Labour Cost
By:- Sagar Wadhawani
Chinmay Vichare
Rohit Umrao
Mamta Thakur
Objectives
• Direct and indirect labours.
• Labour turnover.
• Time keeping and time booking.
• Overtime.
• Payroll.
• Idle time
• Remuneration.
• Incentives plans.
Direct and Indirect labour
• Direct.
• Indirect.
Organization for accounting and control
of labour cost
• Departments –
Personal
Engineering
Time keeping
Payroll
Cost accounting
Labour Turnover
• Measurement methos
1. Seperation
2. Replacement
3. Flux
Causes of Labour Turnover
• Avoidable causes.
• Unavoidable causes.
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Reduction and control
• Suitable wage policy.
• Healthy and efficient working condition.
• Impartial and systematic attitude of personal management.
• Promotional opportunities.
• Labour participation.
• Taking welfare measures.
Time keeping & Time Booking
• Time keeping – recording arrival and departure time of workers for
attendence purpose and for calculations of wages,
• Time booking – recording time send by workers on different jobs or
processess for determining labour cost of job/process.
Methods
Time keeping Time booking
• Attendence register. • Job ticket
• Token or disc method. • Daily time sheet
• Time recording cocks • Weekly time sheet
• Piece work card
Overtime
Disadvantages
Excessive labour cost.
Decrease in labour productivity.
Increase in lighting cost.
Effect on health of workers.
Increase in wages.
Treatment of overtime
• When overtime is job specific.
• When overtime is due to general pressure.
• When overtime is due to abnornal reasons.
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Control of overtime
• All overtime premium should be authorised by works manager.
• It should be seperatly recorded for future planning.
• Total overtime premiun should be daily reported to the manager.
• When overtime becomes permanent feature, then steps should be
taken to cope wid additional work.
Payroll department
• Responsible for computation and disbursement of wages payable.
• Records hours worked and wages earned.
Functions of payroll department
To maintain records of job classification.
To verify and summarize the time of each worker.
To prepare the payroll and compute the wages.
To compute payroll deduction
To maintain payroll record of each employee.
Payroll Department
Causual Out-worker
Wage Sheet
workers
Idle Time
• ‘Idle time represents time lost by workers who are paid on time bais’.
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Causes Treatment
• Productive • Normal
• Administrative • abnormal
• economic
Remuneration
Time rate system
• Workers are paid according to the time for witch they work.
wages = no. of hrs worked X rate per hr
• Eg: If worker is paid at the rate of Rs 25 per hrs, his wage for the day
of 8 hrs will be ---
8 X 25 = Rs 200
Time rate system
Advantages Disadvantages
• Simplicity • No incentives
• Security of workers • Low quality
• Quality of work • Extra supervision cost
• Accepted by trade unions • Costing difficulties
• economical • Idle time
Piece rate system
• Wages under this system are paid according to the quantity of work
done.
wages = rate per unit X No. of units produce
Eg :- if rate per unit is 17, and during a day a worker has completed 10
units , then his wage will be……
Rs 17 X 10 units = Rs 170
Piece rate system
Advantages Disadvantages
• Incentives to efficient workers. • Poor quality of work
• Increase in production. • No security of wages.
• Lower cost. • Misuse of material and equipment.
• Equitable. • Injurious to health of workers.
• Decrease in supervision. • Opposed by trade unions.
• Simple.
Incentive planes
Halsey premiun plan & Halsey Weird
plan.
• Paid at a rate per hour.
• If worker takes standard time or more time he is paid for the actual time taken at
the time rate.
• If worker takes less than the standard time , then he is paid a bonus equal to 50%
of the time saved.
Eg:- std time = 50 hrs
Wage rate per hour = Rs 3
actual time taken =42 hrs
time saved = 50 -42 =8 hrs
Earnings = 3 X 42 + 50% 0f [8 hrs X 3]
=126+12 =Rs138
Rowan Plan
• Wages are paid on time bases.
• If worker takes standard time or more time he is paid for the actual time taken.
• If worker takes less than the standard time , then he is paid a bonus.
Eg:- std time = 50 hrs
Wage rate per hour = Rs 3
actual time taken =42 hrs
time saved = 50 -42 =8 hrs
Bonus = time saved /time allowed X time taken X time rate ==20.16
Earnings = 3 X 42 + bonus
=126+20.16 =Rs146.16
Taylor’s differential piece rate
system
• Day wages are not guaranteed.
• Lower rate & higher rate.
• Eg :- std production = 8 units per hr
working hrs per day = 8 hrs
lower rate = Rs 5 per unit
higher rate = Rs 8.75 per unit
worker X = 7 units
worker Y = 9 units
:- wages of worker X --- 7 X 5 = Rs 35
Wages of worker Y ---- 9 X 8.75 = Rs 78.75
Merrick’s differential piece rate system
Level of efficiency Piece rate
Upto 83% Ordinay piece rate
83% to 100% 110% of piece rate
Above 100% 120% of piece rate
References
• http://en.wikipedia.org/wiki/Incentive_program
• http://smallbusiness.chron.com/incentive-plans-1776.html
• http://managementstudyguide.com/employee-remuneration.htm
• http://www.business-case-analysis.com/direct-labor.html
• http://dictionary.reference.com/browse/Incentives.
