Calculation of Minimum Wages

Submitted to Ananth Phani Submitted byA.Chaitanya Roll-10 DFT III

Minimum Wage
A wage is compensation, usually financial, received by workers in exchange for their labour. Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees. Compensation is a monetary benefit given to employees in return for the services provided by them.

A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about the benefits and drawbacks of a minimum wage. Supporters of the minimum wage say that it increases the standard of living of workers and reduces poverty. Opponents say that if it is high enough to be effective, it increases unemployment, particularly among workers with very low productivity due to inexperience or handicap, thereby harming lesser skilled workers to the benefit of better skilled workers.

Minimum Wage LawMinimum wage law is the body of law which prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage. More than 90% of all countries have some kind of minimum wage legislation. Informal minimum wages Sometimes a minimum wage exists without a law. Custom and extralegal pressures from governments or labour unions can produce a de facto minimum wage. So can international public opinion, by pressuring multinational companies to pay Third World workers wages usually found in more industrialized countries. The latter situation in Southeast Asia and Latin America has been publicized in recent years, but it existed with companies in West Africa in the middle of the twentieth century.Blanket minimum wage levels for all industries could also be set as a fixed percentage of the GDP per capita or the income tax threshold of the nation. Considerations in fixing an initial minimum wage Among the indicators that might be used to establish an initial minimum wage rate are ones that minimize the loss of jobs while preserving international competitiveness. Among these are general economic conditions as measured by real and nominal gross domestic product; inflation; labour supply and demand; wage levels, distribution and differentials; employment terms; productivity growth; labour costs; business operating costs; the number and trend of bankruptcies; economic freedom rankings; standards of living and the prevailing average wage rate. In the business sector, concerns include the expected increased cost of doing business, threats to profitability, rising levels of unemployment (and subsequent higher government expenditure on welfare benefits raising tax rates), and the possible knock-on effects to the wages of more experienced workers who might already be earning the new statutory minimum wage, or slightly more.

Among workers and their representatives, political consideration weigh in as labour leaders seek to win support by demanding the highest possible rate. Other concerns include purchasing power, inflation indexing and standardized working hours. An analysis of supply and demand of the type shown in introductory mainstream economics textbooks implies that by mandating a price floor above the equilibrium wage, minimum wage laws should cause unemployment. This is because a greater number of people are willing to work at the higher wage while a smaller numbers of jobs will be available at the higher wage. Companies can be more selective in those whom they employ thus the least skilled and least experienced will typically be excluded.

Arguments in favour of Minimum Wage Laws Supporters of the minimum wage claim it has these effects:

Increases the standard of living for the poorest and most vulnerable class in society and raises average. Motivates and encourages employees to work harder. Stimulates consumption, by putting more money in the hands of lowincome people who spend their entire pay checks. Increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees. Decreases the cost of government social welfare programs by increasing incomes for the lowest-paid. Encourages people to join the workforce rather than pursuing money through illegal means, e.g. selling illegal drugs Encourages efficiency and automation of industry.

Arguments against Minimum Wage Laws Opponents of the minimum wage claim it has these effects:

As a labour market analogue of political-economic protectionism, it excludes low cost competitors from labour markets, hampers firms in reducing wage costs during trade downturns, and generates various industrial-economic inefficiencies as well as unemployment, poverty, and price rises, and generally dysfunctions. Hurts small business more than large business. Reduces quantity demanded of workers, either through a reduction in the number of hours worked by individuals, or through a reduction in the number of jobs. May cause price inflation as businesses try to compensate by raising the prices of the goods being sold. Benefits some workers at the expense of the poorest and least productive. Can result in the exclusion of certain groups from the labour force.

