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Revision: Staff Remuneration Business Studies ISC (Commerce) Class 12 CISCE

Definitions [2]

Define remuneration.

Remuneration refers to the wage or salary paid to workers in cash or kind in consideration of the services rendered by them. Wages help the business to attract, retain and motivate efficient workers. A good system of remuneration should be simple, equitable, economical and flexible.

Definition: Remuneration

The term 'remuneration' refers to the wage or salary paid to workers in cash or kind in consideration of the services rendered by them.

Key Points

Key Points: Concept of Staff Remuneration

Remuneration means the wage or salary paid to employees in cash or kind for the services rendered.
Wages help to attract, retain, and motivate efficient workers in an organisation.
Remuneration affects employees’ attitudes, behaviour, productivity, and performance.
Wages are a major part of production cost and influence profits and competitive strength.
A good remuneration system should be simple, fair, economical, flexible, and provide security and motivation to employees.

Money Wages and Real Wages

Money wages refer to the amount of wages paid to an employee in terms of money (daily, weekly, or monthly).
Real wages refer to the purchasing power of money wages, i.e., the quantity of goods and services that wages can buy.
When the price level rises (inflation), the purchasing power of money decreases, and real wages fall.
An increase in money wages does not always mean an increase in real wages if prices rise faster.
Dearness Allowance (D.A.) is given by the Government to reduce the effect of inflation, but it may not fully maintain real wages.

Key Points: Methods of Wage Payment> Time-Rate System

There are two main methods of wage payment: Time-Rate System and Piece-Rate System.
Under the Time-Rate System, wages are paid based on the time spent on the job, not on output.
Wages are calculated as: Wages = Time Spent × Rate per Unit of Time.
The system is simple, provides income security, and ensures better quality of work.
It reduces wastage and is accepted by trade unions.
The system does not reward efficiency, leading to lack of motivation and possible inefficiency.
It is suitable where quality is important, output cannot be measured easily, or work is machine-paced or group-based.

Key Points: Employee Provident Fund (EPF)

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 provides provident fund, pension, and other retirement benefits to employees.
Every employee is eligible to become a member of the Provident Fund (PF) scheme.
Under the contributory scheme, both employer and employee contribute monthly to the fund.
The accumulated amount with interest is paid to the employee on retirement, resignation, or death.
Employees can take advances or partial withdrawals for purposes like house construction, education, marriage, illness, or the purchase of a car.

Key Points: National Pension System (NPS)

The National Pension System (NPS) is a retirement savings scheme introduced by the Government of India.
It provides long-term monthly pension to employees after retirement and to their family after death.
NPS has two tiers: Tier I (mandatory and non-withdrawable) and Tier II (optional and withdrawable).
Pensioners also receive dearness allowance as announced by the Government.
Income tax deductions are allowed on contributions made to NPS, subject to prescribed limits.

Key Points: Difference Between Gratuity and Provident Fund

Basis	Gratuity	Provident Fund
Contribution	No employee contribution	Both employer and employee contribute
Amount	15 days’ wages for each year of service	Total accumulated amount with interest
Investment	No specific investment	Amount is invested and earns interest
Payment	Paid only at retirement	Can be partially withdrawn during service

Key Points: Туpes of Leaves

Employees are granted different types of leaves such as Casual Leave, Medical Leave, Earned Leave, Maternity Leave, Paternity Leave, Study Leave, and Leave Without Pay.
Casual Leave is given for short periods (8–12 days yearly) and does not affect salary.
Earned Leave is credited at 15 days twice a year and can be accumulated up to 300 days.
Maternity Leave (180 days) and Paternity Leave (15 days) are granted with full pay and are not debited to the leave account.
Study Leave is granted for higher studies in public interest, while Leave Without Pay is given when no other leave is available and no salary is paid.

Key Points: Encashment of Leave

Leave encashment means payment in cash for accumulated earned leave at the time of retirement.
An employee earns 15 days of earned leave for every completed year of service.
Earned leave can be accumulated up to a maximum of 300 days.
At retirement, the employee is paid for the accumulated leave based on the last salary drawn.
Leave encashment provides financial benefit and security to employees after retirement.

Key Points: Methods of Wage Payment> Piece-Rate System

Under the Piece-Rate System, wages are paid based on the number of units produced, not on time spent.
Wages are calculated as: Wages = Number of Units Produced × Rate per Unit.
The system provides strong motivation as reward is directly linked with effort and output.
It reduces the need for supervision and helps in easy calculation of labour cost per unit.
Quality of work may decline as workers focus more on quantity than quality.
It creates income insecurity as earnings depend on output and no minimum wage is guaranteed.
The system is suitable where output can be easily measured, work is repetitive, and quantity is more important than quality.

Difference Between Time-Rate and Piece-Rate System

Basis	Time-Rate System	Piece-Rate System
Basis of Payment	Based on time spent	Based on units produced
Link with Efficiency	Not linked to efficiency	Directly linked to efficiency
Quality	Quality tends to be high	Quality may be low
Supervision	Close supervision required	Less supervision required
Security	Provides income security	Creates income insecurity
Labour Cost	Difficult to calculate per unit cost	Easy to calculate per unit cost
Suitability	Suitable where quality is important	Suitable where quantity is important

Key Points: Wage Records

Wage records are accurate and up-to-date records of wages and salaries payable or paid to employees.
Proper wage records ensure transparency, correctness, and convenience in wage calculation.
A payslip shows details of earnings, deductions, and net pay of an employee.
Payslips help employees understand the full break-up of their salary.
A payroll is a wage sheet containing details of pay of all employees in the organisation.
Payroll includes fixed data (basic pay, deductions), balances brought forward, and current data (bonus, overtime).
Nowadays, payroll and payslips are prepared using computers for accuracy and efficiency.

Key Points: Group Insurance

Group Insurance provides insurance cover to a group of employees under one master policy.
It covers employees as long as they remain in the service of the employer.
Premium is usually paid jointly by employer and employees at a flat rate.
In case of death or injury, the claim amount is paid to the employee or nominee.
Group insurance includes Group Life Insurance and Group Medical Insurance, and it is economical and beneficial for employees.

Key Points: Gratuity

Gratuity is a terminal benefit paid to an employee on retirement, resignation, death, disablement, or superannuation under the Payment of Gratuity Act, 1972.
An employee must complete at least 5 years of continuous service to be eligible, except in cases of death or disablement.
Gratuity is calculated at 15 days’ last drawn salary for each completed year of service (7 days for seasonal establishments).
The employer must pay gratuity within 30 days of it becoming due, otherwise interest is payable.
The maximum gratuity limit has been increased from ₹10 lakh to ₹20 lakh under the Act.