Chapters of the article
The vast majority of employers try to motivate their employees in some way. The work itself – its meaning and prestige, a pleasant and inspiring working environment and, of course, pay can help them to do this. Pay can be designed with regard to the type of work, how the work is scheduled and also, for example, linked to company achievements. In addition to the classic monthly salary, various modifications are thus offered, such as rewarding the processing of a certain task or linking part of the salary to the company’s profit or a certain project. It is up to the employer to consider what will be the most mutually interesting form that will help them attract quality, motivated employees.
Wage versus salary
Employees of the state, municipalities or contributory organisations have it fairly straightforward when it comes to setting their salary, as the basic rate is governed by tables. Subsequently, however, the amount of salary can be modified in certain ways by means of personal assessments or bonuses.
Employees of private employers receive a salary. However, these terms are commonly confused and it is easy to come across someone who informs us of their ‘salary increase’ even though they work in the private sector.
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Forms of pay
- task pay – e.g. pay for standard hours, or pay for the completion of a specific task,
- time wage – typically a monthly wage, but hourly wages are also common, or wages set for an otherwise long period,
- share pay – this is determined, for example, by a share of profit or turnover.
Wages need not be understood as a single amount, but also as the sum of various components that can also have an incentive effect.
Entitlement and non-entitlement part of the wage
Within the specific wage of a worker, we can therefore distinguish between
- theentitlement part of the wage to which the right has accrued under the employment contract, the internal regulations and the wage (salary) assessment,
- thenon-entitlement (variable, optional) part of the wage, which consists of:
- bonuses – these are not part of the salary assessment. They are awarded, for example, for the completion of an extraordinary task or within a certain period of time (Christmas bonus). A popular ratio is 70:30, where 70% is salary and 30% is bonus, but it depends entirely on the employer and his possibilities what ratio he chooses. This component of the salary is not fixed, either in terms of the base or the amount. Nor does it have to be a regular part of the salary
- profit share – this is a special type of bonus paid on the basis of the employer’s profit,
- remuneration for overtime, public holidays, weekend work, night work, extra pay for working in difficult working environments, on-call time, or management bonus.
Tip: If you are interested in what you are entitled to as an employee, what are the legal obligations regarding remuneration and which benefits are beneficial for employees and employers, read the related article.
Negotiated versus set wage
Thewage can be unilaterally or bilaterally fixed (agreed). This in turn affects the way in which the wage is increased or decreased.
It is obviously more advantageous for the employer to determine the wage unilaterally. According to the Labour Code, wages must be agreed, fixed or determined before the work for which they are to be paid commences. At the latest when starting work, the employee should receive a written wage determination, which usually specifies the method of remuneration, the date and places of payment.
As an employee, you will appreciate it if the wage is agreed by bilateral negotiation, i.e. an employment contract or a collective agreement. Wages can be agreed in an employment or collective agreement.
Tip: It is important to be clear when negotiating salary whether it is gross or net pay. We have provided a more detailed explanation and calculations of both wage options in our article.
As noted above, the key to changing the wage is how the wage was determined. If the wage was agreed by agreement, the employer cannot unilaterally reduce it, unless the employee has started to perform work that is classified in a different job group. A reduction therefore requires the consent of the employee (in the form of an amendment to the employment contract) or the trade union that negotiated the collective agreement.
In the case of unilateral determination, the wage may be reduced, for example, if the complexity or difficulty of the work changes or if the employee’s performance deteriorates.
However, there may also be situations where the wage has been determined in a combined manner, for example, where the fixed part of the wage is regulated in the employment contract and the variable component of the wage (typically the personal assessment) is regulated in the wage assessment. In such a case, the employer can simply decide to reduce or abolish the variable component of the wage, while the employee’s consent is required to change the fixed part of the wage.
Tip: The amount of wages can also be affected by various deductions from wages, whether voluntary or involuntary. We took a closer look at these in our article.
Nominal and real wages
The terms nominal and real wages are sometimes used in the context of wages. While a nominal wage represents a specific monetary remuneration, a real wage tells us about the value of the wage, i.e. what the wage can really buy for the employee. This of course changes, for example, due to inflation. High inflation can then cause real wages to fall, although nominal wages, for example, may remain the same.
Tip: Simply put, the minimum wage is a basic amount that every worker should be able to earn. But its meaning is much broader. The concept cuts across different areas of law and can apply to almost anyone. How is it determined and what is the difference between the minimum wage and the guaranteed wage?