There are various concepts related to income from employment: wage rates, earnings, income related to employment, labour cost. They are the result of different uses and objectives; wages can be considered as the price of labour, as income from work, as the cost of remuneration for work or even as the cost of employing labour per se. Each of these relevant notions has its basis in a specific concept. All these concepts, however, are closely interconnected and are often considered together.
In general, the concept of pay for work relates to amounts of money in cash or its equivalent (if payment is in kind) that is received by persons during a period of time as a result of their participation in economic activities. The period of receipt is not necessarily the same as theo period of work.
The concept of wage rates relate to basic prices of a unit of labour, before adding any bonuses for overtime, shift work or family allowance, and before deducting contributions for social security schemes and for advanced tax payments. Wage rates can be expressed in units of time, such as an hour, a week, a month, etc., or as piece rates. It is the smallest of all pay concepts and applies to workers in paid employment only.
The concept of earnings typically relates to the pay that employers provide directly to their employees on a regular basis during a specified reference period. It includes basic pay for time worked or work done as well as for time not worked, such as vacation, holidays and sickness time. In addition, it also includes other payments granted by the employer for various reasons such as: overtime work, unsocial hours or schedules, difficult work, regular bonuses and fringe benefits such as family allowances. On the other side, it will exclude all irregular bonuses even if provided by the employer. Earnings are, like time rates, recorded gross of social security contributions or tax deductions.
The concept of income related to paid employment is the most comprehensive measure of the level of remuneration of workers in paid employment. It includes, in addition to earnings, all irregular bonuses and payments and all social security benefits received from the employer directly or from a social security scheme, if they are related to employment. These include family and education allowances as well as sickness and maternity benefits. They also include benefits received by persons who are no longer in employment, such as unemployment benefits, pensions, invalidity benefits. All these social benefits will be part of income from paid employment only insofar as workers received them as a result of their participation in work activities. In countries which have general social security systems, whereby family and other allowances are provided independently of work activities, these allowances are not part of income related to paid employment. To avoid double counting these benefits are recorded net of contributions made by the worker to social security schemes.
The concept of labour cost relates the actual cost to employers of employing labour. It has an earnings component and a non-earnings component. The earnings component is similar to the concept of earnings, with some differences in the types of payments in kind that are considered and the way they are valued. The non-earnings component consists to a large extent of costs related to items which constitute payments in kind to workers, but which are valued from the employer’s point of view, as costs incurred. Examples of these types of items are: housing, canteens, day care centres and similar expenditures. This component also includes all social security contributions and expenditures, vocational training expenses, and taxes on employment and payrolls, which are not part of earnings.
The concept of income related to self employment is the only concept that addresses the self employed. It is equal to the value of goods and services produced by the self employed, net of operating expenses (such as salaries paid, raw materials used, depreciation of machines and instruments and taxes paid), plus any salary received and social security benefits (net of contributions). Income related to self employment also includes benefits received by self employed persons who are no longer in employment, such as unemployment benefits, pensions, invalidity benefits. As with income related to paid employment, all these social benefits will be part of income from self employment only insofar as workers received them as a result of their participation in work activities.