Wage and salary administration is a collection of practices and

procedures used for planning and distributing company-wide

compensation programs for employees.
These practices include employees at all levels and are usually
handled by the accounting department of a company. Wage and
salary administration procedures usually involve activities such as
calculating the number of hours worked in order to determine
compensation, administering employment benefits, and answering
payroll questions from employees.
At the majority of companies and organizations, wages are usually
dispersed to all employees on a specific date.
Paid to blue-collar employees; paid
daily, weekly or monthly; paid to jobs
which can be measured in terms of
money’s worth.
Paid to white-collar employees;
paid in monthly basis; paid to
employees whose contribution
cannot be measured easily.
 To have a scientific, rational and
balanced wage and salary structure.
 In a salary administration, the employer
should not feel that the employees are
paid more than they deserve and the
employees should not feel that they are
underpaid.
 One of the most important functions of
human resources is the payment of the
proper salaries and the wages to all company.
The pay that the employees receive from
their employer is the very reason for their
being in the job.
 The function of the payroll in a company is
usually the wage and salary administration
and it is carried out by the Human Resources
Department.
1. Classical WageTheory
This theory is based upon the
fundamental concept that labor is a
commodity and we have to pay the
price according to supply and demand.
The greater the supply, the lower the
price and the greater the demand the
higher the price
2. The Just Wage Theory of st.Thomas Aquinas
 A just wage is describe as wage which permits the
recipient worker to live in a manner in keeping with
his position in the society. This doctrine is related to
social organization based on the status of the
individual in the social organization.
 Minimum wage law- The just wage theory of St.
Thomas Aquinas is the basis in the implementation
of this law. While it could not be consistent with the
minimum requirements of decent living in the social
organization, it responds to the basic requirements
for subsistence living.
3. The Wage fund Theory
This theory is expounded by John Stuart Mil and his
followers based on the Malthusian theory of population
and the law of diminishing returns.
Smith defined this theoretical fund as the surplus or
disposable income that could be used by the wealthy to
employ others.
The total amount paid in wages depended upon a
number of factors, including the bargaining power of
laborers.
4. Bargaining Theory of John Davidson
 This theory proposes that the labor is a
commodity like anything that could be bought at
a price by the user.
 It can explain wage rates in short-run situations
(such as the existence of certain wage
differentials), over the long run it has failed to
explain the changes that are observed in the
average levels of wages.
5. The Marginal Productivity Theory
This theory offers the best explanation of wages in modern
industry.
The supply labor in any given economy on the whole depends
upon the total number of individuals who wants to work and
are available for work.
holds that employers will tend to hire workers of a particular
type until the contribution that the last (marginal) worker
makes to the total value of the product is equal to the extra
cost incurred by the hiring of one more worker.
the marginal-productivity analysis cannot determine wages
precisely; it can show only the positions that the union and
the employer (as a monopsonistic, or single, purchaser of
labor services) will strive to reach, depending upon their
current policies.
6. The Purchasing Power Theory
 This theory tries to establish the relationship between wages
and the level of economic activity. The level of economic
growth is dependent upon the savings generated because
the increase in wage creates a surplus that propels growth.
It concerns the relation between wages and employment and
the business cycle.
John Maynar Keynes Argued:
 1. depressional unemployment could not be explained by
frictions in the labour market that interrupted the economy’s
movement toward full-employment equilibrium
 2. the assumption that “all other things remained equal”
presented a special case that had no real application to the
existing situation involves psychological and other subjective
considerations as well as those that may be measured more
objectively.
7. LaborTheory of Value
 It emphasizes that labor is the source of all products
and that without this important component, there
could be no goods for human consumption.
 The labor theory of value (LTV) was an early attempt
by economists to explain why goods were exchanged
for certain relative prices on the market. It suggested
that the value of a commodity could be measured
objectively by the average number of labor hours
necessary to produce it.
8. The Standard of Living Theory of Wages
 A recent development in the labor market is the theory of
living wages that means that wages should be based on
the cost of living.
 Standard of living refers to the bare necessaries of life and
also education, and recreation to which the worker is
habituated.
 . This theory gives importance to the efficiency and
productivity of the worker.
 When workers are paid a high wage rate for a
considerable period of time, they become accustomed to
a high standard of living and they will try to maintain the
same high standard of living.
Wage and salary structure
 The hierarchy of jobs to where
the pay rates are attached.
