Question

Explain the components of compensation of employees for calculation of National Income by Income method.

Answer 1

Compensation of employees refers to the factor income earned by labour in exchange of their factor services. Its components are Wages and Salaries, Employers’ contribution to social security and Retirement Pension.

1) Wages and salaries:
Factor payments received by employees in the form of bonus, commission, perquisites, etc.

2) Employer's contribution:
Amount deposited by the employer in Provident Fund, insurance schemes, etc. of the employees.

3) Retirement Pension:
Amount deposited in pension and pension-linked schemes for the employees.