Wage differentiation. Reasons, principles, types

What it is?

According to the provisions of Article 129 of the Labor Code of the Russian Federation, the amount of remuneration should depend on the qualifications of the employee and the characteristics of the work he performs. Thus, the differentiation of wages is the tariff scale adopted in a particular institution for employees at different levels.
It should include salary and incentive payments. The question of how much to pay an employee for a certain position depends on the financial capabilities of the company and the desire of management.

It is necessary to understand that there is no ideal system of income differentiation. Therefore, workers periodically quit in order to get a job at another company, where the salary for similar work is higher. To retain qualified and experienced specialists, you need to closely monitor the state of the labor market.

If it is difficult to find the necessary employees, then it is worth increasing their salaries so that they do not have the desire to leave for another company. However, the factors that influence wage differentiation are more complex.

Causes and consequences of rate differentiation

There are several factors that influence rate differentiation. It is worth considering them in more detail.

Reasons for changing rates	Short description
Market	the relationship between supply and demand in the market; investments in “human capital”; minimum wage size.
Personal	demographic differences; professional characteristics; social factors in the region; Read also: Hiring, transfer and dismissal economic features of the development of the industry and the subject of the Russian Federation.
Territorial	geographical; industry; socio-political; institutional; internal.

It is worth noting that the differentiation of rates in the country and in the world affects:

labor migration;
the popularity of a particular profession in the labor market;
unemployment rate;
the speed of industry development and so on.

Expert opinion

Irina Vasilyeva

Civil law expert

The salary may differ between employees of the same enterprise and among employees of different companies who work in the same positions. This is the basic principle of wage differentiation.

What is wage differentiation?

Wage differentiation is the deliberate establishment of remuneration for work at different levels depending on specific factors. It is typical for markets in all countries and all sectors of activity.

Labor Code of the Russian Federation in paragraph 1 of Art. 129 states that the amount of remuneration directly depends on the qualities of the employee himself (qualification) and the properties of the work performed (complexity, volume, working conditions, etc.). It is impossible to find absolutely identical workers and identical employers. Therefore, the differentiation of payments is quite reasonable:

the state strives to increase the well-being of its population;
for the employer to increase the profit of the enterprise, increasing labor productivity, stimulating employees;
workers satisfy their own and family needs at the expense of their salaries, that is, they provide for their lives.

NOTE! Pay may vary between employees of the same enterprise (internal differentiation), as well as between employees of different organizations.

Wage differentiation is an integral component of any developed society.

Question: How are basic salaries (basic official salaries), basic wage rates established for professional qualification groups of workers, taking into account their differentiation depending on the qualifications and complexity of the work performed? View answer

Payment systems

There are various ways to reward employees for effective work. How well an employee will work depends on the chosen method of motivation. It is worth considering in more detail the basic principles of salary formation that are used in practice.

Time-based

The variable type of remuneration is used for employees who work in the field of office work. These are secretaries, government officials, judicial office specialists and many others.
The functioning of the company depends on the performance of their functions, but their work does not affect profit. Thus, this is the optimal payment system for such employees. You are required to work a certain number of hours to receive a salary. In this case, no bonus is expected.

If the company receives excess profits, then additional payments are allowed. To evaluate performance, various testing systems or subjective assessments may be introduced that will not be used in other companies.

Piecework

Piece-rate wages assume that the employee receives money directly for production, so accrual occurs for:

volume of sales;
quantity of goods produced;
the number of concluded contracts, and so on.

It is worth understanding that with such a remuneration system there is no salary or it is minimal. At the same time, there is a minimum production plan. If an employee does not fulfill it, he receives a minimum wage.

Some firms hire part-time workers to reduce their costs. This reduces tax costs and allows you to lower your minimum plan.

Tariff

In this case, the employee receives the salary specified in the contract. This is a fixed amount that does not depend on the employee’s performance. However, bonuses are allowed at the discretion of management. The main advantage of such a scheme is the availability of a guaranteed rate or salary. However, it is recommended to apply this scheme to employees whose activities do not affect the organization’s profit.

Tariff-free

This type of payroll depends each month on the size of the salary fund and on the success of the enterprise as a whole. That is, at the end of the month it is necessary to analyze who worked better.

He is provided with increased payments in the form of salary and bonus. Employees who perform the worst receive the minimum wage or another amount established by the enterprise.

On a commission basis

This scheme is often used when selling a franchise. However, it is also often used when motivating employees. The bottom line is that the employee receives a certain commission from each successful transaction. For example, a company sells insurance contracts. The employee enters into agreements with clients and receives a commission from 1% to 30%, depending on the organization and the characteristics of the cooperation. The more successful transactions, the higher the final salary.

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Factors of differentiation

Establishing a particular salary level is based on a number of factors that can be divided by importance into several groups.

Market factors

The “demand/supply” ratio of certain labor markets reveals the most obvious and basic dependence of different wage rates. A market oversaturated with certain specialists will force their salaries to be lower, while rare professions that are in demand are traditionally paid highly.
Investments in “human capital” show different quality of the workforce, and consequently, wages.
The minimum wage is the minimum wage set by the state; it is the basis for many calculations regarding wages, that is, it determines its size.

