pay and benefits outside the united states discussion

“Pay and Benefits Outside the United States” Please respond to the following:

  • Select the minimum pay and retirement practices of one (1) of the countries discussed in Chapter 14. Next, determine the likely result that will occur if those practices were adopted by the United States. Provide support for your response.
  • Predict one (1) critical issue that could pose a major challenge to compensation professionals in the next ten (10) years. Next, propose a solution to this challenge and how a resolution could be accomplished. Justify your response.


  1. 5 For Asia (India and the People’s Republic of China), summarize key facts about wage and salary, paid time-off benefits, and protection programs.

In 2015, China was the largest economy in Asia, followed by India and Japan.41 Asia has several trade blocs, including Asia-Pacific Economic Cooperation, Asia-Europe Economic Meeting, Association of Southeast Asian Nations, and South Asian Association for Regional Cooperation. Given the wide variation and diversity in the world’s largest and most populous continent, however, there is no unifying economic body like the EU or NAFTA that represents all the countries of Asia. This section will examine a representative sample of the relatively more developed and developing economies in Asia: India and China. A bloc of countries that is not examined here, but that nonetheless deserves mention because considerable jobs are being outsourced there, are those in Southeast Asia: Thailand, Vietnam, Singapore, Malaysia, Philippines, Cambodia, and Laos. These economies are seeing a current influx of foreign investment, although they are not close to the countries discussed here in terms of annual growth rates.


According to the CIA World Factbook, India is a democratic federal republic with a diverse economy ranging from traditional farming to high-technology industries.42 India’s labor force is quite large with 502.2 million individuals with a per capita GDP of $5,800.00. The Indian economy, though steadily growing at close to 5 percent annual rate, is plagued with income disparity and developmental challenges similar to China. More than half of India’s output is created with less than one-quarter of its labor force, and services are the major source of economic growth. Strong economic growth combined with easy consumer credit and a real estate boom is fueling inflation concerns, and the huge and growing population poses fundamental social, economic, and environmental problems. Basic constitutional legislation governs the employment relationship for all employees, ensuring equality of opportunity to public employment and prohibition of child labor.

The Directive Principle of State Policy has statutes that affect various aspects of the employment relationship (e.g., working conditions and participation in management).43 Some of the key employee benefits provided by employers in India are provident fund, gratuity (bonus), pension (i.e., either defined benefit or defined contribution), housing, car, loans, life insurance protection for dependents, health and disability benefits, medical benefits for employees and their families, and leave encashment.44 The Employees’ Provident Fund Organization is one of the world’s largest Social Security programs with more than 35 million members. Gratuities apply to most employees in India, and these are funded through employer contributions totaling 4.5 percent of payroll.45

There are wide variations between the public and private sectors, with the Ministry of Labour and labor laws governing employment relationships in the public sector and with more employer discretion allowed in the private sector. In addition, all blue-collar employees and factory workers are governed under existing labor laws.

Wage and Salary.

 Minimum wage is fixed by an authority dual system. Minimum wage rates are determined by the government for certain sectors, and a collective agreement determines others. Minimum wage rates may be set in accordance with the Minimum Wages Act 1948 for occupations that are largely nonunionized or have little bargaining power. This act applies throughout India, including the provinces of Jammu and Kashmir. Schedules 1 and 2 of the act set forth the occupations for which applicable central and regional governments may set minimum wage rates. The central government sets minimum wages for 45 different occupations, including agricultural work, construction, road maintenance work, mine work, railway work, and stone breaking or crushing work. In addition, states have set minimum wages for 1,232 different occupations in their respective regions. Minimum wage rates set apply only to those scheduled occupations that have more than 1,000 employees working in the applicable state. For example, in Delhi, the minimum wage rate ranged between 348 and 461 rupees per day in 2015.46 The wage rate varies by the level of job skill and industry.

Paid Time Off Benefits47

 Leave is usually calculated for each year based on the number of days worked in the previous year. A worker is entitled to 12 days of time off for every 240 hours worked. There is no statutory provision for holidays, or paternity leave, but maternity leave is allowed in the form of paid time off and possible medical bonus.

Protection Benefits


 First and current laws regarding pensions were passed in 1952 (i.e., employees’ provident funds), with amendments in 1972 (i.e., payment of gratuity), 1976 (i.e., employees’ deposit-linked insurance), 1995 (i.e., employees’ pension scheme), and 1995 (i.e., national social assistance program). Pension benefits include provident fund with survivor (i.e., deposit-linked) insurance and a pension fund, a gratuity scheme for industrial workers, and a social assistance system. In 2004, a voluntary old-age, disability, and survivors’ benefits scheme was enacted. This program is part of the Unorganized Sector Social Security Scheme for employees and self-employed persons ages 36–50 with monthly earnings of 6,500 rupees or less but without mandatory coverage, and was introduced as a pilot program in 50 districts. Contributions are income related and flat rate. Coverage includes employees, including casual, part-time, and daily wage workers and those employed through contractors, with monthly earnings of 6,500 rupees or less working in establishments with a minimum of 20 employees in one of the 182 categories of covered industry (the establishment remains covered even if the number of employees falls below 20).

