money owing.
(ii) Payment requested in writing by the employee such as trade union and sports clubs subscriptions.
(iii) Agreed deductions for lateness or poor work provided the agreement is incorporated into the employee’s contract of employment.
(iv) Accident overpayment of previous wages or expenses.
(v) For retail employees only; deductions to make good cash shortages for example, money missing from the cash till or stock deficiencies.
(vi) Retail employment means anyone involved in the sale and supply of goods and services.
Salary
The term salary refers to the weekly or monthly remuneration paid to white collar workers for example clerical and professional employers.
Characteristics of salaries
(i) A salary is usually all inclusive that is, there no additional payments.
(ii) A salary is progressive; in most cases increasing annually
(iii) A salary is confidential but there is no secret about a wage.
(iv) In the private sector of employment, salaries are less likely than wages to be the subject of trade union negotiations.
Allowances
Several allowances are paid in addition to basic pay. Some of the allowances are;
§ House rent allowance – employers who do not provide living accommodation, pay house rent allowance to employees. This allowance is calculated as a percentage of basic pay. For government employees, it is usually 30% of basic pay.
§ Transport allowance – some employers pay transport allowance to their employees. A fixed sum of money is paid every month to cover past of travelling charges
§ Dearness allowance – this is allowance paid to employees to protect their real income against inflation. It is paid as a percentage of basic pay usually 2%
§ Medical allowance – it is given to employees to cater for their medical expenses.
§ Education allowance – some employees pay their employees education allowance to cater for education expenses fee for the children
§ Hardship allowance – it is normally given to people working in hardship areas. It is usually 30% of the basic pay.
Elements of a remuneration policy
Remuneration policy refers to all systematic efforts of the government in relation to a national wage and salary system.
The remuneration policy could cover matters such as;
a) Providing an equitable pay system
b) Equal pay for work of equal value that is, workers doing similar tasks should be remunerated equally
c) Pay for performance, competence, skill or contribution
d) Sharing in the success of the organisation that is gain sharing/profit sharing
e) The relationship between levels of pay in the organisation and market rates.
f) The provision of employee benefits including flexible benefits if appropriate
g) The importance attached to non financial rewards resulting from recognition of accomplishment and the opportunity to develop.
LESSON II
By the end of the lesson the student should be able to:
(i) Discuss the different types of remuneration
Types of remuneration system
1. Time wage system – under this system, wages are paid on the basis of time spent on the job irrespective of the amount of work done. The unit of time may be a day, a week, a fortnight or a month.
Advantages
o It is simple and easy to understand and workers can easily compute their own remuneration
o Earnings of the workers are regular and fixed. This gives them a sense of security and self confidence. The worker is assured of a fixed income and can therefore plan his expenses accordingly
o The plan is economical and no detailed records of output are required. Clerical work in the computation of wages is minimal. The employees know the cost of labour.
o As there is no pressure to speed up production the quality of work can be kept high A worker can show his skill
o Workers can adjust the pace of work so that there is no injury to their health.
o Learners can concentrate on learning the best methods of work as their earnings are not dependent on the amount of work.
o Trade unions prefer time wage system as it does differentiate between efficient and inefficient workers. A sense of equality is created among them.
o Where work done is intangible in nature for example, mechanical design, engineering and so on time wage is a more convenient method.
o The employees can calculate the wage bill in advance.
o In continuous or assembly line production, the pace of work is beyond the control of an individual worker. Time wage is therefore a better method.
Disadvantages
(i) The method provides no incentive for better performance as reward is not proportional to effort. It makes no distinction between efficient and inefficient workers
(ii) Guaranteed remuneration makes workers complacent
(iii) Calculation of labour cost per unit is difficult as the total wage bill does not change with volume of production
(iv) In the absence of an incentive to hard work, productivity of labour becomes low unless close supervision is used; thus cost of supervision is high.
(v) Control over labour cost becomes difficult and more payment may be made for lesser amount of work.
(vi) There is no basis for finding the merit by different employers promotions may have to be made on the basis of seniority. This may lead to deterioration in the morale of efficient and young employees.
Conditions under which time wage system is suitable
(i) Where units of output are non-measurable as in case of office work and mental work involving policy making.
(ii) When employees have little control over the quantity of output or there is no a clear cut relations between effort and output or in some machine paced or assembly line jobs
(iii) When delays in work are frequent and beyond the control of employees, that is, where output is uncertain and irregular.
