Wage rates and earnings
Current guidelines on wage rates and earnings were adopted by the 12th ICLS in 1973. The Resolution concerning an integrated system of wages statistics provides guidelines on a coherent system of surveys to produce regular and complete statistics on wage rates and normal hours of work, and on earnings and hours actually worked (or hours paid for).
The concept of wage rates relates to the price of a unit of labour. The principle underlying this concept is that it relates to the amounts which may be associated with the job, not with the person or individual. It is similar in that sense to a price quotation because it is computed per unit of time or unit of work done.
The components of wage rates are the basic wages paid for normal hours of work, any cost of living allowances, and all other guaranteed and regularly paid allowances, such as housing or rental allowances. Basic wages may be provided in cash or in kind. Certain other payments associated with the individual person are, therefore, excluded from the calculation of wages rates - namely overtime payments, bonuses, family allowances, social security payments, etc.
Two different types of wage rates exist and are referred to as time rates and piece rates. Time rates represent the basic wages paid for normal periods of work which are related to an appropriate or specific time unit. The fixing of piece rates is done in relation to outputs and are referred to differently, depending upon the reference to how the type of payments is set. Minimum or statutory rates are those which are fixed by national laws or regulations. Standard rates are so-called because they are fixed by arbitral awards or within the framework of collective agreements or other agreements. Rates actually paid are the piece rates which the employer effectively paid.
Earnings are defined as “the remuneration in cash and in kind paid to employees, as a rule and at regular intervals, for time worked or work done, together with the remuneration for time which was not worked.” The components of earnings are:
- all direct wages and salaries for time worked or work done which are paid in cash: including pay for normal-time work, premium pay for overtime and holiday work, premium pay for night work, shift work or other forms of work schedule, all forms of incentive pay such as production bonuses, any other type of regularly paid bonuses, family allowances which are paid directly by employers and not from a social security institution or other government fund, cost-of-living or dearness allowance and house-rental allowances;
- remuneration for any time not worked which is also paid in cash: including annual vacation and other paid leave including long-service awarded leave, payment for public holidays and other recognized holidays, other time-off granted with pay such as study leave, leave for family reasons, trade union or civic duties. Because this remuneration covers cash payments, also included are, for example, payment to workers of travel tickets for annual and other vacations. Severance and termination pay, however are excluded because they are considered social security payments which are not regular;
- any cash bonuses and gratuities, which are payments concerning year-end, seasonal and other one-time bonuses, share of profits bonuses, additional payments in respect of vacation which are not covered under cash remunerations for time not worked that are supplementary to such normal vacation pay, as well as other bonuses and gratuities, like thirteenth and fourteenth month salaries, year-end bonuses. These do not, however, include special payments made as a reward for innovative ideas or suggestions adopted to improve the working methods; and finally
- any payments made in kind, which may consist of food and drink or lunch vouchers, energy such as fuel for heating or lighting in the form of coal, coke, electricity, gas or others, free or subsidized housing at its imputed rental value, as well as other payments in kind which could include footwear, clothing, work uniforms, free goods or reductions in the price of company products or services, use of company cars, among others. Free or subsidized medical care and similar payments are excluded from the notion of payments in kind because they are social security payments.
As a rule, earnings relate to gross earnings, that is, to the amounts paid before any deductions are made by employers for their employees' income taxes and their contributions for health insurance, unemployment schemes, pension funds, union membership, etc. Once these deductions have been subtracted the resulting amounts, known variously as net earnings, take-home pay or disposable earnings, can be considerably less than the gross earnings. If these contributions or taxes are deducted directly by the employer, the worker never actually receives the amount of gross earnings and may not even be aware of their gross earnings. Thus, persons with the same gross earnings may receive considerable different net earnings, depending on their marital status and, number of dependents.
Valuation of payments in kind
There are two approaches by which an evaluation of the value of payments in kind can be carried out: either by taking the retail market prices of the objects to represent the value accrued to employees, or by imputing the cost to the employer or producer’s price which, because these may fluctuate less than market prices or remain more constant, is an easier method for the employer. In the case of wage rates, the latter method should be used.
