ILO is a specialized agency of the United Nations

Q&As on Business, Wages and Benefits

Document | 01 February 2012


Wage-setting process

Question: Do international labour standards provide that wages should be a subject of negotiations?

Answer: Collective bargaining is a voluntary process used to determine terms and conditions of work and regulate relations between employers, workers and their organisations, leading to a collective agreement.[1]

Collective bargaining is a fundamental right.[2]

The ILO Committee on Freedom of Association has concluded that wages, benefits and allowances may be subject to collective bargaining[3].

Collective bargaining can take place at the enterprise level, at the sector or industry level, and at the national or regional level. It is up to the parties themselves to decide at what level they want to bargain. ILO standards and principles regarding collective bargaining emphasises the voluntary nature of collective bargaining, and so there should be no compulsion to bargain, or legal barrier to bargain, at any specific level of the economy. A refusal by a union or employer(s) to bargain at a specific level is not an infringement of freedom of association.

[1]Several ILO conventions set out a framework for collective bargaining in practice: the Right to Organise and Collective Bargaining Convention, 1949 (C98) (see particularly Article 4); the Freedom of Association and Protection of the Right to Organise Convention, 1948 (C87); the Workers' Representatives Convention, 1971 (C135); and the Collective Bargaining Recommendation, 1981 (R143).
[2]See, ILO Declaration of Fundamental Principles and Rights at Work, 1998, paragraph 2(a)
[3]ILO Digest of decisions and principles of the Freedom of Association Committee of the Governing Body of the ILO, Fifth (revised) edition, ILO, Geneva, 2006. See paragraph 913

Question: What does ILO consider to be good practice concerning wages and collective bargaining?

Answer: The MNE Declaration gives guidance on good practice concerning wage setting. “When multinational enterprises operate in developing countries, where comparable employers may not exist, they should provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy basic needs of the workers and their families.” [1]

The MNE Declaration encourages home and host governments to promote collective bargaining between MNEs and their workers: “Governments, especially in developing countries, should endeavour to adopt suitable measures to ensure that lower income groups and less developed areas benefit as much as possible from the activities of multinational enterprises.”[2] And “measures appropriate to national conditions should be taken, where necessary, to encourage and promote the full development and utilization of machinery for voluntary negotiation between employers or employers' organizations and workers' organizations, with a view to the regulation of terms and conditions of employment by means of collective agreements.”[3]

[1]ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, paragraph 34
[2]Ibid, paragraph 35.
[3]Ibid, paragraph 50.


Basic safeguards of wages

Question: According to ILO standards, is there a maximum portion of the wage that can be variable (conditioned on output)?

Answer: The international labour standards do not set a particular means for calculating payment. The prupose is to allow flexibility in establishing and calculating wages, subject to the following basic safeguards to protect workers from abusive practices:

Adequacy of wage: The minimum wage paid (whether a fixed wage or piece rate) should be adequate to meet the needs of workers and their families[1], taking into account, as far as possible and appropriate in relation to national practice and conditions:

  • the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups;
  • economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment[2];
  • changes in the cost of living and other economic conditions.[3]

ILO has not specified what reference points to use in determining whether a minimum wage is adequate for meeting the basic needs of a worker and his or her family. Instead, the ILO advocates social dialogue, in particular collective bargaining, for determining wages at sector level and tripartite consultations for setting minimum wages nationally or extending collective bargaining agreements.

The Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration) is the ILO normative instrument addressed specifically to enterprises. Concerning wages, ILO guidance to enterprises encourages multinational enterprises to ensure that wages are sufficient to meet the needs of the worker and his or her family. Specifically, MNEs should provide wages and benefits “not less favourable” than those offered by “comparable employers in the country concerned.”[4] If no comparable employers exist, companies should “provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy basic needs of the workers and their families.”[5] In addition, the MNE Declaration stresses the valuable role of collective bargaining in determining conditions of employment[6].

