What is Salary Cap? A salary cap or freeze may be defined as a temporary cessation in the salary increments of both contractual and permanent employees in an organization. An organization generally resorts to such a measure when it wants to rein in spiralling costs during recessionary times. Salary freezes are also undertaken when a company wants to avoid taking the painful process of retrenching employees, especially those who have been serving the establishment for long. Impact of Salary Cuts Salary freezes or cuts are more often than not undertaken by both private and public sector enterprises when they’re facing financial trouble. When a company introduces salary freeze in order to save money, it is the employees who have to bear the brunt as the total emoluments that they receive from the company is capped. In other words, the typical worker whose salary is freezed finds it very difficult to make ends meet, especially if an inflationary trend is prevailing in the economy. It also leads to his self-esteem hitting an all-time low. If the salary freeze phase persists for an extended period, the employee might have to take the extreme step of leaving the organization and start looking for a new job with a more respectable or better pay. Therefore a company that is forced to take recourse to salary cap as a cost-cutting strategy also has to be prepared to lose resourceful employees. However, the upside of taking such a measure from the organizational perspective is that the money that would have normally been apportioned for making increased salary payments can be harnessed for keeping the organization viable. A Salary Cap Usually Benefits the Employer Salary caps are rife when the economy is going through a recessionary phase. Usually a salary freeze measure introduced by a company is accompanied by a provisional lull in the hiring process. This two-pronged technique helps the employer to economise as he does not have to allocate additional funds for salary payments (that he’d have to had he recruited new employees). Most often, it is the temporary or casual employees who are the worst hit during a salary freeze as an organization is not legally bound to pay increased compensation to them. Since the nature of their employment is contractual, the company does not have any obligation to pay them salaries at the regular rate. In case, the temporary employees resign from the organization because of a salary cut or freeze, the employer will be able to channelize the money (that otherwise would have to be paid to the impermanent workers) for business growth and also prevent the organization from going into the red. The employer would also be in a position to increase his company’s revenues as the permanent employees will be taking on more workload without expecting a salary increase. They’ll think twice before quitting as finding a new job with a higher pay packet might be difficult during times of economic depression. Salary Cap Scenario in India Working professionals in India both in the private and public sector could look forward to 11% salary hike in 2014. There are no forecasts of salary cap or freeze in 2014 in the Indian employment market.
[via Salary in India - NaukriHub Blog]
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