Labour Cost and Systems of Wage Payment Ppt.

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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Labour Cost and Systems of Wage Payment Ppt.

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