Payroll - a central element balancing the antagonistic interests between capital and labour force

The payment of employees, more specifically the payment of the labour factor in the economy, is a complex subject involving a number of different perspectives in its approach, and is always a focal point of attention for employers and employees, as well as for economists in general.

Publication date: 8 February 2023

This article will attempt to shed more light on one of the main drivers of the economy by explaining some of the fundamentals of payroll and the influence this area can have on the economic development of an organisation and the economy in general.

Contents

1. Payroll: basics of rewarding labour in an economy

2. Types of payroll and the current pay system

3. What does the pay grade and pay scale mean?

1. Payroll: basics of rewarding labour in an economy

From an etymological point of view, the notion of salary comes from antiquity and is related to ... salt. Surprisingly for today's times, salt in ancient times was a highly rare commodity that was worth quite a lot, especially as it was only by salting that food (especially meat and fish) could be preserved for a longer period of time. The earliest forms of wages that can be likened to today's concept seem to have emerged as a form of payment for soldiers in ancient Rome who regularly received 'salarium' for their military service, a Latin word derived from 'sal / salis' meaning salt. Basically, these were sums of money given to Roman troops so that the soldiers of legions and auxiliary formations could obtain the salt they needed to preserve food and for their own consumption when payment in kind was not possible. In a short period of time, the cash wage became a generally valid form of reward for work done and became widespread in all fields of activity.

Today, pay is a complex activity which is at the very heart of a company's success, and there is a need for proper coordination of the pay of workers at all levels with other economic and social variables, or even the economic and social policy of a state. Of course, relations between labour and capital have been and continue to be divergent, with the interests of the two 'camps' largely opposed.

Thus, for the owner of the capital and the means of production, the wages of the workers are a cost which is part of the general cost of production. It is in the interest of the owners of capital to keep the level of wages as low as possible, as this helps to maintain or even increase competitiveness in a competitive market, along with other economic factors (e.g. re-engineering, optimisation of activities, low cost of raw materials and materials, etc.).

On the other hand, for those who do the work, wages are seen as income, and wages are often the only way to ensure the livelihood of employees. Of course, the interests of the workforce as a whole tend to maximise pay in order to have more financial space for their own needs and social aspirations.

This antagonism of interests is brought together under the umbrella of pay and the payroll system each organisation owns. Alongside human resources policy and activity itself, pay is crucial to the economic viability of an economic organisation, as it is not only the payment of workers trained in the specific field of activity that depends on this chapter, but above all their motivation and co-interestedness through increased performance, efficiency and, last but not least, alignment with the aims and objectives of the company or organisation.

The importance of payroll systems is therefore equal in importance to the other key areas of an organisation. Just as the financial-accounting area often requires specialised support and outsourced accounting advice and services, especially for the correct and timely preparation of financial and tax reports, just as the overall smooth running of an organisation requires efficient administrative services, so an organisation's payroll often needs professional external support if it is to be a genuine mechanism for regulating and harmonising the conflicting interests and expectations of capital and labour.

Of course, pay is influenced by several factors, such as: labour supply and demand, productivity levels, education levels and qualifications of employees, skill levels of employees and the level of competition in the labour market. In addition to these influencing factors, organisations should focus on one main objective, namely to establish a fair pay system for all employees that is fully commensurate with the work they do and the level of performance they deliver. Moreover, the art of pay in an organisation is also about creating the perception among employees that the work they do is remunerated in accordance with the physical and intellectual effort they put in and the added value of their work. Wage setting can thus create a veritable 'fabric' that leads to the smoothing out of the rough edges of divergent interests, achieving a unity of common interests of capital and labour towards the fulfilment of goals - which, although different in essence - help the organisation to thrive in the dynamic competitive environment.

2. Types of payroll and the current pay system

There are several types of payroll systems in use today, each with specific advantages and disadvantages. Here are some of the most common types of payroll systems:

• The job-related payroll system is one of the most common forms of pay and is based on the assessment of the levels of responsibility, authority and experience required for a particular position or function within the organisation. In this system, each position or function is associated with a specific salary level and employees are paid according to the hierarchical position they occupy within the organisation chart.
• Performance-related pay is a form of pay where pay and pay progression are directly linked to the concrete and measurable performance of employees. In this system, employees are regularly evaluated on their performance against certain key indicators that are met or not met and may be rewarded with salary increases or bonuses depending on their performance.
• Competency-based pay is a form of pay where pay is linked to the employee's level of competence in a particular area or to skills or knowledge specific to the area or types of work and services provided.
• Combined pay is a form of pay that combines several elements taken from the pay systems described above. This system may include elements of function, performance and competence-based pay.
• Fixed pay system - this is a form of pay where employees receive a fixed salary regardless of their performance or other factors. This may be a suitable option for positions with low risk or limited responsibilities.
• Variable pay is based on the fact that part of the salary is fixed and part is linked to employee performance or other factors, such as the achievement of key indicators like sales or profit. This may be a suitable option for positions with higher risk or greater responsibility, such as regional sales or management positions.
• A benefit package payroll system is a payroll method in which employees receive a full benefits package, such as health insurance, paid leave, private pension savings program and other such benefits. This system can be used to attract and retain quality employees and can be a form of compensation for lower wages.
• Total compensation system this is a form of payroll where employees receive a total compensation package, which includes salary, benefits, bonuses and other forms of reward. This system can be used to give employees a clear picture of total rewards for their work and can be an effective way to motivate employees to achieve better performance.