Payment in legal tender, made directly to the worker: Wages payable in money should be paid only in legal tender and paid directly to the worker. Payment should not be made in the form of promissory notes, vouchers or coupons.[7] Workers must be free to dispose of their earnings as they choose, although voluntary thrift may be encouraged. If permitted by national laws or regulations, collective agreements or arbitration awards, wages may be partially paid in the form of allowances in kind where payment in the form of such allowances is customary or desirable, provided that they are appropriate and beneficial. The value of any payment in kind should be assessed at reasonable market prices[8].

Transparency of payment calculation: Payments should be transparent, showing clearly the gross wages, any deductions taken and for what purpose, and net wages due. Deductions from wages should occur only if prescribed by national laws or regulations or fixed by collective agreement or arbitration award. Deductions for loss or damage to goods should be made only in cases where it has been proven that the worker is responsible.[9] Workers should be informed in writing of any deductions made[10]. No deductions should be made for the purpose of obtaining or retaining employment, paid either to the employer or an intermediary.

Regularity of payment: Wages should be paid regularly. In case of piece rate payment systems payments should be not less than twice a month. Adequate records should be kept[11]. Upon the termination of a contract of employment, the worker should be paid a final settlement of all wages due within a reasonable period of time having regard to the terms of the contract[12].

Equal pay for work of equal value: Rates of remuneration should ensure equal remuneration for men and women workers for work of equal value[13].

Limits and conditions for deductions for provision of commodities or services by the undertaking: Any commodities sold or services provided by the undertaking should be provided at a reasonable price. Stores established and services operated by the employer should not be operated for the purpose of securing a profit but for the benefit of the workers concerned. There should be no coercion involved in the purchase of goods or services.[14]

[1]Minimum Wage Fixing Convention, 1970 (No. 131) Article 3(a).
[2]Convention No. 131, Article 3
[3]Recommendation No. 135, paras. 3 and 11
[4]Ibid, para. 33
[5]Ibid, para. 34
[6]Measures appropriate to national conditions should be taken, where necessary, to encourage and promote the full development and utilization of machinery for voluntary negotiation between employers and employers’ organizations and workers’ organizations, with a view to the regulation of terms and conditions of employment by means of collective agreements.” MNE Declaration, para. 50
[7]C. 110, Article 26 and 28
[8]C. 110, Article 27
[9]R. 110, paragraph 25
[10]C. 110, Article 31 and 32
[11]C. 110, Article 33 and 35; R. 110, paragraphs 9-18
[12]C. 110, Article 34
[13]R. 110, Paragraph 27; see also Equal Remuneration Convention, 1951 (No. 100)
[14]C. 110, Article 30

Question: An employee has to buy stationery or personal protective equipment needed in the course of work, because there is no proper procurement or finance department setup to do this. The employee has to pay for the item first then claim back from the company and sometimes the reimbursement takes a long time. Is this practice ok?

Answer:If the amount of money needed for the purchase is substantial, and the delay in reimbursing the worker poses difficulties for the worker in meeting the basic needs of his or her family, the practice may not be consistent with the principles of the relevant international labour standards. The system should not disrupt regular payment of wages and should be clearly explained to the worker.

Relevant International Labour Standards
Minimum Wage Fixing Convention, 1970 (No. 131)
Minimum Wage Fixing Recommendation, 1970 (No. 135).
Other normative instruments
ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, paragraph 33.

 

Minimum wage / Living wage

Question: What is ILO’s view on how to calculate a “living wage”?

Answer: The ILO Constitution refers in the Preamble to the "provision of an adequate living wage.” The 1944 Declaration of Philadelphia concerning the aims and purposes of the ILO emphasizes the need for "policies in regard to wages and earnings, hours and other conditions of work calculated to ensure a just share of the fruits of progress to all and a minimum living wage to all employed and in need of such protection"[1] This principle was affirmed most recently in the ILO Declaration on Social Justice for a Fair Globalization, adopted in 2008.

