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Salary and wage administration is the process of compensating an organization's employees in accordance with accepted policy and procedures. An important component of a successful organization's policy for administering salaries and wages is monitoring and evaluating all employees' compensation to ensure that they're being paid appropriately, both with respect to others in the same organization and to the marketplace as a whole. This process is often an integral function of the organization's human resources department, but in general, the larger the organization, the more likely is is that it will be handled by a separate department.
The first element of salary and wage administration, the periodic payroll, is a critical component of any organization's functioning. If payroll is incompetently processed, the employer itself could conceivably collapse. Employees' personal budgets and plans are contingent upon getting paid regularly, and if compensation is late, short, or missing even a single time, morale is severely affected, as is confidence in the employer's stability. Whether an employer utilizes the services of a third-party payroll service or handles all payroll functions internally, it will usually devote significant resources to making sure that employees are paid the right amount on time.
The second element of salary and wage administration — monitoring and evaluating employees' compensation — is an ongoing function. This includes evaluating the elements of each job in the organization and classifying it according to a number of different criteria, including the nature of the work itself, the amount of supervision necessary, the physical exertion normally associated with the job, and the amount of training necessary to do the job proficiently. The underlying idea is to determine, as nearly as possible, the value of each job to the employer, and compensate employees accordingly. From time to time, especially in the absence of collective bargaining, the results of this monitoring and evaluation process will result in adjustments being made to wages and salaries. In a collective bargaining environment, these evaluations will be important in determining any such adjustments, although other considerations may affect adjustments to wages and salaries.
In the United States, jobs are also evaluated as to whether or not they're exempt from wage-and-hour laws relative to overtime pay. Most production and clerical jobs, for example, are considered non-exempt; that is, even if pay is administered on a weekly basis and called salary, from a legal point of view, the jobs are considered to be hourly. When a non-exempt worker works in excess of the statutory requirements, usually 40 hours in a calendar week, they must be paid a premium in addition to their regular hourly pay. Most executive and supervisory workers, and some higher-level clerical staff, are considered exempt, which means that they're paid a flat rate every pay period regardless of the actual number of hours worked. In general, exempt employees are paid more than non-exempt. The US Department of Labor has specific tests employers can apply to every job to determine if it's properly classified as exempt or non-exempt.
Classification of jobs is only one element of the ongoing evaluation process that's an important component of salary and wage administration. Employers need to maintain a competitive edge in the marketplace, and one way to do so is to employ the very best people. Savvy employers will strive to maintain a competitive edge with respect to compensation because they understand that their employees are constantly on the alert for better opportunities, and the total compensation package is one of the most important elements of an employee retention strategy. Employee retention, in turn, is an important responsibility of those responsible for salary and wage administration.
Much like in buying a car or a house, employees today can be armed with more knowledge about average salaries, job descriptions and educational and work experience requirements than ever before.
Hopefully, this means that salary and wage administrators hold true to the data in determining pay scales and individual salaries, leaving less room for favoritism and other biases that historically resulted in pay scale discrepancies.
At the same time, administrators can benefit from readily available salary information because they can point to industry norms when employees make salary recommendations or ask for raises.