• Minimum wage system where employees receive a minimum wage set by the government for the whole economy. This system can also be used as a social policy measure to ensure that employees receive an acceptable minimum wage to cover basic needs. Employers are legally obliged to set at least a minimum gross wage for each employee. It should be noted that the level of the gross minimum wage may differ from one branch of the economy to another, depending on the government's interest in encouraging a greater influx of staff into one or other of the areas considered strategic for economic development.
• A maximum wage system where employees receive a maximum wage set by the government. This system can be used to limit excessive wages and ensure pay equity within an organisation or sector, generally in public system organisations.

It is important for organisations to assess and choose the pay system or combination of systems that best suits their needs and objectives, and that best meets the needs of employees to achieve those objectives.

In addition to the amount of money received as salary, employees may also receive a number of taxable or non-taxable benefits, as appropriate. These benefits can be:

• Meal vouchers which are paid for each day worked, monthly and are exempt from paying social security contributions to the state budget being taxed only with income tax.
• Cultural vouchers, granted monthly or periodically on various occasions, which can be used to purchase cultural goods or services (books, tickets to shows and exhibitions). Like meal vouchers, cultural vouchers have a maximum value set by the government and are exempt from social security contributions but not from income tax.
• Gift vouchers can be given to employees on various occasions (employees with minor children on 1 June, Easter, Christmas, Women's Day, etc.).
• Childcare vouchers that can be given monthly to employees who do not already receive parental leave and childcare allowance from the state for children up to 2 years old or 3 years old for disabled children. These vouchers can be used to pay for day-care services.
• Holiday vouchers can be granted to cover the cost of tourist services only within the country and have a maximum value set by the legislator.
• Gym memberships are also a form of wage benefit and can be granted to employees to cover the cost of gym fees.
• Medical memberships are a form of recruitment and retention by the employer whereby a certain amount is deducted annually which can be used by the employer for regular medical check-ups.
• Voluntary pensions also have a salary benefit role and are, like medical subscriptions, non-taxable income for employees and deductible for the employer up to a certain maximum limit set by the legislator.

Of course, all these complex situations where the payroll system involves a variety of forms of compensation often require proper analysis and even accounting advice and outsourced services to ensure the accuracy of financial and tax reporting and to avoid problems with potential tax audits.

3. What does the pay grade and pay scale mean?

Also in the area of pay, it is important to review some of the concepts that appear in various application scenarios. These concepts refer to the coefficient, grade and pay scale that can be found within an organisation's pay system.

The pay grade is a factor used to determine the salary or wage level for a particular position or job grade in an organisation. It can be expressed as a percentage or as a fixed number and can be applied to the basic salary or the total salary of a position. The salary factor can be used to award pay differentials for different positions or job grades within an organisation, depending on the level of responsibility, experience and skills required for each position.

For example, an employee in a managerial position may have a higher pay grade than an employee in an entry-level position due to the higher level of responsibility and experience required for the managerial position.

A pay grid is a document or table that specifies salary levels for different positions or job grades in an organisation. It may include information such as the minimum and maximum salary for each position, as well as any other benefits or salary advantages associated with each position. The pay grid is used to ensure fairness and transparency in the pay process and to help attract and retain qualified employees.

Pay grade refers to the grouping of positions or job grades in an organisation into specific categories according to the level of responsibility, experience and skills required for each position. Each pay grade has a specific salary level, which may include the minimum and maximum salary for positions in that grade, as well as any other benefits or salary advantages associated with that position. Examples of pay grades could be: entry-level employees, middle management, senior management, or positions with specialization.

Thus, the pay system is an essential aspect of human resource management that can have a significant impact on employee motivation, performance and satisfaction. There are a variety of types of payroll systems available, each with specific advantages and disadvantages. Organisations need to evaluate and choose the payroll system that best suits their needs and objectives. It is important to take into account factors such as performance, level of competence, position and responsibilities of employees, as well as the economic and social context in which the organisation operates. By implementing an appropriate pay system, organisations can attract and retain quality, professional, efficient employees, encourage performance and even excellence in business activities and ensure fair reward for employees' work at the same time.

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.