The notion of a living wage, although not the phrase itself, is found in the Minimum Wage Fixing Convention, which speaks of "the needs of workers and their families"[2]. The Committee of Experts on the Application of Conventions and Recommendations (CEACR) has explained that “the establishment of a minimum wage system is often portrayed as a means for ensuring that workers (and in some cases, their families) will receive a basic minimum which will enable them to meet their needs (and those of their families); hence the frequent use of the term ‘minimum living wage’. Efforts to implement such a concept imply an attitude or a policy which aims at improving the material situation of workers and guaranteeing them a basic minimum standard of living which is compatible with human dignity or is sufficient to cover the basic needs of workers. Such a policy is in line with the International Covenant on Economic, Social and Cultural Rights as regards every person's right to receive remuneration equivalent at least to a wage which makes it possible for workers and their families to lead a decent life”.[3]

The Minimum Wage Fixing Recommendation expressly states that it should constitute one element in a policy designed to overcome poverty and to ensure the satisfaction of the needs of all workers and their families[4]. It also provides that the fundamental purpose of minimum wage fixing should be to give wage earners necessary social protection as regards minimum permissible levels of wages[5].

The CEACR has also noted that "the minimum wage implies that such a wage must be sufficient for the subsistence needs of workers and their families. Thus, the meeting of subsistence needs are both a criterion of minimum wage fixing and one of the objectives of the Convention. Nevertheless, the needs of workers and their families cannot be considered in a vacuum; they must be viewed in relation to the country's level of economic and social development".[6] Other factors to be taken into consideration, as far as possible and appropriate in relation to national practice and conditions, include:

  • the general level of wages in the country, the cost of living, social security benefits, and the relative living standards of other social groups;
  • economic factors, including the requirements of economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment. [7]
  • changes in the cost of living and other economic conditions.[8]

The purpose of a minimum wage is to provide workers protections where there is no extended and effective means of fixing wages across various sectors, in particular through collective bargaining.[9] Consequently, ILO has not specified what reference points a government might use (often referred to as a “basket of goods”) in determining whether a minimum wage is adequate for meeting the basic needs of a worker and his or her family. Instead, the ILO advocates social dialogue, in particular collective bargaining, for determining wages at sectoral level and tripartite consultations for setting minimum wages or extension of collective bargaining agreements.

The Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration) encourages enterprises to “obey the national laws and regulations, give due consideration to local practices and respect relevant international standards.”[10]

Specifically concerning wages, the MNE Declaration also encourages multinational enterprises to ensure that wages are sufficient to meet the needs of the worker and his or her family. Specifically, MNEs should provide wages and benefits “not less favourable” than those offered by “comparable employers in the country concerned.”[11] If no comparable employers exist, companies should “provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy basic needs of the workers and their families.”[12]

In addition, the MNE Declaration stresses the valuable role of collective bargaining in determining conditions of employment.[13]

To learn more about minimum wages in practice, you can consult the ILO Minimum Wage Database. This database includes statistics for over 100 countries on the level of minimum wages in absolute terms as well as relative to both GDP per capita and average wages, whenever available. It also includes information on the institutional aspects of minimum wage systems, including the type and degree of involvement of social partners.

[1]ILO Declaration of Philadelphia, Part III, paragraph (d). This principle is also found in the United Nations Universal Declaration of Human Rights: "Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.” (Article 23.3) and “[e]veryone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing, medical care, necessary social services, and the right to security” (Article 25.1)
[2]Minimum Wage Fixing Convention, 1970 (No. 131) Article 3(a)
[3]General Survey on minimum wages, 1992, para. 33
[4]Minimum Wage Fixing Recommendation No. 135, para. 1
[5]Ibid., para. 2
[6]General Survey, para. 281
[7]Convention No. 131, Article 3
[8]Recommendation No. 135, paras. 3 and 11
[9]Convention No. 131, Article 1(1)
[10]ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, para. 8
[11]Ibid, para. 33
[12]Ibid, para. 34
[13]Measures appropriate to national conditions should be taken, where necessary, to encourage and promote the full development and utilization of machinery for voluntary negotiation between employers and employers’ organizations and workers’ organizations, with a view to the regulation of terms and conditions of employment by means of collective agreements.” MNE Declaration, para. 50.


Payment in-kind

Question: Is it OK if workers receive accommodation and food, but no cash payment for their work?

