WHAT is the difference between ‘wages’ and ‘salary’? Since the former term is used under various labour statutes, the compensation paid to the lower levels of management hierarchy covered by the law, is referred to as ‘wages’. The terms of employment for those doing jobs that entail greater responsibility refer to such compensation as ‘salary’. However both can be considered synonymous.

There is much literature on the subject of fixing salaries in accordance with the kind of work performed or an individual’s contribution to an organisation’s goals. Initially, each level of the ladder in an organisation is determined by a scientific system of job evaluation, which is followed by fixing a salary based on the input of each employee.

The latter exercise provides a figure for a monthly salary, which is divided into various components including basic salary, house rent allowance, conveyance allowance etc. These components of an individual’s salary are based on certain factors. Around two decades back, some of the allowances such as the two named above and the annual payment of leave fare assistance (vacation bonus), were exempted from tax. In order to provide full benefit to their employees, organisations would fix a substantial amount of their monthly salary as house rent allowance, which was commonly 45 per cent of the basic salary. This relief to employed persons was withdrawn by the government a long time back and since then the tax is levied on the whole salary.

The salary structure of progressive companies usually comprised the basic salary and a maximum of two or three allowances. This system fitted into the requirement of employees who were interested only in the gross salary and not as to how it was arrived at.

Trivial amounts of the cost of living allowance makes salaries seem absurd.

This system was operating smoothly until the government intervened through the promulgation of the Employees’ Cost of Living (Relief) Act, 1973. Primarily introduced to provide relief to low-paid workers, it was subsequently extended to all categories of employees in an organisation, regardless of the amount they drew. The increases allowed by the respective governments under this act from time to time are referred to as the cost of living allowance or COLA.

There was no need to induct COLA as the original purpose could have been effectively achieved by increasing the minimum wages with the same amounts through the Minimum Wages for Unskilled Workers Ordinance, 1969, which was already in existence.

But since a beginning had been made, successive governments were tempted to add to the COLAs. This unnecessary interference by the government in the domain of employers to fix salaries of employees not only kept the former under strain all the time but also spoiled the salary structure.

In the case of unionised staff some of these COLAs could be offset under the law against the increases given by employers through collective labour agreements. Trivial amounts of COLAs given regardless of salary made the compensation package of management employees appear absurd. These COLAs were not burdensome for employers in general but were irritating.

The period August 1973 to December 2000 saw a total of 12 COLAs ranging from Rs25 to Rs300 per month. Eight were linked with a prescribed wage ceiling, which has now become redundant while four amounting to Rs475 per month were given regardless of the wages drawn. Some of the companies have merged these COLAs with the basic salaries of their employees through collective labour agreements, while the rest continue to pay them as such.

As if this were not enough, the respective provincial governments also legislated the Em­­­p­­l­­oyees’ Sp­­ecial Allowance (Payment) Acts, allowing special allowances ranging from Rs50 to Rs200 per month from 1986 to 1995. While the special allowances linked with the wage ceiling have now become superfluous, those given irrespective of the wages drawn are: Sindh Rs300; Punjab Rs200; Balochistan Rs200; dearness allowance of Rs200 given by the then NWFP government effective December 1990, is no longer operative as it was subject to the wage ceiling of Rs4,200 per month.

In addition there are two major wage laws named the Payment of Wages Act, 1936 and the Minimum Wages Ordinance, 1961, which have now been devolved to the provincial governments. Since both the COLA and special allowance acts have become meaningless, they should be repealed after merging the existing nominal amounts of allowances with the basic salary of employees.

The two statutes of 1961 and 1969 relating to fixation of the minimum wage, should be merged with the Payment of Wages Act. These steps will remove the irritants in fixing an employee’s salary and make the process simple for employers.

The writer is an industrial relations professional.

Published in Dawn, April 18th, 2017