3 Labour Cost (Employee Cost a Learning Objectives ei hel cd fo i After studying this chapter, you should be able to: ‘© Understand the meaning of direct labour and its importance * Discuss the meaning and causes of labour turnover and the methods of its 0.()p, ‘measurement iP ; 009 « Know the various methods of time keeping and time booking ‘Vin jy., | © Explain idle time and overtime and their effect on cost © Understand time rate and piece rate systems of labour remuneration 00 ui. | © Understand the various incentive plans of labour remuneration and their effect on cost and profit ts MEANING Labour or manpower represents human resources used in production. After material cost, labour cost is the second major element of cost. Despite large scale use of machinery and advanced technologies in manufacturing, the role of labour in production cannot be under-estimated. So significant is the role of labour that productivity of all other resources depends on the productivity of human resources In other words, higher efficiency of labour helps in lowering the cost per unit of Production. There is, therefore, a special need for proper organization for accounting and control of labour cost. According to Cost Accounting Standard-7 (CAS-7) issued by ICAI, employee cost is ‘the aggregate of all kinds of consideration paid, payable and provision made for future payments, for the services rendered by employees of an enterprise (including temporary, part time and contract employees). Consideration includes Wages, salaries, contractual payments and benefits, as applicable, or any payment made on behalf of the employee. This is also known as labour cost. Labour cost is of two kinds: () Direct labour cost (ii) Indirect labour costcad ee vot (Employee C00? a 1 Cos! - von which can bE Attributed y, f employees 4 z t labour is © . Wein directly engaged im prog buted wholly £0 particular jy rect labour cos the cont O pended in altering th, Direc | y. product a Inan oo i ondition of the ima atin of condition = , he conveniently f ; operator isa di n ne opiijor are direct wages. Similarly, in , wages paid (0 4 are direct Wages and en” paid to @ We wages P aver 5 paid to those wor, other hand, is tl pa worker ton the other Mi materials into finished product, «" n particular cost object. Supervisor 1d cleaners are exarnples of indir? ret ab a Inaret pened wn convert wweniently identified with , watchmen an cannot be © clerks, instructors, Pe Orga trol of Labour Cost for Accounting and Con ra ganization which deal with lah, There are mainly five departments in an 0} are as follows: c department and is mainly concen, sof ‘er 4 department This is a service a in ef At Personnel dep! ff workers and placing them on jobs for yj, clo the proper selection and training 0 are best suited Engineering department This department prepares and plans specification snakes job analysis, conducts time and motion studies, makes provision p<" — working conditions and supervises production activities an é Time-keeping department This department is concerned with recording of ws. time. The recording of time put in by workers is required not only for attendic, wage calculation purpose but also for the purpose of cost analysis and appor:- _Back-page of th of labour cost over various jobs. Tim Payroll department This department maintains a record of job classification 1! Bi Task rate of each employce and performs the function of computation of wages pa) them by preparing payroll or wage shect. It is also responsible for disbursen: "™” Siciness & wages. ‘dyendy precerett department This department accumulates and classifies allo of which labour is one important clement, It analyses the payroll and prepare and special labour cost rey ‘st reports for submission to managemer ee may be exercised on labour cost, ee The functions and scopes of the: SONS fo, detail, later in this chapter “ | Re se various departments have been disc | Obey PERSONNEL DEPARTMENT ‘ent, discharge and transfer, ete. 0!” ployee Ba ay _ employee, particulars Off" Ploy, Mess. g dical category. This is shown it Me jy Sang © the work *d about the engagement of a new el ya%Re jp WD g expected to one '© report for duty, a notification ay eae co on a certain date aa Y by : a be thal the Worker jy| EE ©. 