Salary vs. Wages in Production: Should Managerial Salaries Be Direct or Indirect Costs?

I am working in an FMCG Company with 250 employees in the Production Department. This department consists of one Vice President, two Manager Production, and one Production Head.

Query on Salary and Wages Calculation

My query is when calculating the salary and wages of the Production Department, should the salaries of all the managerial employees in the department be considered as Wages (Direct Cost) or Salary (Indirect Cost)?

Regards,
Ankita Shukla

In my view, salary is a general term for remuneration paid to an employee for the work done by them as per the terms of their employment or contract of service, whereas the expression 'wages' has a statutory flavor as each statute defines 'wages' differently, considering the objectives of the relevant statute. For example, the Payment of Gratuity Act defines wages as consisting of basic and DA and excludes HRA, while the ESI Act includes it. This understanding is based on different labor laws. It is not clear whether distinguishing wages to indicate direct costs and salary as indirect costs is based on accounting norms, but I am concerned whether such a rule aligns with employment norms as it could have legal implications.

Regards,
B. Saikumar
In-House HR & IR Advisor

The differences between Salary and Wage are as follows:

1. We express salary as packages, but wages are expressed as an hourly payment to employees. In detail:

Salary is best associated with employee compensation quoted on an annual basis. For example, the manager of the assembly plant might earn a salary of Rs. 12,00,000 per year. If the salaried manager is paid monthly, their paycheck will show a gross salary of Rs. 1,00,000 for one month. Since the salary is the same amount for each pay period, the salaried employee's paycheck will likely cover the work period through the date of the paycheck.

Wages are best associated with employee compensation based on the number of hours worked multiplied by an hourly rate or piece rate of pay. For example, an employee working in an assembly plant might work 40 hours during the workweek. If the person's hourly rate of pay is Rs. 100, the employee will receive a paycheck showing gross wages of Rs. 4000 (40 x Rs. 100).

2. Salary earners usually receive paid time when they are not working, whereas wage earners often have to give up pay for time off.

3. Salary workers are rarely offered overtime pay. Salaries can contain all kinds of benefits and perks.

Please check the terms and conditions of the Appointment letter of employees/managers of the concerning department to see if it is offered in CTC or Gross salary. Generally, at the managerial level, companies offer salary rather than wages as per industry rules.

In my opinion, the compensation or financial benefits for services of all the managerial employees in your production department will be calculated in Salary.

I hope the above examples will help solve your problem.

Regards,
Prakash Tiwari
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