What are Wages : Meaning, System and Differences from Salary

What are Wages : Meaning, System and Differences from Salary

What are Wages: Salary vs Wages in 2022

Wages are one type of compensation received by workers. As is well known, workers will receive compensation after completing their duties within a certain period.

The compensation received by workers can be in the form of salary or wages. Most people may think that the two types of compensation are the same. There are differences in salary and wages, both in terms of understanding and system.

To understand it, let’s read the explanation below!

Understanding Wages

salary is the amount of money paid to workers for a fixed period. So, the company compensates the workers in the same time frame.

The most obvious example is employee salaries. When a person works as an employee, he will earn a monthly salary or commonly also called payroll.

Meanwhile, the notion of wages is money and various things that are paid as compensation for services or compensation for labor that has been expended to do a job.

In other words, wages are not always given in the form of money and are not given in a fixed time. Workers can receive wages in the form of other valuables such as gold. Sometimes wages are given in the form of food.

The time of giving is not always one month. For example, if the work is completed in three days, the worker may receive wages immediately.

Salary and Wage Difference

At least, there are six differences in salary and wages. Let’s look at the points below!

1. Employment Status
One of the salaries or wages is determined by employment status. Usually, companies provide salaries to permanent employees or contract employees.

Then, for casual workers, daily workers, seasonal workers, and part-time workers, companies generally provide wages.

2. Department
As is well known, in the company there are levels of positions according to the hierarchy in the organization. Based on this structure, of course, there are different levels of office with different rights and responsibilities.

Apart from being based on employment status, salary distribution also usually adjusts to the level of position. For example, middle to upper-level positions, such as managers, are sure to receive a salary.

However, quite a several employees with positions that are not too high receive compensation in the form of wages.

3. Working Time Range
Another point that becomes the difference between salary and wages is the work period. As mentioned earlier, salary is compensation which is usually given within one month.

On the other hand, the timing of wages tends to be variable depending on the length of time worked.

4. Amount or Amount Received
Another difference lies in the nominal received by workers. The amount of salary generally remains by the agreed work contract. Meanwhile, nominal wages tend to be variable and influenced by the quality and quantity of work.

5. Components
Generally, the salary received by employees is not only a salary, but also benefits, such as job benefits, health benefits, transportation allowances, and others.

On the other hand, wages are usually single, there is no additional nominal in the form of benefits.

6. Basis for Determining Compensation
There are different considerations in setting salaries and wages. Generally, the main basis for setting wages is company standards. Thus, a worker working for a multinational company may be paid by international standards.

Salaries can indeed follow company standards. However, the main basis for determining salaries is government policies and provisions, ranging from laws, government regulations, ministerial decisions, and so on.

The processing time required to complete a job also usually affects the nominal wages. In terms of salary, the time worked per job does not affect the amount of salary. However, total experience and years of service can affect salary levels.

Then, the level of complexity of the work is also one of the bases for determining wages. Generally, the more complex a job, the greater the wages received by workers.

For salary, the amount of responsibility which is usually closely related to the level of position is one of the bases for determining salary. Not only that, competence, expertise, and level of education are also often considered factors in determining salary.

Determination of the compensation received by workers needs to be regulated by a wage system. This system is a strategy or policy for setting wages.

There are several systems of determining wages in the world of work. In general, the system is organized based on the following points.

1. Wage System Based on Working Time
The first and most commonly applied wage system is the determination based on time worked. Wages can be calculated in hours, days, weeks, or months.

One example of daily wages is the wages received by factory workers or overtime wages which are calculated based on the calculation of hours.

2. Results-Based Wage System
Some companies calculate wages based on results. This system is commonly applied in industrial companies or manufacturing companies.

The company provides wages according to the production results achieved by each worker. The more a worker completes the production, the greater the wages he will receive.

In addition to manufacturing companies, MSME workers in the craft industry are also often given wages based on the results of the crafts they complete. Sometimes journalists are also paid a pay system based on results, namely according to the news they write.

Thus, the wages received by one employee by another may differ depending on the work result or productivity of each.

3. Volume Pay System
Unlike the two previous systems, piece rates are based on the volume of work agreed between the worker and the employer at the outset. Piece rate wages are the total wages of the work from the beginning until the work is completed.

With this agreement, there will likely be no additional wages beyond the initial agreement.

This system is widely applied in development projects. The workers involved are generally casual workers and the wages paid are the overall calculation for the construction work to completion.

The three types of systems are general management systems in determining wages. Even so, there are other systems such as the co-partnership wage system and premiums.

In a co-partnership system, wages are given to workers in the form of shares or company bonds. Companies that implement this system generally expect employees to be more productive because of ownership of the company.

Then, the premium system is the wages that workers may receive for working outside the norm. Examples of wages with a premium system, for example, working outside working hours, doing very dangerous work, or having special skills.

Also read: 9 Ways to Start a Business from Scratch, Pay Attention Here!

Wage Type
You already know the meaning, system, and examples of wages, now are the time to identify the types of wages. Here is the explanation.

1. Nominal Wages or Money Wages
Nominal wages are the amount of money paid to employees in cash as compensation for services or services by the agreement.

Because of this, nominal wages are often also called money wages because they are given in the form of money.

Usually, no extras or other benefits are added to this type of wage.

2. Real Wages
Real wages or real wages are wages that actually must be received by someone who is entitled to it. Determination of real wages is usually closely related to the purchasing power of the workers concerned.

Of course, this purchasing power is influenced by the number of wages received by workers and the cost of living required.

Unlike nominal wages, real wages are not always received in the form of money. Sometimes this type of wage is given in the form of facilities that are equivalent to the value of money that should be given.

3. Living Wages
It is not without reason that this type of wage is called a living wage, namely because this one wage must be relatively sufficient to cover the broad necessities of life.

This means, not only being able to meet basic needs, but also being able to complete family social needs such as payment of life insurance premiums, education funds, and others.

4. Minimum Wages or Minimum Wages
The minimum wage is the minimum wage that the employer must provide to the recipient of the work so that workers can meet their needs. Therefore, the cost of living needs to be considered in determining the minimum wage.

The objectives of applying the minimum wage are, among others:

  • Highlight the role of labor as a creative subsystem in a working system
  • Protecting working groups from unfair or unsatisfactory pay systems
  • Encouraging the provision of wages that are by the value of each worker’s work
  • Ensuring peace of mind at work

5. Fair Wages
As the name implies, fair wages are wages whose nominal value is considered quite reasonable by both employers and workers as compensation for services or labor for the company.

The amount of this fair wage, of course, varies and is in the range of the minimum wage and living wage. Fair wages are estimated to be sufficient to meet the needs of employees and their families.

Wage Form
Although wages are usually given in the form of money, Article 1601-p of the Civil Code regulates this matter and states that wages can be in other forms as follows.

  • Wages can be in the form of food, fuel, and lighting.
  • Work uniforms or uniforms.
  • Company results are determined for employees.
  • A nominal amount is given during the holiday period and others.

Now, regarding wages in the form of money, the Article states that wages must be paid with legal tender. If wages are determined in a foreign currency, the calculation is based on the exchange rate at the time and place of payment.

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