1. Affects the workers’ and standard living
2. Eases the recruitment and maintenance of an
effective labor force.
3. Develops employee morale and increases work
efficiency.
4. Represents cost and competitive advantage in the
industry.
5. Helps in preparing budgetary allocations.
6. Eliminates pay distortions and inequites in employee
compensation.
7. Establish an equitable salary range for various jobs.
 The design of the wage and salary
structure is the establishment of job
classes and rate ranges. All jobs within a
class are treated in the same way for
purposes of economical administration.
 When employees’ salaries fall below the
minimum of the pay grade for the job.
 The decision to bring salaries to the minimum
of the grade should be based on the
employees; performance
 Situation whereby the employee with
high seniority is either so competent or
has received so many increases that his
salary is above the maximum of the pay
grade.
 This can be handled inn two-ways:
1. Review the performance of the employee.
2. If the performance review reveals the
employee is not worthy to be promoted and
such salary increase was discreetly earned
some obvious reasons, then the employee
will not get the normal merit increase.
 What is Wage Payment?
 It is the way of giving financial compensation to
the workers for the time and effort invested by
them in converting materials into finished
products.
 The main purpose of a formal wage and salary
management plan is to have a systematic method
of payment to ensure that employees receive a
fair wage and salary for the work they perform.
By the time worked
By the Amount of Work
Produced
1. By the time worked – in this method, wages are computed in terms
of unit of time, it is common to pay workers by the day and the term
day-work was adopted.
 H x R =W
In which: H = Hours Actually Worked
 R = Rate per hour in Pesos
 W = Total Wage earned
Payment on the basis of timed worked is more satisfactory under
the following conditions:
 1. Employees have little or no control over how much work they
produce.
 2. There is no clear cut relationship between the effort made to
produce the work and the amount of work produced.
 3. Work delays occur often and are beyond the employee’s control.
 4. Quality of work is very important
 5. Units of work produced cannot be distinguished and cannot be
measured.
2. By the amount of work produced – earning depends on how much
work the employee completes or on a related factor, such as the quality
of work. This method of paying wages is called an incentive wage plan.
The most common incentive plan is called piecework. Piecework salaries
are determined by the number of piece value that is called piece rate.
 N xU =W
In which N = Number of units produced
 U = Rate per unit in Pesos
 W = Wages earned per day or per week
Payment by Piecework is satisfactory under the following conditions:
 1. When a unit of completed work can be measured easily;
 2. When there is a clear relationship between a workers’ effort and
the result of his effort;
 3. When the quality of work is less important than quantity, or when
quality standards are uniform and measurable;
 4. When the flow of work is regular, breakdowns are few, and jobs
follow a standard procedure with interruptions.
 Other Information Related to Wages
1. The wage and salary plan must be easily
understood.
2. Salaries in the wage plan should be easily
computed.
3. Salaries should be made relevant with the
effort.
4. Incentive wage plans should provide
payment for incentive earnings to
employees soon after they have been
earned by efforts exerted to reach
standards.
5. The method of payment should be stable
and unvarying.
All workers required to work beyond eight hours in one
day workday is entitled to overtime pay. The basis of
overtime pay is found in Article 87 of the Labor Code.
 ART. 87. Overtime work. - Work may be performed
beyond eight (8) hours a day provided that the
employee is paid for the overtime work, an additional
compensation equivalent to his regular wage plus at
least twenty-five percent (25%) thereof. Work
performed beyond eight hours on a holiday or rest
day shall be paid an additional compensation
equivalent to the rate of the first eight hours on a
holiday or rest day plus at least thirty percent (30%)
thereof.
Overtime Pay is the additional compensation
payable to employee for services or work
rendered beyond the normal eight hours of work.
Overtime Work any work performed beyond the
normal 8 hours of work in one workday is
considered as overtime work.
Workday is the consecutive 24-hour period
which commences from the time the employee
starts to work and ends at the same time the
following day.
 Overtime Pay Rates depend upon the day
the work is performed, whether it is ordinary
working day, special day, holiday or rest day.
Computing Pay for Work Done on
 A Regular Day (basic daily rate = monthly rate
x number of months in a year (12) / total
working days in a year)
 A Special Day (130% x basic daily rate)
 A Special Day, which is also a scheduled Rest
Day (150% x basic daily rate)
 A Regular Holiday (200% x basic daily rate)
 A Regular Holiday, which is also a scheduled
Rest Day (260% x basic daily rate)
Computing Night Shift Premium where Night
Shift is a Regular Work

 Ordinary Day (110% x basic hourly rate)

 Rest Day, Special Day or Regular Holiday
(110% of regular hourly rate)
On Ordinary Days
 Number of hours in excess of 8 hours (125% x
hourly rate)
On a Rest Day, Special Day, or Regular Day
 Number of hours in excess of 8 hours (130% x
hourly rate)
On a Night Shift
 Ordinary Day (110% x basic hourly rate)
 Rest Day, Special Day or Regular Holiday
(110% x overtime hourly rate)