(iv) When quality of work is especially important for example, in artistic furniture, fine jewellery and so on.
(v) When supervision is good and supervisors’ know what constitutes a fair day’s work.
(vi) Employees and trade unions strongly oppose incentive payments.
(vii) When workers are new and learning the job.
(viii) When collective e efforts of a group of persons are essential for completing the job.
(ix) If work is of a highly varied nature and standards of performance cannot be established.
(x) Where machinery and materials used are very sophisticated and expensive, that is, they need care.
2. Piece wage system
Under this method, remuneration is based on the amount of output or the amount of work done by a worker. One unit is considered as one piece and a specific rate of wage is paid per piece. In this case a worker is paid in direct proportion to his output. It is called payment by results.
Advantages
(i) There is a direct relation between effort and reward. Workers who work hard and produce more get more wages. This provides an incentive to increase productivity.
(ii) Ambitious and efficient workers provided ample opportunity to utilize their talent and increase their earnings and thereby improve their standards of living
(iii) The method is just and fair to all. Efficient workers get ample reward while the lazy ones are penalized. It prevents soldering on the job.
(iv) Management can distinguish efficient and inefficient workers for the purpose of promotion.
(v) Increase in productivity results in higher output and lower costs of production per unit.
(vi) The cost of labour per unit of output can be easily calculated as the wage bill varies in direct proportion to output.
(vii) As the workers themselves have a stake in maximization of efficiency, cost of supervision is low.
(viii) Workers are more likely to cooperate with the schemes of rationalization designed to improve efficiency of operation.
(ix) If the benefits of lower costs are passed to consumers in the form of lower prices or between quality the society as a whole starts to gain.
Disadvantages
(i) It is very difficult to fix piece wage rate. Employers often cut the piece rate when they find workers are producing large quantities.
(ii) The earnings of workers are not stable as they may suffer due to temporary delays or difficulties. They feel insecure and dissatisfied.
(iii) In order to maximize their earnings, workers work with excessive speed. This may affect their health. It also increases the wastage of materials and wear and tear of machinery.
(iv) Employees may not stress on quality so that rigid quality control becomes necessary.
(v) The system may create jealousy between efficient and inefficient workers. Trade unions do not like it as it affects their solidarity.
(vi) Detailed records of production have to be kept so clerical work is increased. The method is not practicable when contribution of individual workers cannot be calculated. For example construction works.
(vii) This method may lead to industrial disputes. Fixation of piece rate may create controversy. Workers resent loss of output and earnings due to breakdown if machinery, power failure, non availability of materials and such other factors beyond their control. Trade unions dislike piece wage system.
Conditions under which piece wage system is suitable
1. When work done by an individual worker can be measured accurately; for example production of standardized goods in the factory.
2. When the quantity of output depends directly upon the skill and effort of the worker.
3. Where the flow of work is regular and interruptions are minimal such as repetitive jobs.
4. Where quality and workmanship are not very important.
5. In large scale production involving heavy overheads (cost of production) and broad supervision. when competitive conditions and cost control requires that labour cost per unit b e fixed in advance.
6. When competitive conditions and cost control requires that labour cost per unit be fixed in advance.
7. Where methods of production are standardized and the job is of a repetitive nature
Comparison between time wage and price wage systems
|
BASIS OF COMPARISON |
TIME WAGE |
PIECE WAGE |
|
Basis of payment |
Time spent on the job |
Number of units produced |
|
Nature of payment |
Minimum payment to every worker |
No guaranteed minimum payment |
|
Link with productivity |
Wage not directly linked to productivity |
Wage directly linked with productivity |
|
Quality of work |
High |
Low |
|
Cost of maintenance |
Low |
High |
|
Need for close supervision |
High |
Low |
|
Attitude of trade unions |
They support it |
They dislike it |
3 Balance/Debt methods
This method is a combination of time and piece wage
system. The worker is guaranteed a time rate with an
alternative piece rate. If the wages calculated at piece rate exceed the time rate, the worker gets credit. On the other hand, if time wages exceed piece wages, the worker is paid time wage and the deficit is carried forward as debt to be recovered in future; for example
(i) the time rate is shs.500 per week the piece rate is shs.5 per unit. A worker produced 150 units. How much will he be paid
150 x 5 = 750 750 – 500 = 250
Time rate = 500
500 + 250 = 750
Payment = shs.750
(ii) time rate = shs.500 per week
piece rate – shs.5 per unit A worker produced 100 units 100 x 5 – 500 piece rate = 500 time rate = 500 payment = shs.500
(iii) time rate = 500 piece rate = 5 produced 80 units 80 x 5 = 400 piece rate = 400 time rate = 500 payment = shs.500
4. Single status schemes
· single status/staff schemes are those designed to harmonize the payment systems operating in an organization primarily by removing the distinction between the treatment of manual workers and white collar workers.