Current guidelines on labour cost were adopted by the 11th ICLS in 1966. The nulldefines labour cost as the cost to the employer in employing labour. It covers the cost incurred by the employer in the employment of labour and is calculated as labour cost per hours actually worked.. The different types of items of labour cost are organised as follows:
1. Direct wages and salaries for time worked
2. Remuneration for time not worked
3. Bonuses and gratuities
4. Food, drink, fuel and other payments in kind
5. Cost of workers' housing borne by employers
6. Employers' social security expenditure
7. Cost of vocational training
8. Cost of welfare services
9. Labour cost, not elsewhere classified
10. Taxes regarded as labour cost
The first four elements are very close to the concept of earnings. Some differences relate to (a) the inclusion of severance and termination pay when such are not regarded as social security expenditures, which is excluded from the concept of earnings; (b) irregularly paid bonuses such as payments for special services, for innovative ideas or improvements in working methods; (c) the valuation o f payments in kind, which in labour cost are seen as a cost to the employer (using producers’ prices) and not as a benefit to workers (using market prices); (d) the exclusion from payments in kind of substantial items such as the cost of housing and workers’ canteens or cafeterias, other welfare services and medical services.
The remaining six components relate to non-labour costs and include:
a) the cost of workers' housing, which refers to all costs which are made in relation to the provision and maintenance of lodgings themselves, or the facility for housing, provided to workers. Three elements are included under this component. The first element is the costs related to the actual dwellings for repairs, maintenance, interest payments, depreciation costs of the actual building and equipment, dwelling-related fees or property taxes, insurances, etc. as they refer to property owned by the establishment. This does not include, however, capital investments on the actual building, equipment or land on which it stands and should be understood as costs which are net of any tax rebates, grants from public authorities, or rents and other receipts received from the employees. Housing costs for dwellings which are not owned by the establishment which are provided to employees in the form of housing allowances and grants and finally, other housing costs are the last two elements of workers’ housing costs.
b) The employers' social security expenditure, which consists of five types of contributions which are broken down into separate elements with respect to their type of origin, or the nature of the expense. The first group covers the statutory contributions for schemes covering old age, invalidity and survivors pensions, sickness, maternity and occupational injury coverage, as well as unemployment benefits and family allowances. Then there are the other contractual and/or non-obligatory contributions made by employers to private schemes and insurances which have been awarded to workers through collective agreements. Direct payments made to employees in respect of absence from work due to sickness, maternity, injury, are those meant to compensate for a loss of earnings on the part of employees along with other assimilated direct payments for the well-being of workers. The last two elements are the cost to employers of medical care and health services and finally, severance and termination pay, where it is regarded as, or covered under, social security expenditure.
c) The cost of vocational training, which includes such fees and other payments paid by employers for the services of outside instructors, or to training institutions; the cost of teaching material; reimbursement of training (school) fees paid directly by workers; and the cost of vocational training scholarships, etc. Other vocational training costs, such as the cost of repairs, maintenance, interest and depreciation of buildings and equipment used for training are included.
d) The cost of welfare services, which covers the actual cost of canteens, purchasing groups and other food services, nurseries and daycare facilities; the cost of education, cultural, recreational and related facilities and services, and the cost incurred through credit unions and related services for employees, such as the cost of loans.
e) The labour cost not elsewhere classified, which groups together costs associated with enabling workers to reach and or perform their work, such as the cost, if undertaken by employers, of transporting workers to and from work or the reimbursement of transport fares; other costs related to the recruitment and/or transfer of workers, the cost of work clothes and protective clothing and “other labour costs;
f) Taxes regarded as labour cost, which include taxes on employment or payroll taxes, net of related subsidies that employers may receive, such as for employment creation measures.
Compensation of employees
Compensation of employees is often used as a proxy for labour cost. This is an SNA concept relating to the sum of total earnings and employers' social security contributions. This concept is used in national accounts to measure the primary income of workers in paid employment, particularly in view of the fact that the remaining elements of labour cost (cost of vocational training, labour cost not elsewhere classified and taxes regarded as labour cost) are very small as a percentage of the total. Sometimes, countries mistakenly use the term "labour cost" when the data really refer to compensation of employees.
Income related to employment
Current guidelines on income related to paid and self employment were adopted by the 16th ICLS in 1998. The null also improved the description of existing income components, most notably the remunerations in kind.
Income related to paid employment covers, in addition to all earnings components, (a) all irregular bonuses as well as (b) all social security benefits received either from the employer or from a private or public social security scheme. Such benefits include payments to cover income loss due to sickness, maternity and accident benefits, the reimbursement of medical expenses as well as education allowances; it also includes payments linked to past employment such as unemployment, retirement and invalidity benefits and survivor’s pensions. All these benefits need to be recorded net of workers’ contributions to social security schemes.