4 Labour Cost (imployee Cosy 1 4.8 formed about the new employee's name, the name of pay, date of syrott department 8 ‘rhe PAP emer employee whom he replaces, elock number, nt, et or recording the employee's attendance, “ORD CARD | No. Employment Record Date | Deparment | Grade [seats Ons cnn cose Rate Particulars | 7 fr. - se Date rt ; utc Ewog, | Ree ants | aes dance, ortiom, Backpage of the card Time-keeping and Merit Education and Training 1 and: [Days lost Over-| Lost - Educational qualifications - ime | ti Merit | Others} payitt FT sickness &] Others| “ime | jme ca a ra (hrs.) | (hrs.) fecident -| Schools/colleges attended I cost | Vesoe From sa TO es rs | From To er cil | Date left | Training at Reasons for leaving a CUS | Other remarks... Fig. 3.1. Employee’s record card. of tasour Turnover fC 1g RO ste ba ine organizations, it is a common feature that some worker 2 ene paid new workers join in place of those leaving. This change © wo if Change a” #8 labour turnover, Labour turnover is thus defined as ‘the rate a Paige te composition of the labour force in an organization.’ Labour (writ fe aay between different trades and industries. For example, where part-time nal labour is employed, the rate will be higher. es s leave thepour me 2 ah yee por he Har TUOVT oats and different undergy, not or ee 4 ds OY My llowet FO compan! oH ee a onsist€ Rreenati¥® cg age tO count only those workg, hod nod ake inte nis me ol of atl period: pohaveleft during a periog sant 500 for workers We luring the period vee pure’ ve rot at es AMEAETENOL "hy yoo ate = ~ Average mye i ne rer REET TTT A oratory, No peginning __end of the ma “al in the besi — fo gqui average Number = 2 ear ee sates that the rates are in preg, the given formulae indica ea iy thos = - xtuttiptcation by 100 i0 Tee method takes into a onl X 1 Fe x jethod This 8 Teft, Its formula stati te 2. Replacement ace of those who have aero sino have joined in placs = te atic who have j No. of workers replaced during the period xy @ © a aoe Turnover Rate = “erage no, of workers during the period Replacen Labour Tut erage ee methe gramme or any other such, (0 rkers are engaged for expansion progra 1% No, of worke pee ‘dered for this computation. . N sc Severe osition of labour fy Att the total change in the comp ar Soment of workers. Its formula is: oe During the 1 No. of workers wholeft +No. of workers replaced vere recruited. ( Labour Turnover Rate=——- Average no, of workers "ile the rest W 3, Flux metho t to separations and replacement of w« Labour Turnover due to New Recruitment It has been stated above thats: ssiution joining the organization on account of opening of new departments or duet ‘ype of expansion programme should be excluded while calculating the labourtw rate, But these new workers recruited are certainly responsible for a changtt x 199 = 2.5% _s 1,000 as 3. Flux Rate _ 50425 1,000 n expansion plan have not been considered x 100= 7.5% tS "Note: So tei Additional workers engaged Alternative methods produce yen the following rates: : Labour t ig UfDOVer rate fo, * 125 S*cluding replacements) new workers = Zon * 100 ae125 2 7 100 1353 0) 59 6252325, yom ~ 2 5 100 = 29, 1,0 /, ap vabour Tumnover— vepaved sopularly 19 Be | 08 Or nould De Prey why the Work le Fo ag warner FOP" vn of the causes Ta ar ving 2 break ork i) Avoidable and (i) mane fied i proad catego? elassified in tWO nay be clas causes fi sauses These includ 1s and allowances ith co-wor) 1g conditions 2. Unhappy relations # ers and supervisor® 4, Unsatisfactory workin 4 ‘Trade union rivalry Leak of medal facilities, ransport facilities, Fic 4 Inadequate job security and retirement benefits Unavoidable causes These include: 1. Death or retirement 2. Mness or accident 4, Domestic problems 4. Discharge on disciplinary grounds 5, Seasonal nature of business 6, Change in plant location 7. Personal dislike for job or environment & Marriage—particularly in the case of women workers 9, Change of job for betterment Effect of Labour Turnover Acertain smou int of labour tt er may be welcome, particularly en Vil always take place. To a limited ext ed extet (0 Prey mo enti Ver may be © £088; and (i) Ren be broadly ct ) Replacement o2 Ssified ini 4 lent Cost to two broad catego Satisfied ese « Ost . s. include, "4 Prevent or inate SE Which SCouray are jy Be them fj incurred t, rom lente to keep the ing theAlls Labour Cost (Employee Cost) 3.7 _only that portion of this cost which can be onnet management—only cost which ean cost of personnel rots of the personnel department in maintaining good abated (Cen management and workers i sand services, e.g, canteen meals, co-operative stores, 1d housing schemes > eaucat Gost of medical services 4, €0s _mespemes-—to provide security and retirement benefits 4, Pensions Sere’ other perquisites (in excess of those given by other similar 5. Bxtra Poms discourage their defecting to other undertakings cee eg These costs include all such losses and wastages arising because Rep Een eed new labour force replacing the existing one as well as the cost of cfibe inesPer raining of the new workers. These include: serltnet of recruitment and selection of new employees : ae of training of new workers - } Loss of output due to some time gap in recruiting new workers {Loss due to inefficiency of new workers $ cost of accidents due to lack of experience of new workers § Cost of extra scrap and defective work of new workers + of tools and machine breakdown due to faulty handling by new workers rs 7. Cost vA iaction and Control o' er Labour turnover may the basis of avoidable causes sien earlier. The following steps may be taken in this regard: 1. Devising a suitable and satisfactory wage policy 2 Providing working conditions conducive to health and efficiency 4, Impartial and sympathetic attitude of personnel management 4 Introducing financial and non-financial incentive plans 4, Providing promotional opportunities 6 Encouraging labour participation in management 1. Introducing an effective grievance procedure limited ext: Strengthening the welfare measures creates Vit Treatment of Cost of Labour Turnover The preventive cost of labour turnover should mbitious " be apportioned to various departments on the basis of number of workers in each work from department. Regarding the replacement costs, if the replacement is due to the fault of a { becavsel Particular department, it should be directly charged to that department. If labour fumover is due to the defective management policy, the replacement cost should be @pporti a a ecu o various departments on the basis of number of workers in each hi ENGINEERING DEPARTMENT department sips in nai intaining control i f P for each job, proc a over working conditions and production ss or department. It performs functions like:ach 8h) <0 He action Heparttnengy sr a firm's SYS OF Acq this department 18 10 accu oF HN fe factory and also. 9 functions: fi WW parture CMe OF Work, and r wages: J for earcutation ° ag g time sPe py workers oF different jog, Pot jobs/Proe ori > data for: [about isto provide P + statutory requirements cess sed on determining productivity and co i, to mee vr cast of a job oF Pr pead cost of jobs, if ba :s of labour records for = wages or labour hours ove Methods of Time Keeping methods for recording attendance of workers. re this method, attendance of each worker is recorded int ‘his purpose. This register provides sufficient number « of each worker. Entries in the arrival and departure colun seman or the worker himself. If workers are literate, they shou ‘inst their entries to avoid any dispute later on. Sepati ay be maintained in each department if the number of workers ister will serve the purpose. method is gee sale and cheap. But it can be used only when the number small. In such cases, generally there is no need f¢ i for a si ime keep done by the foreman, Ocal 2. Token or dise method _E: ach we ete 7 Painted or engraved on around ed é allotted an identification number is sult b cn (or dise) with a hole in it. All such i amendance register ayotker is allotted @ Clock ma ee, These cards are ke’ ‘i rack and an ‘Out’ rac hrc, put it in the slot ‘another board which is gy the second board is rem Personally atthe time off ‘oved. Those comi a . ef ce So that exact tine late have to hand over theit The time offi tt ir arri absentees are sce attendance agi caensT * tha ‘ 3 the mi ¢ basi i : derarure time inthe even: SSPE hens, Sitar goocenees en ee von og, Advan, q TO i i i Procedure is followe i ity Gite "i = instan.Labour Cont (Employee Cost) © 3.9 i ot fool-proof as a worker may try to get his absentee friend t shod is y in § ris tH oping their tokens in the box Shay std Pee cracks Unlike the first two methods, this