Complicated wage systems cause most problems in SMEs

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In spring 1998, Finland's TT employers' confederation commissioned a survey into problems relating to collective agreements in small and medium-sized enterprises (SMEs). According to the results - published in August 1998 - wage structures and wage systems are too complicated and inflexible, while the terms of agreements at local level need to be clarified. However, Finland's centralised incomes policy agreements are considered to function well in SMEs.

In a survey commissioned in spring 1998, the Confederation of Finnish Industry and Employers (Teollisuuden ja Työnantajain Keskusliitto, TT) examined the problems relating to employment relationships that are found in small and medium-sized enterprises (SME s). The background to the survey is a working group that was set up in connection with the current 1998-2000 central incomes policy agreement (FI9801145F) with the task of discovering the special problems facing SMEs. In the TT survey, 18 propositions were put forward for evaluation by employers in relation to their own companies. These propositions concerned collective agreements, employers' contributions, holidays, sick leave, and protection against unilateral termination of contract.

According to the survey results - published in the TT news bulletin in August 1998 (TT tieto 11/98) - the majority of the problems for SMEs in employment relationships concern the wage system. The employers find the perceived inflexibility of wages and the complexity of the system problematic.

Background to the Finnish wage system

In Finland, wage systems and structures are regulated extensively by collective agreements. SMEs follow the same wage rules as the larger companies, although the latter often have resources for handling wage issues. As with the larger companies, SMEs employ several personnel categories, and even the smaller enterprises have to apply the wage rules laid down in several collective agreements. For instance, if the wages of its blue-collar workers are based on actual working hours and the salaries of its white-collar workers are paid on a monthly basis, even a smaller enterprise faces the same wage administration requirements as a larger company.

The basic wage scales generally follow the rules laid down in collective agreements. However, the application of these systems often entails work-task analysis and preparation of job descriptions in order to select the right minimum wage from the collective agreement in question. Some agreements even presuppose systematic evaluation of personnel qualifications. Furthermore, the way that wages are structured in terms of time-based and performance-based remuneration varies in different cases. When contract work and assignments on a fee basis are also handled differently, SMEs may be swamped in "red tape".

Work in SMEs often requires the ability to perform several jobs, with the work tasks rotating; in such cases, strictly following the collective agreements is problematic. SMEs are hoping for simplified wage systems and for enterprise-level applications of the rules to be allowed.

Main findings of the survey - wage system too complicated

According to the TT survey results, the majority of the problems in SME employment relationships concern the wage system. The employers concerned find the wage structure and wage systems too complicated and inflexible. About 70% of the respondents shared the view that collective agreements were too detailed and difficult to adapt in practice. Over 40%, however, considered that these agreements provided enough opportunities for company-specific solutions. Almost half of the respondents stated that the wage system does not meet their company specific needs.

Other survey findings included the following:

  • in contrast with sectoral collective agreements, the employers were happy with centralised incomes policy agreements. Almost 80% stated that the agreements of the last few years had guaranteed peace in the labour market;
  • the respondents were unanimous in their view that company-specific needs should be taken more into account;
  • a majority of the respondents found the present system of shop stewards to be quite successful. About 60% stated that the system had not caused problems, though one-fifth stated the opposite;
  • fewer than 10% said that they used all the opportunities available for flexible working hours;
  • parental leave and arrangements for substitute employees caused some problems. These were greater in growing companies than in non-growth companies;
  • some 60% of the SME employers find the collection of employers' contributions to be an excessive burden; and
  • differences between sectors were hardly noticeable in the survey results. Neither did company turnover affect the responses significantly, though some differences could be seen in relation to whether or not a company was growing.

Commentary

Finnish collective agreements seem to be quite complicated for SMEs to follow and, according to the TT study, their wage systems cause major problems. The employers would like to have flexible systems, but the question is how to introduce them without infringing on employees rights. The complexity of the collective agreements does not serve either party, but in general these agreements have become too detailed and thus difficult to adapt in practice. Some sort of coordination is needed. Has the agreement apparatus moved too far away from the reality of SMEs? On the other hand it is amazing that, although the employers are in favour of flexibility, only 10% of SMEs state that they make full use of the opportunities for working time flexibility. The reason behind this is that the smaller companies often have a resource shortage and have to focus their energy on running their daily business. Information on what it is possible to do within the framework of local agreements does not necessarily reach the enterprise level efficiently. However, the inevitable trend is that the possibilities for local agreements will be extended in order to meet company needs. In this context, the company industrial relations culture has a central role to play in whether this process can take place in mutual understanding between employers and employees. (Juha Hietanen, Ministry of Labour)

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