Base Compensation

Base Compensation

Base Compensation involves monetary benefits (in cash) to employees in the form of wages and salaries. The term ‘wage’ is used to denote remuneration to the workers doing physical or manual work. Wages may be based on hourly, daily, weekly or monthly basis. But if we talk about ‘Salary’, it is usually defined as a mean to compensate the office employees, foreman managers and professional and technical staff. It is generally paid on monthly or yearly basis.
Wages may be based on the number of units produced (i.e. piece wage rate system) or the time spent on job. But salary is always paid on the basis of time spent on the job. Both wages and salary constitutes a significant portion of the cost of business.
Basically, Base or primary compensation means the wage or salary, allowances and other benefits paid in cash to employees. It is the fixed sum of money paid as compensation to the employees every month or year.

Components of Base Compensation:
1) Basic pay- It depends on the pay scale or salary scale of the job. It is determined by demand for and supply of labour. For example: pay scale of rs.10,000-rs.500 means that an employee will get a basic pay of rs.10,000 per month and with the increment of rs.500 annually.
2) Dearness Allowance(DA)- It is paid to the employees to compensate them against inflation.
3) House Rent Allowance(HRA)-It is paid partly to meet the expenditure incurred by an employee on his housing accomodations.
4) City Compensatory Allowance(CCA)- It is paid to them to compensate for higher cost of living in cities and it differs from city to city.
5)Transport Allowance- It is paid to the employees to partly meet their expenditure on transport to and from there workplace.
6) other allowances- Some organisations also pay uniform, food and entertainment allowances to their employees.

Employer’s capacity to pay is an important factor affecting wages not only for the individual firm, but for the entire industry. Thus depends upon the financial position and profitability of the firm.

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