is « mechanical method Mi me oer ce and proves quite useful when the number of workers is fairly m3 Mrding atte ————————— = ae = CLOCK CARD Department ai Week ending ” eeu ‘Afternoon | Overtime | Toral hours Tou | in [Out | From formal | Overtime ee Wage rate Total wages bs _ rn Time-keeper rkers, Sate ry z (Signature) F is reco, fficient n. Fig. 3.2 Clock/Time card. departue. Each worker is allotted a Clock Card which bears his identification number, name, ent, etc. These cards are kept in a rack in a serial order. There are usually two later on. aeks—an ‘In’ rack and an ‘Out’ rack. On arrival, the worker will pick up his card from mber of wie ‘Out’ rack, put it in the slot of the clock, press a button and the exact time is tinted on the card. After this the card is put in the ‘In’ rack. An inspection of the en the meu’ racks will reveal absentees. arate tit A similar procedure is followed if workers leave the factory at mid-day for lunch ‘in the evening at close time. Clocks are adjusted so that late arrivals, early or late nies as, overtime, etc., are automatically printed in red. The time keeper must take . All a ensure that no worker places friend’s card in the clock in addition to his own, erat 8 avoid proxy yor Atthe end of cach week, the cards are sent to the pay office and a fresh set of nsf , : A rs or the ensuing week is placed in the racks. iterate, th: ints i " : Ee The main advantages of installing time-recording clocks are: port? e method is quite economical for large concerns as the initial heavy capital expendi A a ale ‘penditure in installing clocks is recovered by savings in operating expenses, ©, economy in wages of time recording staff- . videgnor: gas clocks providegpore then. _ redee i isp 20 Te f wage sheet spanees fGen JOU preparation ° _— 2 Caan og with the ed for calculation of wages Se utiliz s may Be Mod is that neaey initial CAPItAL ing, ig of this MO" giricult to affo . i vording clock is 2 electron, piometsc Hime eration technique which is, | Tt is 2 Toyee attendance: Instead of aa dance by hands they simply sensor or place thelr hand into the Head Sensor Spine. This device completely ej. | by the matime clock activity at punch info itor the improved productivity, 1 cost saving and vnetric system are as follows to mo the tme and eo pe was features and advantages orb 1, Eliminate time card 2. Automatic payroll pros 43, Bliminate buddy-punching 4, Bliminate early punch hours 5, Eliminate unauthorized overtime & Eliminate time spent on payroll calculations + Accurately report employee timelattendance to payroll and HR cessing Time Booking : In addition to recording worker's time of arrival and departure, it is necessery record the details of work done by the workers and the time spent on each job process. Recording of worker’s time spent on different jobs is known as time bockitg The objectives of time booking are: ( to ensure that the time for which a worker is paid is properly utilized; ® 1 sein te about cos of work done; it) to provi 3) fo pov bas for aporonnent of overheads; ertain the ide time 50 as to control it. Methods of Time-booking The following are the common met 1, Job Ticket Job tickets or time re i the jobs the tS C8 the time of statis isi her job ite vorEE Submits his work so SSUed 10 a Worker at Net {OF the next job (See Fig: 3° the worker ot Tat atime. Such Job (See Fig: ia alos of time hog the job stage ickets a8 § be entered on the igiee™ ishing of on. sherein. f é one job and beginnins” ete and the time Joa et ard gq lost is not undute that the record of his 8! luly 2 ¥ charged against producti®® * finishin, hen issued ano However, if there is the next job, it should activities may be comp!sade Labour Cost (Employee Cost) © 3.44 Job Ticket/Card — Job, No. Dated Time started .. Time finished Hours taken Hours Rate Amount & e Foreman Fig. 3.3 Job Ticket/Card. such ile time card should also show the reasons for idle time, like machine breakdown, ting for instructions or lack of tools or materials, +2.Combined Time and Job Card This card combines the two in one—the clock card R __gadjob card, ie. it records both the attendance time as well as time spent on different jobs. Idle time is automatically revealed as the difference between attendance time fad work time. (Format of Time and Job Card is given in Fig. 3.4.) Recess | Time and Job Card each je | Worker's No. ime boi} Worker's Name ... Department Week ending ized; Clock time | Job time | Ordinary | Over- | Job Idle Day | Job No. time time time time From| To| From | To | (Hrs.) | (Hrs.) | (Hrs.) | (Hrs.) Mon, Tue, | Wed. Thu, naib i, ew Total Total wages & .. Tinie-keeper.... Foreman... 