MGT340 Human Resource Management - Topic 5: Compensation & Benefits PDF

MGT340 HUMAN RESOURCE MANAGEMENT TOPIC 5: COMPENSATION & BENEFITS DEFINITION COMPENSATION refers to all form of pay or rewards going to employees and arising from their employment. The compensation package includes wages, incentive, bonus and rewards which can be divided...

MGT340 HUMAN RESOURCE MANAGEMENT TOPIC 5: COMPENSATION & BENEFITS DEFINITION COMPENSATION refers to all form of pay or rewards going to employees and arising from their employment. The compensation package includes wages, incentive, bonus and rewards which can be divided into Direct financial payment, Indirect financial payment & Non financial payment TYPES OF COMPENSATION Direct Financial Payment Wages/salaries, incentive/commission, bonuses Indirect financial payments Insurance coverage, paid vacation Non financial reward given to employees that has no monetary value but provides the same amount of satisfaction as monetary compensation flexible work scheduling, onsite gyms Direct Financial Payment Wages/salaries Cash payments paid to employees on regular basis in return of their labour Major system of payment: Time related systems Piece rated system Incentive/commission Paying for performance Individual incentive programs give performance based pay to individual employees. Example: Incentive for salesperson Incentive for managers & executives Bonus the extra payment or financial component which is received as a reward for doing one's job well Indirect Financial Payment & Non-Financial Other forms of compensation not including direct financial payment Most of benefits offered by employer are in the form of indirect financial payments & non financial WORKING HOUR SYSTEMS IN MALAYSIA Normal working hours Overtime Previously, workers in Malaysia had a maximum Working longer hour than normal working hours number of weekly working hours of 48 hours — Overtime rates: which roughly equates to around 8 hours per day, Ordinary working day = 1.5 times the normal 6 days a week. hourly rate However, from 1st January 2023, this maximum Rest day = 2 times the normal hourly rate number has now been reduced to 45 hours per Public holiday = 3 times normal hourly rate week (excluding meal time) Employee shall not be required under his contract of service to work: More than five consecutive hours without a period of leisure of no less than thirty minutes. More than eight hours in one day. [Section 59 (1)] Employees shall be allowed each week a rest day of one whole day. WORKING HOUR SYSTEMS IN MALAYSIA Shift work Flexitime Part time Hours of works is outside System of working hours Part time working refers to normal working hours where the starting and the number of hours-usually pattern stopping times are decided calculated per week that an Two or more groups of by individual worker within a employee is required to workers take turn to man the number of limitation by the work workstations employer. Part time worker either Example of shift work: Flexitime terminology: temporary or permanent Double day shift Bandwidth working hours must be less Core hours than the normal hour. Three shift work Flexibands Employment Act defines part The split shift timer average hours should Rotating and permanent Settlement period not exceed 70% of normal shifts hours of a full time workers. TYPES OF BENEFITS Certain benefits are statutorily required by (Employment Act, the Sabah and Sarawak Labour Ordinances, EPF Act, SOCSO Act and the Insurance System Act 2017 Types of benefits: Statutory benefits Non statutory benefits Statutory Benefits Maternity leave Every female employee is entitled to maternity leave of 98 days (new employment Act https://althr.my/resources/employment-act-1955-amendments-2022-malaysi) Previously (only 60 days for every confinement, maximum 90 days) During the maternity leave, maternity allowance is payable to employee providing she has NO more than 5 surviving children and she served the employer for at least 90 days before giving birth. Paternity leave Father in Malaysia is now entitle to 7 days paternity leave and limit to only five children irrespective of the number of spouses and must legally married. Statutory Benefits Rest Day A weekly rest day Section 59 of Employment Act stipulates that all employees are entitled to one rest day per week. Public holidays Section 60 entitles all workers covered by Employment Act 1955 / SLOs to a minimum of : 11 paid gazetted public holidays per year (Peninsular Malaysia), 14 days (Sabah) 16 days (Sarawak). Five of the holidays are specified by the Act and must include: National Day The Yang di Petuan Agong’s Birthday The State Ruler’s Birthday Labour Day Malaysia Day Statutory benefits Annual leave The Employment Act provides that paid annual leave shall be given as follows: Less than 2 years: 8 days leave per year 2-5 years: 12 days leave per year More than 5 years: 16 days leave per year Sick leave Employees are entitled to paid sick leave, be given as follows: Less than 2 years: 14 days per year 2-5 years: 18 days leave per year More than 5 years: 22 days per year If an employee is hospitalized, he can take up to 60 days sick leave per year. Statutory benefits Contribution to Employees Provident Fund (EPF) Objective: To ensure that every worker has sufficient funds to EXAMPLE: sustain him once he has retired upon reaching the minimum Basic salary : RM1000 retirement age of 60. EPF : employee (11% - 2nd account) Currently, employees are permitted to withdraw their savings : RM110 from the fund at the age of 55, even though they are working. Statutory contribution: EPF : employer (12% - 1st account) : RM120 Employees (Below 60 years old)- 11% Employers – 12% SOCSO : employee (0.5%) of Employees who are not required to become members of EPF: monthly wages Domestic servants Total net salary: Foreign workers RM1000 – RM110 –RM5 = RM885 Government servants on a pension scheme There are provision for the self-employed, partners in a business, sole proprietors, pensionable employees in public sector & foreign workers to contribute if they wish. They must pay a minimum or RM50 per month to the Fund. They also can choose to pay any amount above this up to RM5,000 per month as they wish.  