Employees covered by equivalent occupational private plans may contract out. Voluntary coverage exists for employees of covered establishments with monthly earnings of more than 6,500 rupees, with the agreement of the employer and for establishments with less than 20 employees if the employer and a majority of the employees agree to contribute. Provident fund contributions include 12 percent of basic wages (10 percent of basic wages in five specified categories of industry) in covered establishments with less than 20 employees and some other specific cases. The maximum monthly earnings for contribution purposes are 6,500 rupees (1 USD = 46.30 rupees).

Health Benefits

 SSA reports that state governments arrange for the provision of medical care on behalf of the Employees’ State Insurance Corporation.49 Services are provided in different states through social insurance dispensaries and hospitals, state government services, or private doctors under contract. Benefits include outpatient treatment, specialist consultations, hospitalization, surgery and obstetric care, imaging and laboratory services, transportation, and the free supply of medications, dressings, artificial limbs, aids, and appliances. The duration of benefits is from 3 months to 1 year, according to the insured’s contribution record. India’s per capita expenditure on health based on the country’s PPP exchange rate was $156.90 in 2012.50

People’s Republic of China

The People’s Republic of China (PRC), as reported by the CIA World Factbook, is a communist state characterized by a fast-growing economy that has shifted over the past couple of decades from a centrally planned system to a more market-oriented one.51 With a labor force of 801.6 million people and a per capita GDP of $12,900.00, PRC has been experiencing continuously high annual GDP growth at around 7.5 percent. Even though the purchasing power parity of PRC has become one of the top in the world, the lower per capita GDP is an indication of income disparity within various strata of society. One of the key challenges for the government has been to sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the workforce.

The PRC Labor Law was established in 1995, resulting in a break from the traditional “iron rice bowl” system of employment, with a shift from state-owned enterprises to private ones, a move that has given rise to new employment relationship issues.52 Under the older welfare system, the workforce was considered the property of the state, and such benefits as housing, medical, and retirement schemes were payable directly by the state-owned enterprises to the employees. Since the introduction of the PRC Labor Law, the employment relationship is now defined by individual contracts.53

Wage and Salary

 According to China’s Labor Act, 1994, the state possesses the responsibility to implement a system of guaranteed minimum wages. There is no national minimum wage rate in China; instead, minimum wage rates are set by region. Separate standards are stipulated by provincial, regional, and municipal peoples’ governments for their respective region and reported to the State Council for consent. The provisions concerning minimum wages apply to enterprises, private nonenterprise entities, individual industrial and commercial households with employees (the employing entities), and the laborers who have formed a labor relationship with them. The minimum wage rate varies by region. In 2014, the monthly minimum wage was highest in Shanghai at 1,820 yuan, and lowest in Guangxi Province at 830 yuan. The minimum wage has increased significantly in recent years, in part, to reduce social inequality and to boost domestic consumption (i.e., those within China purchasing goods and services originating within China). Some companies have expressed concerns that continued increases in the minimum wage threaten the long-term viability of the company, particularly now that China’s economic growth is less than it was in previous years.54

Paid Time Off Benefits55

 The length of an employer-approved medical treatment period generally depends on employee age and period of service and can range from 3 to 24 months. During this period, the salary paid to the employee may not be less than 80 percent of the local minimum wage. Employees who have worked for 1 to 10 years are entitled to paid annual leave of 5 days. Employees who have worked 10 to 20 years are entitled to paid annual leave of 10 days, and those with more than 20 years experience are entitled to 15 days. Employees receive time off for 11 public holidays each year. Employees who have worked for more than 1 year are entitled to “home leave” if they do not live in the same place as their spouse or parents. Employees earn normal wages during this period, and employers are obligated to pay all travel expenses for employees visiting their spouse and for unmarried employees visiting their parents. Women are entitled to no less than 90 days of maternity leave starting 15 days prior to birth.

Protection Benefits


 The Office of Policy of the SSA reports that there has been a new law to decouple the employment relationship from the social insurance system, setting up a unified basic pension system.56 The system now has social insurance and mandatory individual accounts, and provincial and city or county social insurance agencies and employers do adapt central government guidelines to local conditions. Coverage includes employees in urban enterprises and urban institutions managed as enterprises and the urban self-employed. In some provinces, coverage for the urban self-employed is voluntary. (Urban enterprises comprise all state-owned enterprises, regardless of their location.) Old-age provision in rural areas is based mainly on family support and through community and state financial support. Pilot schemes in the form of individual accounts, supported at the town and village level and subject to preferential support by the state, operate in some rural areas. Employees of government and communist party organizations, and of cultural, educational, and scientific institutions (except for institutions financed off-budget), are covered under a government-funded, employer-administered system. Enterprise-based pension systems cover some employees (including the self-employed) in cities.