3.4 Time and job card.ot in whCH Ne Lig completed on 4h," pate: nent Depart over time Fig. 3.5. Daily time shee a lot of paperwork as considenti ve wl be taken in preparing time sheets and in consolidating these recat} ones of escertaining labour cost. However, it is suitable where the work have vy change their jobs in a day, e.g., maintenance workers. < Weekly Time Sheet Weeldy time sheets record almost the same infor i © The main difference is that instead of recording the work wet srevback of this method is that it needs mation’ <2) wt wat cai oti enered on a weekly basis. TS eperwork as compared to daily time sheets. This method P® he jobs are big and thei eri id 7 The entries in ie may not be accurate as some worke™ hin Sitting and in the process may fo ‘ This card eekly Time Sheet is given in Fig: ‘ad maybe made cther for egy ee : Wer for cach indi 20m stmt pee el q OUD Of worker = S.A specie ough piece rate Bet uA of Pie ent On certain jobs, A 5. Piece Work € are i z Card Thi worker who is paid on pie?) Job oF for recording the WO" in Vogue, the card may De") My, | Pad on uae Work Card is given nek va ec e basis of t $e " » Fecording thei of number of ue _ ans ne ime spent on differe™ hal or 0 each yyLabour Cost (Employee Cost) 3.43 Weekly Time Sheet Week endin ie k ending, fester . Department peace at rill Total | Amount 5] penails of hours rani w Ywork dome{ | hours | Ondi| Over | Ordi-\Over | Rate| nary | time Tue| Wed | Thu | Fri | Sau | nary | time | @ | ¢ | ¢ al at | ie. Foreman. Cost clerk. a Fig. 3.6 Weekly time sheet. oy Piece Work Card Worker's No. Week ending Worker's Name Department nsiden Se reoydtb| Description | Hours | Units | Units | Units | Inspec- | Piece | Amount > woricle| ofJob | taken | pro- | rejec- | passed | tedby | rate z | duced | ted z t nation: | ork be | , wel d prove tract 15 1 fort Total wages 3.6 a ba? ae Fig. 3.7 Piece work card. Jot fia, particular wt er, it ensures Meir late i arrival o Y Where overheads are absorbed on the basis of labour hours. that piece workers do not cause any interruption in production early departure. Firm£ , he coat (mplovee Cost) PAYROLL DEPARTMENT ple for the important task op ment is responsibl ma ines payable to workers. It records hours hayralt deductions, determines the net amount earned, makes. refecord far each employes and provides the rears payments, std 1 babour € pe pull H! seeune at of ue, treasure pormanent necessary f cords to make time cards. 3. ‘To prepare the payroll and compute the wages earned by each ea | ns | lk Fanaa functions of the payroll department in the Secounting aay #\\3 {ho important functions © ” wef 2) 18 labour costs may be listed as follow: - eetalal ‘|, |. ‘To maintain a record of job classification, departme; and Wager, 4 |e ee 3\35 ‘employee. et’! i| 2 ‘To verily and to summarize the time of each worker as showy 3 3 3 Hens | sf To compute the payroll deductions iia 5, To maintain permanent payroll record of each employee. \ g » 6, To make wage payments. wages ei é 2 ° Wages Sheet Slee. ‘The main funetion of payroll department is to prepare payroll sheet, aboiaff $ | | 3 g L wages sheet, Wages sheet is a statement which lists the workers’ wags # | | 3 gross wages earned by them for a particular period and actual wages payableyft a after making necessary deductions. Time or clock cards are the basisilf 2 \\8 preparation of wages sheets, Departmental wages sheets are summarized ins el wages sheet which forms the basis for the preparation of the payroll vouchere the general ledger in cost control accounts. A pro forma of wages sheet Fig. 3.8, Earnings Pay Slip Some companies have a practice of pre handed over to the worker in basic wages and details of v allowance and other payment ‘on account of P.F. contributio The net amount payable is ay slip is given in Fig, 3.9, Paring a pay slip of each worker, whist advance of the actual Payment of wages. Pay arlous allowances like house rent allowance. s like bonus, overtime pay, n, income tax, recovery of