Statutory benefits Contribution to Employees Social Security Organization (SOCSO) To provide employees with compensation and financial benefits should they be involved in an accident at work, contract an occupational disease or become an invalid (from whatever cause). Employment Injury and Invalidity Schemes (Below 60 years old): Employer (1.75%) & Employee (0.5%) of monthly wages Employment Injury Scheme (60 years old and above & still working): 1.25% of the employee’s monthly wages solely borne by the employer.  Non-statutory Benefits Insurance (other than Time-off payments: Health Care: Financial services: SOCSO): Marriage Becoming a valuable Employers Loans to buy Personal benefit to commonly buy life houses, cars and emergencies employees with the and accident other items such as Pilgrimage rising cost of insurance group computers may be medical care. policies, which are given to employees, Studies Payment of usually combined usually with interest Death of a relative with medical rates lower than medical bills Hospitalization benefits, to protect those charged by benefits their employees the banks Payment of optical bills Payment of dental bills  Non-statutory Benefits Retirement benefits Educational assistance Subsidies and Services Some employers are willing Companies may set up Canteens to pay a higher contribution libraries of reading materials Transportation to and from to EPF on behalf of their and computer-readable files work employees. to encourage workers to Childcare facilities Large organizations may develop themselves. Club membership and establish special retirement Companies may also can pay accommodation at holiday funds as an extra to the EPF. fees if employees wish to resorts attend any training courses. Quarters for the staffs Scholarships may also be Renting/provide hostels for offered to employees if they young female or foreign want to further their studies. workers Air Asia and Malaysia Airlines offer free flight tickets THE IMPORTANCE OF BENEFITS Help attract staff to join the organization Help retain existing employees Increase morale of employees, which may lead to higher productivity REWARDS SYSTEMS Objective of Incentives and rewards: Drive behaviour to higher levels Create competition Help to retain the best performers To be effective, reward schemes must: Allow many employees to be winners Be perceived as fair Drive suitable behaviours Be perceived as attractive Types of rewards: Financial Non financial  REWARDS FINANCIAL REWARDS Wage increments Salary of employees increase due to their good performance. This may motivate them to work harder. Bonuses It is a lump sum of money awarded for outstanding performance in any activity which the organization wants to encourage. Profit-sharing schemes It is a plan that gives employees a share in the profits of a company. Under this type of plan, an employee receives a percentage of a company's profits based on its quarterly or annual earnings. Commissions Salespeople have reward systems which are different to that provided for other employees in the same organization.  REWARDS NON FINANCIAL REWARDS Performance awards Employers recognize the value of performance awards which can be given for a variety of special achievements such as Worker of the Month, Most Promising Executive REWARDS Letters of appreciation Praise in term of writing, oral in public or privately can be source of employee satisfaction. Long service awards Employers valued loyalty and recognized long service with some token of appreciation. Ex: gold watch, a gold bar, a trip overseas, special dinner event Sponsorship to attend conferences High achievers are sent to attend seminars, conferences and overseas tour  WAGE SYSTEMS Time-related system Wages are paid for a set period of work on an hourly, weekly or monthly basis. no direct relationship between an employee’s productivity and his performance. A worker who works hard will receive the same salary as another worker who does little. For instance, a full time employee who receives RM4,000 per month salary or a part-time worker who is paid RM4.00 an hour would still receive the payments even though they are slacking in their jobs for any particular period.  WAGE SYSTEMS Piece-work/piece related system/payment by results Worker are paid according to the number of units produced in a given time. Strait piece-rate system For example, in a clothing factory, if a worker is paid RM20 for each blouse she sew, the worker will be paid a total of RM2000 if he is able to sew 100 pieces of blouse for the month. Differential piece-rate system In this system the employee is paid one piece-rate wage for units produced up to a standard output. The employee would be paid a higher piece-rate wage if he produced units over the standard. For example, a company set a standard quota for a worker to produce 300 units per month and the standard rate is RM5 per unit, and for all units over the standard, the worker is paid RM10 per unit. If the worker produces 400 units in one month, he would be paid (300 x RM5) + (100 x RM10 ) = RM2,500 tor that month.