An employee contribution to mandatory individual accounts is 8 percent of gross insured earnings. (The contribution rate is higher in some provinces.) The minimum earnings for ­employee contribution and benefit purposes are equal to 60 percent of the local average wage for the previous year. The maximum earnings for employee contribution and benefit purposes vary, but they may be as much as 300 percent of the local average wage for the previous year. Employer contribution to mandatory individual accounts is up to 20 percent of insured payroll based on local regulations. The contribution is taken from the total contribution made to basic pension insurance. Central and local government subsidies are provided to city and council ­retirement pension pools as needed.

Health Insurance57

 There is a unified medical insurance system with all employers and workers participating in this system. Employers contribute 6 percent of payroll to the system, whereas employees contribute 2 percent of their salary. Health insurance is based on Basic Medical Insurance Fund consisting of a Pooled Fund and Personal Accounts. Employees’ contributions go directly to their personal accounts and 30 percent of employer contributions are paid into this account. Covered workers receive medical benefits at a chosen accredited hospital or clinic on a fee-for-service basis. The individual account is used to finance medical benefits only, up to a maximum equal to 10 percent of the local average annual wage. The social insurance fund reimburses the cost of the medical benefit from 10 to 400 percent of the local average annual wage, according to the schedule. Medical treatment in high-grade hospitals results in lower percentage reimbursements, and vice versa. Reimbursement for payments beyond 400 percent of the local average annual wage must be covered by private insurance or public supplementary schemes. Contract workers receive the same benefits as permanent workers. Per capita expenditure on health insurance based on the country’s PPP exchange rate was $480.00 in 2012


Germany is a federal republic with the fifth largest economy in the world as indicated by a per capita GDP of $44,700.00, according to the CIA World Factbook.35 The German labor force has about 44.76 million workers. The integration of the former East German economy is a strain on the overall economy of unified Germany, and unemployment rates have been very high. Germany has recently been pushing such labor market reforms as increasing the retirement age and increasing female workforce participation. There have been increasing concerns about the aging workforce and high unemployment bankrupting the Social Security system, but for now Germany has managed to bring the deficit to within the EU debt limit. Germany’s employment laws provide considerable voice to labor and job security to employees; the German Civil Code provides numerous statutes that deal with individual employment as well as collective agreements.36

Wage and Salary

 Minimum wage in Germany is established through the collective bargaining process. In Germany, there are two types of collective agreements. First, association agreements are made between trade unions and employers’ associations. Second, company agreements are made between trade unions and individual employers. An extension of either type of agreement to other sectors or employers may be granted upon request of at least one party to the collective agreement.

As an example, the agreement for the metalworking industry in Baden-Württemberg has been selected because it concluded a new pay framework agreement (ERA-Eckentgelt) in 2003, and in February 2004, concluded a collective agreement fixing the projected percentage increases in minimum wage for the next 26 months. The German government does not mandate a minimum wage, except for construction workers, electrical workers, janitors, roofers, painters, and letter carriers, set by collective bargaining agreements in other sectors of the economy and enforceable by law.

Paid Time Off Benefits37

 Employees cannot be required to work on official holidays, which range from 10 holidays per year in northern Germany to 13 in southern Germany. The statutory minimum vacation has been set at 24 working days (or 4 weeks because Saturdays are counted). Younger workers have a right to a vacation of 25–30 working days; disabled workers have an additional 5 days of vacation. There is minimum 6-month employment eligibility for vacation. Under the terms of the Maternity Leave Law, time away from work as a result of maternity leave or other limits on work by pregnant women and mothers must be counted as time worked for the purpose of determining entitlement to vacation time. Employees may take 5 days annually or 10 days every 2 years (under individual state level statutes) as paid holidays for continuing education purposes at only state-approved institutions. The employee retains a job if he is drafted for military or called for military exercises with a suspended employment relationship. The employee should receive regular pay during illness for a period of 6 weeks.

Expectant mothers can take 6 weeks’ leave before the due date and 8 weeks after giving birth. During this time, the employee must be paid at least their average salary or wages calculated on the basis of the last 13 weeks before commencement of leave. An employee can request up to 3 years of child-rearing leave. Employers must guarantee return to the same job following completion of this leave. Any payments for child-rearing leave are made solely by the national health authority.

Protection Benefits


 Germany has a statutory pension system analogous to the Social Security system in the United States. In addition, employers offer the company pension plan and a tax-favored investment plan. Employees have three different sources for their pension benefits: statutory pension insurance, company pension plans, and private life insurance.

Health Insurance

 German laws stipulate guidelines for minimal health welfare of workers.39 For blue-collar workers (and some white-collar workers), mandatory state health insurance premiums are borne 50 percent by the insured and 50 percent by the employer. The employer is required to collect the employees’ contributions and to pay the entire amount to the appropriate collector. Employees whose income exceeds a certain amount can opt out of the state plan and purchase private health insurance. In such cases, employees may request that the employer’s health insurance contribution be included in their salary. Germany’s per capita expenditure on health insurance in 2012 based on the country’s PPP exchange rate was $4,617.00

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