lo shown after making all the etc., and various &4 ans, and any other & se adjustments. Sp Frauds in the Payment of Wages One of the problems associ Type of frauds The foth 1. Inclusion in the Workers whose names are fra| Labour Cost (Emplayee Cost) Ce 3tS th ‘ Be on fe 83 ay Ei Li's | eal i HF Men %, | |= a a a Ay ae > ———+ 4 2/8 th, oy FL fz ™ a 2/2 meee —___ | 4 21s leq ‘ z/78 * by 3/3 ene —— 2/42 3 Veg } im : re ae IF 11s i SSSR sh # | 83 rere, — mime ¢ | «ES Ee Bm E | «(SSE the jg. a. Ee S Department...iy 0 Department hed op Wage f ' 2p 980 ple | Basic wages ertime PAY eS iHlowance Deamess@ rf House rent allowance Pe | Bonus } i ao } act Other allowances | oection 2 act OT ove! Gross wages ot os wantin Less: PR, contribution -_ sini E.S.L. contribution : voent OF Income tax id be Other deductions Net amount payable 3.9 Pay slip. 2. Inclusion of wrong hours of duty/overtime 3. Showing absent workers as present. 4. Ignoring to mark late arrival or early departure. 5. Use of wrong rate of pay in the payroll. er and 6 6 Inclusion of bonus not due. () Full reco 7. Intentionally failing to record deductions & Manipulation in the payment of wages, maintaine 0) The app Prevention of frauds The followin, steps and int cks a ‘ to prevent fraud in wage pana Me SPS and internal checks are recom seat ae ‘ ; ‘9 Payment ar mmantlove sou be men at entity card containing such partic aapoint , mn number, department a a be required to be produced at ees FA wage toeraph, This ear wel 9 When t leaves the employment, he/she should surrendes leat ea ih al nder hi; ca 2 To detect dummy Workers, names in th ee, When names ora tie Keepers recone eAEES SHEE should be compart 7 When dimes Of ex-employees are not eS he whould be taken to see x The Wages sheet should be for its preparation, 4 Wages sheet of he previ io month and any j ms Ma nerease in thetabour Cost (Employee Cost) 1 3,47 ges are paid on piece ba , yhen wages are pa is, the q Overtime should be properly authorized © ‘ade without proper sanction, ork of preparation of wages sheet should be d 2 «, The wo e distributed Upersons in such a way that the work of each person is by another. All calculations inthe payroll should be chi responsible person. ges should be made b: tities produced should be ‘signed by the foreman, and no overtime payment should be among a number automatically checked *ked by an independent y some responsible person, The foremen © should also be present to identify the workers nd thar Signatures and thumb impressions of some of the workers should be compared with the previous 9, The exact amount of total wages payable should be drawn exact cash payable to each worker should be put in pay handing over the pay-packet, its contents should be rec “ ounted by another ic individual. J 10, Payment of wages should be made on fixed dates only. The unclaimed wages from the bank and 'Y-Packets, Before fie casual or “badli” workers are temporary workers who are not yeyroll of the factory. They are appointed on sorkioad or to stand in for absentee workers, The sppointment of casual workers is a very common source of fraud in the peyoeat of wages, It is, therefore, very important to have a proper control over then appointments, their time of work and payment of their wages. If proper control is nat fuecised, some dummy or bogus names may be shown as casual workers and the mies <0 paid fraudulently misappropriated. The following steps should be taken for counting and control of casual workers: (@ Full records regarding appointment and discharge of such workers should be maintained. ton the regular @ daily basis to meet additional ©) The appointment of such workers should be sanctioned by a competent recom: executive, (©) Payment of wages should be made by a person other than the one who h pat ppointed them. cari*” (@) When they are appointed as indirect workers, time sheets should be issued to the them, ,, © When casual workers are employed at site for some contract work, surprise pt "Sits should be paid to check their number. pe are the work, “Tlaking. Out-wo f°") Workers wi #44 they work ‘ets who work outside the factory premises on behalf of the tkers are classified into two categories as given below: ; rk from their own homes They are supplied with raw materials fr with their own tools or tools supplied by the concern. Such ‘ho wo itherol over Such Workerg Vf 2 sid on piece basis. Contra 8 Shou it Be manner: ccounted for and there fifo ferials supplied shoul Oe a cern Sowa, epotire® crear of tools supplied bY AN wear and tear OF jelivered within the stipulated time Ve ao. The work should cd work should be carefully inspecteg y ity of finish lity of aa workers may be Sent 10 Site OF cusigg to site 5 nies supplying engin; Workers sent to site |S Mme compa ince 0 erforming work, FOr cx cers are sent to customer's place When th service and i i 4 provide after pel while away their time when they go out for Work Such out wor rk done can be asc hy Iabour cost of worl era issued to them so that en wseerting stow be! Se at the place of work will have a salutary effect on dig visits by help in controlling such costs. Git) The qua Increase in production Each worker tries his best to produce mr | higher wages. This results in increase in production. te On account of increase in production, fixed cos, reduced resulting in higher profit. 4 Equitable This system is more equitable than time rate system becay, are paid according to the efficiency of each worker. Se 5. Decrease in the need for supervision Strict supervision is not because the workers are themselves interested in maximizing their ¢ inf Per a, 3. Lower cost through the maximization of output. 6. Simplifies costing As wages are paid at a rate per unit, this method si cost ascertainment because labour coat per unit is known in advance ce, i Staplelend easy This method is simple and is easily understood by eons Disadvantages Piece rate system suffers from the following limitations: : producti 1. Poor quality of work This method lays too much emphasis on quanti 4, The sct imi: ee pudgeta 10, Standat task and may . Fix) ‘i 'Y Tequire consi ixing equi 7. Unsuitable in certain ¢ Es ‘quitable artistic and refined natures eral j es amount Of wor nee Fate is quit a diffe! 'S method in the form of time studi Goes not suit where work\ dy Labour Cost Gmplayee Cost) 3.27 INCENTIVE PLANS ive plans attempt to combine the nesd rena a enc and Ince ts ry purpose of a incentive plan is to induce a worker marr ; luce a worker to produce more higher wage. Naturally, producing more in the same period of time if result in higher pay for the worker, Because of greater number of unite ., it should also result in a lower cost per unit for fixed factory cost and also paced i 8 Pr labour C03 principles of a Good Incentive Scheme good incentive scheme should have the following features: |, The scheme should be simple and casily understandable by workers so that a worker should be able to calculate his own wage easily. 2, The scheme should be fair to both employer and employee. It should link reward with effort. 3, The cost of operating the scheme should be reasonably low. 4, The standard of performance should be scientifically set and should be within the reasonable reach of an average worker. 5, No upper limit should be put on the earnings of workers. 6 The scheme should have the approval of workers and the union. 7. No worker should suffer a deduction of earnings for factors beyond his control such as machine breakdown, power failure, etc. & The scheme should provide a satisfactory system of supervision and mu production control On quay 9, The scheme should be conducive to the setting up of standard costs and © their budgetary control. thequs 0, Standards once set should not be changed unless there is a change in the method of production or other factors. im ‘II. ‘The scheme must be relatively permanent and should not be frequently ye changed. 12, Indirect workers should also be included under the incentive scheme. ye," 13. Workers should be properly educated about the scheme and motivated to attain . high standards. wit Types of Incentive Plans \Malsey Premium Plan jy’ This plan was introduced by F A Halsey in 1891. It is a simple combination of time yw 4d piece rate systems. The main features of this plan are as follows: of (@) Workers are paid at a rate per hour for the actual time taken by them # (0) A standard time is set for each piece of work, job or operation. # (©) Ifa worker takes standard time or more than the standard time to complete his, x Work, he is paid wages for the actual time taken by him at the time rate. In other words, time wages are guaranteed.