· This can be done by paying all the workers an annual salary paid monthly to completely revising the basis of manual workers condition of employment by introducing the same pension, holiday, sickness and other benefits as for white collar workers.
· This change can lead to improvement in manual workers conditions of work.
Advantages
a) The organization saves on administration costs.
b) Manual workers borrowing position is improved by having an annual salary.
c) Industrial relations may be well improved
d) Manual workers receive a wider range of benefits than previously.
e) The organization does not have to pay overtime to manual workers.
f) Wage drift is avoided since there no extra payment to be made.
g) Pay administration become simpler.
Disadvantages
(a) there is an increase in labour cost as a result of the improvement to manual workers conditions.
(b) There is less scope for management to make up short term production losses by introducing overtime working.
(c) Manual workers have to wait one month instead of one week before they are paid.
5. Companywide incentive schemes
Under this system, a bonus is paid to all employees on
The basis of productivity achieved within the business as a whole. Usually, the bonus payments are based on some key measurers of labour productivity. Unlike pay by result scheme piece rate which tend to encourage competition between employees. Companywide scheme rely on group collaboration. For example if increased output from a given number of employees lead to a reduction in unit labour cost then the savings will be pooled distribution to the employees on some agreed basis. Perhaps all the savings will be made available to employees or a major proportion (75% to participants and 25% to the company)
Advantages
(i) They encourage cooperation between employees and management
(ii) They encourage cooperation between employees
(iii) They produce significant cost savings through improved utilization of materials.
(iv) They avoid the difficulties involved in setting and establishing the performance standards of individuals.
(v) They use productivity measures which use cost accounting techniques rather than work.
(vi) They create an awareness at all levels of the interrelate nature of the production process.
(vii) They can be applied as much to indirect workers as to direct workers.
Disadvantages
it is not always clear how much a particular productivity measure reflects the contribution of labour cost rather than other factors.
(i) There is a remoteness of the incentive for the individual employee.
(iv) Skill based payment system
(v) This system link is pay with the acquisition of relevant skills and knowledge., it is especially applicable where flexible work practices involving multi=skilling are operated. Several firms in the manufacturing sector have introduced skilled based pay. An important pre-requisite of the skilled based pay is a clear set of job standards.
LESSON 3
By the end of the lesson the trainee should be able to;
(i) discuss the factors influencing remuneration
(ii) explain the principles of wages and salary administration a
(iii) describe various statutory deductions
Factors influencing remuneration
(1) Demand and supply of labour
Remuneration is the price paid for the services rendered by a worker. Forces of demand and supply of labour determine the on going wage rate. When the supply of labour is high, the wage rate is high and vice versa.
(2) Ability to pay = An organization’s ability to pay its employees is an important determinant of wage level. Ability to pay depends upon the profit earnings capacity of the organizations. Multi-national corporations pay relatively higher salaries due to their higher paying capacity.
(3) Labour Unions – Well organized trade unions exert pressure for higher wages and allowances. This pressure is exercised through collective bargaining, strikes and other methods. Salary levels in commercial banks are relatively high due to higher bargaining power of bank unions.
(4) Cost of living – due to inflation, the real wages decline affecting the purchasing power of workers. Therefore, dearness allowance is given according to changes in consumer price index. Labour agreements generally have a chance providing for automatic increase in pay as cost of living rises.
(5) Prevailing wage rates – While fixing wages, prevailing wages in the particular industry or region are taken into account. This is necessary to retain and attract qualified workers.
(6) Job requirements – Basic wages depend largely on the difficulty level and physical and mental efforts required in a particular job. The relative worth of a job can be estimated through job evaluation.
(7) Productivity – there is an increasing trend towards linking wage increases to gains in productivity and performance of wrkers. In some organizations, annual increment in wages is based on merit.
(8) State regulations = wage policy and loss of the government exercise a significant influence on wage levels. The government has enacted laws to protect the interests of the working class. No organization can violate the laws to protect the interests of the working class. No organization can violated the laws relating to minimum wages, dearness allowance, and equal pay for equal work and so on.