MINIMUM WAGES ACT, 1948

The concept of Minimum Wages was first evolved by ILO in 1928 with reference to remuneration of workers in those industries where the, level of wages was substantially low and the labour was vulnerable t o exploitation, being not well organised and having less effective bargaining power. The need for a legislation for fixation of minimum wages in India received boost after World War II when a draft bill was considered by the Indian Labour Conference in 1945. On the recommendation of the 8th Standing Labour Committee, the Minimum Wages Bill was introduced in the Central Legislative assembly on 11.4.1946 to provide for fixation of minimum wages in certain employments. The Minimum Wages Bill was passed by the Indian Dominion Legislature and came into force on 15th March, 1948. Under the Act both State and Central Government are Appropriate Governments for fixation/revision of minimum rates of wages for employments covered by the Schedule to the Act. The Central Government is responsible for fixation and revision of minimum wages for the unskilled workers in scheduled employments of Central Sphere. The minimum rates of wages also include Special Allowance ( Variable Dearness Allowance) linked to Consumer Price Index Number which are revised twice a year effective from April and October. The rates of wages once fixed are revised at an interval not exceeding of five years. The minimum wages were last revised in 1994, under Central sphere. The minimum wages in various mines as well as constructions, laying of underground cables etc. in the central sphere have been revised vide gazette notifications S.O. no. 9(E) dated 3.1.2002 and S.O. no. 113(E) dated 28.1.2002respectively.

Factors Affecting Salary and Wage Level

I/ Based on work: Work is the deciding factor that affects the salary level. Most of the companies pay attention to the significance of a specific work. There are many methods for evaluating work, but how to use methods such as job description table to analyze and evaluate work should be in a scientific and effective way. The work factors that need to be analyzed are: 1. Skills and abilities: a) The demand of mental labour. b) The complexity level of the work. c) Individual necessary qualifications. d) Making decision skill. e) Management skill. f) Social knowledge necessary for the work. g) Harmonization skill. h) Ability to perform work details. i) The level of Craftsmanship. j) Creativity ability. k) Innate ability. l) Experience. 2 Responsibility to the following matters: a) Money. b) Loyalty. c) Decision making. d) Work management. e) Public relation. f) The quality of work performance. g) Operating assets. h) Information secret. i) Policy making. 3. Effort in working: a) Mental work requirement b) Physical work requirement. c) The pressure of work. d) The level of work detail required.

4. Working conditions: 1. Working environment. 2. Risks. II/ Based on each employee. 1. Their working productivity in working to meet the rate of progress. 2. Experience. 3. Seniority. 4. Ability to get promotion. 5. Individual preferences. 6. Other factors III/ Company organizational environment: 1. The business policy, strategy of the company. 2. Company culture: for example: some companies emphasize on creativity, they are willing to offer a high salary for creativity work. 3. Company financial status. 4. Company organizational structure: companies with many intermediate department levels normally have many correlative levels of salary. IV/ Labour market: 1. Official laws on wage and salary, labor contract, payment time, wage payment delay, working insurance, and so on. 2. Peoples standard of living in the areas where the offices of the company are. 3. Peoples living and consuming customary 4. The average wage rate in the labour market of similar work.

Calculating Minimum wage for an Operator in a Garment IndustryAn operator in a garment industry who is responsible for operating machineries plays an important role in over-all productivity by contributing in maintenance and operation of manufacturing technologies. An operator can be of three types1. Skilled- An operator who has minimum basic skills or experience required to operate an equipment or machine. 2. Semi-skilled- An operator possessing some skills but not enough to do specialized work. 3. Unskilled- They are normally those who work on instructions and have little or no skills. In most cases, Operators are employed on hourly basis i.e they are given wages. Operators must be paid the Minimum Wages for hours spent: at work and required to be working or on standby near workplace (but not on rest breaks)

when kept at the workplace but unable to work because of machine breakdown travelling on business during normal working hours training or travelling to training during normal working hours awake and working, during sleeping time Sleeping time means any time when you are allowed to sleep if your employer arranges for you to sleep at or near where you work and provides you with suitable facilities for doing so. They dont need to be paid the Minimum Wages for hours spent:

travelling between home and work away from work on rest breaks, holidays, sick leave or maternity leave away from work because of industrial action

Once the number of hours has been determined through above method, the legislation can be referred to for the minimum wages per hour of the operator in the given working conditions in that region for calculating the minimum wage.