How to calculate and process a salary supplement up to the minimum wage ?

Personal factors

Demographic differences – different levels of pay depending on gender, age, race, nationality, appearance and other similar qualities. This does not mean different rates for people, for example, of different ages, but the fact that these properties give people different abilities to work. For example, hard physical work is not available to women, young people are able to work longer than older people, but do not have such experience, etc. As a result, people with different characteristics can expect different levels of pay for their work.
Professional moments – directly related to paid activities, for example:
experience;
qualification;
category;
experience;
specialization, etc.
Social – related to the status of the individual in society. A person chooses a way to earn money based on the first two groups of factors - personal and professional characteristics. Employees of one or another professional status will have different levels of remuneration:
employee;
executing the contract;
freelancer;
self-employed, etc.
Economic features – influence the level of wages more significantly than others, since they are directly related to market factors:
occupation;
employment options – full-time, hourly, part-time, etc.;
working conditions (normal or difficult).

Territorial factors

Geographical – climate conditions and natural features in which you have to work. The territory of the Russian Federation is vast and diverse, which determines the heterogeneous level of salaries in different regions.
Industry - depending on which industry is leading in a particular region, the salaries of its residents will differ. For example, agricultural regions produce less profit than mining regions, so workers are not paid equally.
Socio-political - factors that demonstrate the general standard of living in the country and separately in the regions. For example, political stability in different parts of the Russian Federation varies for a number of reasons, which also affects employment and wages. The cost of living also varies in different parts of the country.
Institutional – associated with restrictions imposed by public institutions: trade unions and other organizations. For example, trade unions of individual workshops set a limit on membership in order to reduce the movement of workers to other regions where wages are higher - after all, they will not be accepted into the union there.
Internal – related to the organization of work at the enterprise itself:
availability and features of financial incentives;
working conditions and concern for their improvement;
social guarantees, etc.

Correct selection of the optimal system

There is no ideal wage system in Russia and in the world. It is necessary to use several types in order to retain qualified specialists and get rid of those who are not ready to give their best.
So, in the sales department you should not set a high salary, since employees will try to fulfill only the plan. There will be no need to work beyond the norm unless the salary increases slightly. Those who do not want to work will leave because of the low salary. But experienced specialists who know how to sell can earn a lot from bonuses.

Employees responsible for document management must set a fixed amount. At the same time, it is necessary to carefully monitor the labor market so that the salary level remains average. Workers begin to quit when they realize that other companies can earn more for performing the same functions.

In production, it is worth using accruals that depend on output. In this case, you need to take into account the approximate profit from the products produced in order to understand how much you can charge for one unit of goods.

44. Differentiation of income of the population

The differentiation of workers' cash income is formed primarily under the influence of two factors: wage differentiation and differentiation of workers' marital status. However, wage differentiation and income differentiation cannot be assessed from the same positions. In the first case, economic inequality corresponds to the concept of social justice within a given social system and is a condition for progress; in the second case, inequality develops as a result of the redistribution of income in families, which to a certain extent is “unfair”, since in a certain part it is not related to the work and labor merits of people.

In the conditions of a centralized economy and an egalitarian society based on the equal distribution of income of the population, the problems of differentiation and economic inequality were insignificant and did not cause concern to specialists. A characteristic feature of the planned economy was strict state control over the incomes of citizens in order to prevent their differentiation. This was achieved by establishing mandatory tariff rates and salaries, defining various “limits” on wages, and limiting the size of bonuses.

The situation changed dramatically with the beginning of the transformation and the emergence of market relations. On the one hand, the employee is given the freedom to choose his place of work, profession, etc. On the other, competition in the labor market has increased. Employers now have the right to choose to hire and determine the amount of wages. Economic structures have become independent in the sphere of organizing wages. A high level of income differentiation is fundamentally inherent in countries with developed market economies, especially at the initial stage of development, and is associated with restrictions on employment, inflation, and shifts in the structure of production.

The causes of inequality and wealth stratification by income are the unequal distribution of income and property; unequal starting conditions for the development of individual labor activity, entrepreneurship, and business; relatively low wages for some categories of workers; increasing the proportion of dependents in the family; the presence of unemployed able-bodied persons; low level of social benefits; untimely payments of wages, pensions, benefits.

One of the serious factors of increasing differentiation is inflation, in which payments are practically not indexed as prices rise, and the rise in price of the consumer basket occurs at a rate that is faster than the general rise in prices.

One of the existing factors of differentiation in workers' compensation is income taxes. Russia differs from Western countries in its peculiar “equalization”. Currently, a single income tax on personal income has been introduced in the amount of 13%. While in the EU countries there are progressive scales with tax rates increasing as monetary income increases. Thus, in Germany the highest tax rate is set at 53% of income, in the UK, Spain, Hungary, Estonia - 40%

Inequality and social and property stratification of the population is one of the serious problems in the formation and development of market relations. To quantify income differentiation, the decile coefficient, Gini coefficient and Lorenz curve are used.

The decile coefficient is the ratio between the average incomes of the 10% most affluent and 10% of the least affluent citizens.

The Gini coefficient is an index of population income concentration.

The Lorenz curve shows the extent to which the actual distribution of income moves away from the state of absolute equal distribution.

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