8/3/2019 Labour Cost and Systems of Wage Payment Ppt.
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OUTLINE
Introduction
Meaning
Types of labour
Labour cost
Control over labour cost
Systems of Wage Payment
Time Rate System Piece Rate System
Premium and Bonus Plan
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INTRODUCTION TO LABOUR
Second major element in cost.
Very difficult to reduce.
Most perishable commodity and should be
effectively utilized. Once lost cannot be recouped.
Bonus to increase the cost of production.
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MEANING OF LABOUR
Wages paid to workers during an accounting periodon daily, weekly, monthly, or job basis, plus payrolland related taxes and benefits (if any).
Labour is the physical or mental effort expended inmanufacturing a product.
Labour cost is the price paid for using humanresources.
The compensation paid to employees who engagein production-related activities represents factorylabor cost.
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TYPES OF LABOUR
Just like material, labour is also two types
Direct labour: Is the labour which is
direct involved in the production of
goods and services.
Indirect labour: Is the labour which
is not directly involved in the
production of goods and services
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EXAMPLES OF LABOUR
Direct labour: Machine operator, shoe- maker,
Carpenter, weaver, Tailor etc.
Indirect labour:Supervisors, Watchman,Sweepers, Inspectors, Clears, Peon etc.
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LABOUR COST
Labour cost represents the various itemsexpenditure incurred on workers by the employer.
Monetary Benefits
Eg: Basic wage, Dearness allowance, Profit bonus etc.
Fringe Benefits
Eg: Subsidized food, Subsidized house, Holiday plan
etc.
Fringe benefits are indirect forms of employeecompensation.
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WHY LABOUR COSTS ARE HIGH ?
o Due to insufficient labour.
o Wastage of material by the labour.
o High labour turnover.
o Idle time and unusal overtime work.
o Inclusion of bogus workers in wages sheet andmany other related factors.
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CONTROL OVER LABOUR COST
Labour costs are controlled by the co-ordinatedefforts of the following six departments:
Personnel Department. Engineering Department.
Rate or Time and Motion Study Department.
Time-keeping Department.
Pay Role Department. Cost Accounting Department.
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SYSTEMSOF WAGE PAYMENT
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ESSENTIAL FEATURES
Fair both to the employer and employee.
Assurance of guaranteed minimum wage.
Worker should be paid according to their merits.
Skilled worker to be paid more as compared to theunskilled worker.
Ensure equal pay for equal work.
Flexible to allow necessary changes. Minimize labour turn over, absenteeism and late
attendance.
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SYSTEMS OF WAGE PAYMENT
Time Wage System.
Piece Rate System.
Premium and Bonus Plan.
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TIMEWAGESYSTEM
Flat Time Rate or Time Rate at Ordinary level
Workers are paid at a flat on the basis of time they areemployed.
Rate may be per hour, day, week or month.
More suitable for the high skilled and unskilled workers
including apprentices. Does not provide any incentives.
High Day Rate or Time Rate at Wage level
Higher than the average wage rate of the industry. The rate of wage is fixed by hour or a day but the rate
fixed is relatively is high.
Successful only with the cooperation of efficient worker.
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Measured Day Rate Specified work to be perform.
Rate is fixed in accordance with the level of performancespecified by the worker.
High rate is fixed for higher level of performance.
Drawback- there is no additional remuneration for anyimprovement in the performance.
Graduated Time Rate Rates of wages are linked up with the cost of living index.
Liked by works in a period of rising price.
Differential Time Rate Different rate of wages are fixed for different workers.
Workers paid according to their merits.
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PIECE RATE SYSTEM
Straight Piece Rate System Payment is made according to the no. of units produced.
Rate is fixed per unit
His earnings according to piece rate system are more thanhis time wage earnings.
Advantages Employee is able to know his exact labour cost per unit.
Less supervision is required because workers have the fearof not earning wages if they do not work.
Disadvantages Workers may work long hours to earn more wages and spoil
their health.
Increase in production will reduce the labour cost per unit.
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Taylors DifferentialPiece Rate System
Low piece rate for low production and to reward an efficient
worker by giving him a higher price rate for a higherproduction.
Inefficient worker had no place in the organization.
He decided to give large reward to those who wouldcomplete the work within or less than the standard time.
Merricks Multiple Piece Rate System
Has 3 categories for payment.
Daily wages are not guaranteed.
20% above
Normal rate
Above 100%
10% aboveNormal rate
83 to 100%
Normal rateUp to 83%
Price rateapplicable
Efficiency
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PREMIUMAND BONUS PLAN
Halsey Premium Plan
The worker is paid a % of the time saved over thestandard rate per piece.
Standard time is fixed for each job/operation.
If the labour completes at standard time or more he isgiven the standard price.
If time saved- wages given for actual hours saved as a
bonus.
Time taken* rate + %(standard time-time taken)* rate
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Rowan plan
The bonus hours are calculated as the proportion of thetime taken which the time saved bears to the standardtime allowed.
Proportion of the wages of the time taken which the time
saved bear to the standard time allowed.
Time taken* rate + standard time time taken* time taken*
rate
Standard time
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