Answer: Payment in kind should not fully replace cash remuneration. The labour laws in many countries specify the maximum proportion of the wages that may be paid in kind; this usually varies from 20 to 40 per cent. An amount reaching 50 per cent in kind unduly diminishes the cash remuneration which is necessary for the maintenance of the worker and his family[1].

Furthermore, within the maximum percentage allowed by law, the following further safeguards should apply:[2]

  • when authorized under national laws or regulations, collective agreements or arbitration awards;
  • where the allowances offered in lieu of money are fairly valued and meet the personal and family needs of the worker; and
  • when no payment is made in the form of liquor or drugs.

Because payment in kind makes workers more dependent and vulnerable, there is a risk that improper forms of payment may lead to situations of forced labour. Payments "in-kind" in the form of goods or services should not create a state of dependency of the worker on the employer[3].

[1]Protection of Wages, Paragraph 117
[2]Protection of Wages Convention, 1949 (No. 95), Article 4; Protection of Wages, ILO, Geneva, 2003, Paragraph 92
[3]Combating forced labour: A handbook for employers and business, ILO, Geneva, 2008


Disciplinary deductions from wages

Question: Is there is an international labour standard on disciplinary deductions from wages?

Answer: International labour standards are silent on the issue of whether it is permissible to make disciplinary deductions from wages.[1] The Committee of Experts on the Application of Conventions and Recommendations (CEACR) has noted that in many countries the imposition of disciplinary penalties by way of wage deductions is formally prohibited. In countries that authorize disciplinary deductions from wages, the national legislation also contains provisions guaranteeing the procedural fairness of the disciplinary action such as requiring written notification of the worker or recognizing the right to lodge an appeal.[2]

The CEACR also has noted that the labour standards concerning protection of wages establish three main principles:[3]

  1. Deductions of any type, to be lawful, need an appropriate legal basis—national laws or regulations, collective agreements or arbitration awards; individual agreement is not sufficient.
  2. All authorized deductions must be limited so that the net amount of wages received by workers should in all cases be sufficient to ensure a decent living income for themselves and their families.
  3. All relevant information regarding the grounds on which and the extent to which wages may be subject to deductions must be communicated in advance to the workers concerned so as to avoid any unexpected decrease in their remuneration which would compromise their ability to support themselves and their household. The preferable means is appropriate references in their contracts of employment or the permanent display of the relevant laws, regulations and internal regulations at the workplace, and in any event by means which ensure that workers have advance notice of the nature and extent of all possible deductions, and are aware of their rights concerning procedural safeguards set out in national law.

[1]Relevant international labour standards concerning deductions include the Protection of Wages Convention, 1949 (No. 95) and the Protection of Wages Recommendation, 1949 (No. 85). Paragraphs 2 and 3 of Recommendation No. 85 deal only with deductions from wages for the reimbursement of damages caused by bad or negligent work or for damage to materials or to the property of the employer, and deductions in payment for the use of materials, tools and equipment supplied by the employer
[2]ILO General Survey on Protection of Wages (2003), paras. 242 and 244
[3]See, ILO General Survey on Protection of Wages (2003), paras. 295-297


Compensation for night work

Question: Does night work require payment of higher wages?

Answer: Article 8 of the Night Work Convention (No.171) provides that compensation for night workers in the form of working time (i.e. shorter schedules or longer breaks), pay (i.e. night work premium) or similar benefits shall recognize the nature of night work. Paragraphs 8 and 9 of the Night Work Recommendation (No.178) elaborate on financial compensation. ILO instruments recognize that night work must carry an extra compensation, preferably but not necessarily in the form of higher wages.

Tags: remuneration, enterprises

Regions and countries covered: Global

Unit responsible: Enterprises Department (ENTERPRISES)

This content is available in
Español  Français 
A A+A++  Print  Email
close

Email

Q&As on Business, Wages and Benefits

To

Email address:
Separate multiple addresses with a comma (,)

Your details:

Your Name:
Your Email:
Send
Share this content
© 1996-2014 International Labour Organization (ILO) | Copyright and permissions | Privacy policy | Disclaimer