(9) Managerial Attitudes = the attitude of the top management may also influence the wage level. Desires to improve or maintain morale, to attract high caliber employees, to reduce turnover and to provide a high living standards of employee and so on. Therefore, wage structure is generally influenced by managerial attitudes in an organization.
Principles of wage and salary administration
The following guidelines should be followed in the administration of wages and salaries.
(i) Wage policy should be developed keeping in view the interest of the employees, the employer, the consumers, and the community.
(ii) Wage policy should be stated clearly in writing to ensure uniform and consistent application
(iii) Wage and salary plans should be consistent with the overall plans of the company. Compensation planning should be an integral part of financial p0lanning.
(iv) Wage and salary plans should be sufficiently flexible or responsible to changes in internal and external conditions of the organization.
(v) Management should ensure that employees know and understand the wage policy of the company. Workers should be associated in formulation and implementation of wage policy.
(vi) All wage and salary decisions should be checked against the standards set in advance in the wage policy.
(vii) Wage and salary 0lans should simplify the administrations process.
(viii) An adequate database and a proper organizational set up should be developed for compensation, determination and administration.
(ix) Wage policy and program should be reviewed and revised periodically in conformity with changing needs.
Role of job evaluation in determining remuneration
Job evaluation is the process of placing jobs in order of relative worth so that employees may be paid fairly. It is concerned with the demands and conditions of the job and not with the personal qualities of the individual who is occupying the job. Job evaluation plays the following role in determining remuneration;
(i) It provides a standard procedure for determining the work of a job.
(ii) It determines the rate of pay for each job which is fair and equitable in relation to other jobs in the organization.
(iii) It ensures that like wages are paid to all qualified employees to like/same jobs.
(iv) It assists managers in meeting day to day pay problems. This in turn contributes to the reduction of employees’ grievance, to higher employee productivity through high morale and to fewer turnover.
(v) It provides as realistic foundation for gearing company pay scales of competing companies
(vi) Useful controls over wage and salary costs can be greatly aided by job evaluation.
(vii) It provides a reasonable basis for personnel moves. Unless relative classes of jobs are established in the first place, managers will not know whether a personnel move represents a promotion or a demotion or a transfer.
Statutory Deductions
National Hospital Insurance fund (NHIF) Its main
Function is to collect contributions from all Kenyans earning an income of over shs.1,000. The fund pays hospital benefits to members and their declared dependants (spouse and children). While ensuring that Kenyans of all walks of life have access to quality and affordable health care. NHIF operates under the social principle that the rich should support the poor, the healthy should support the sick and the young should support the old. Formal employees contributions are deducted and remitted to the fund by the employers. Claims are submitted by the hospitals directly to NHIF after the contributors have been discharged from the hospital. The claims are examined by the fund to ensure validity before payment.
3. Widow and 0rphans Pension Scheme (WOPS)
It is a contributory scheme operated by the government which provides pension benefits to the widow and orphans of a diseased officer who was a member of the scheme. Before February 1993 it was compulsory for male pensionable officers to contribute to WOPS to provide for their widows and orphans. It became voluntary in 1993. The payment of a pension under WOPS commences upon the death of the contributor. The pension is first paid to the widow and in the even of the widow’s death/remarriage, the payment ceases and it will be paid to the orphans if any.
4. Pay as You Earn (PAYE)
It is used to collect income tax. As an employer, you have to deduct the tax from your employees if their earnings reach the earning limit. For the tax year 2010 – 2011, it was shs.8,490 per month. Income tax is applied to all the payments that an employee receives as a result of working.
5. National Social Security Fund (NSSF)
It was established in 1965 by an act of parliament. The fund was intended to serve as the first pillar of social security for Kenyan workers. It provides protection for its members against economic and social distress that would be caused by stoppage of work, sickness, unemployment, invalidity, old age and death. The scheme is financed entirely by the employer/employee contributions (monthly) set at 5% of wages based on a ceiling of shs.4000 per month. The benefits enjoyed under NSSF are;
a) Invalidity benefits – it is paid to a member who is certified as being permanently incapable of working. There is no age limit.
b) Age benefits = it is paid to a member who is 55 years old and no longer in employment. A lump sum made up of total contributions and interest earned over the contribution period is paid. Minimum interest according to the law is 2.5% per annum.
c) Emigration grant – it is paid to a member who is permanently leaving his country and there is no barrier in age.
d) Survivor’s benefits o- it is paid to eligible dependants of a deceased member