1) LABOUR COST CONTROL: INTRODUCTION, MEANING, FACTORS, TYPES, IMPORTANCE.

ANSWER:- LABOUR COST CONTROL – INTRODUCTION:- Employees of any organization, as its precious wealth and
backbone, play an important role in its developmental and productive activities. The development and progress of the
organization, to a greater extent, are influenced by the effective and systematic utilization of available human resources.
In the same analogy, if this resource is not utilized properly, it is sure that its manufacturing and marketing activities are
bound to be retarded.

In other words, it is the human resource which is capable of either annihilating an organization which otherwise is doing
well or putting an organization on an even keel which otherwise is on the way to extinction. It is these factors which
necessitate to lay emphasis on the labour related aspects such as recruitment, training, placement, payment of wages
and incentives, etc.

Labour cost is another important element of total cost of any organization and it works out to 40 to 60% of total cost in
most of the corporate undertakings. By keeping these labour costs at the minimum level, it is possible to lower the total
labour cost, conversion cost, production cost and the cost of sales which enables the company to offer its products to
the customers at a comparatively lower prices which in turn ensures higher demand for the products.

LABOUR COST CONTROL – MEANING:- Labour cost refers to the amount of money paid to the people who are engaged
in the production of goods. In manufacturing businesses, often management will break down labour cost into direct cost
and indirect cost.

The nature of labour whether it is direct or indirect depends upon the contribution of labour towards production. If they
are directly engaged in production activities, the labour is termed as direct labour and if indirectly engaged then indirect
labour.

Labour cost includes various types of expenses incurred on workers. These may be monetary payments made to workers
directly such as basic wages, dearness allowance, bonus etc., deferred monetary benefits such as employer’s
contribution to provident fund, gratuity, pension, etc., and fringe benefits such as employer’s contribution to Employees’
State Insurance scheme, subsidised food, subsidised housing, leave travel concession, medical and holiday home
facilities, libraries and Other Welfare measures. In relation to the job or the product, labour cost may be direct or
indirect.

5 FACTORS FOR LABOUR COST CONTROL – PRODUCTION PLANNING, SETTING UP OF STANDARDS, USE OF LABOUR
BUDGETS, STUDY OF THE EFFECTIVENESS OF WAGE-POLICY AND LABOUR PERFORMANCE REPORTS

The factors for labour cost control are discussed below:

FACTOR # 1. PRODUCTION PLANNING: The production is to be planned in a way as to have the maximum and rational
utilization of labour. The product and process engineering, programming, routing and direction constitute the
production planning.

FACTOR # 2. SETTING UP OF STANDARDS: Standards are set up with the help of work study, time study and motion
study, for production operations. The standard cost of labour so set is compared to the actual labour cost and the
reasons for variations, if any, are studied minutely.

FACTOR # 3. USE OF LABOUR BUDGETS: Labour budget is prepared on the basis of production budget. The number and
type of workers needed for the production are provided for along with the cost of labour in the labour budget. This
budget is a plan for labour cost and is prepared on the basis of the past data considering the future prospects.

FACTOR # 4. STUDY OF THE EFFECTIVENESS OF WAGE-POLICY: The point for study and control of cost is how far the
remuneration paid on the basis of incentive plan matches with increased production.

FACTOR # 5. LABOUR PERFORMANCE REPORTS: The labour utilization and labour efficiency reports received periodically
from the departments are helpful in the managerial control on labour and exercise labour cost control.
IMPORTANCE OF LABOUR COST CONTROL

Like material cost, labour cost also constitutes a significant portion of total production cost. Now-a-days when wage
rates are increasing and labour cost is tending to become more and more fixed, particularly in large manufacturing
organisations, strict control over labour cost has assumed great significance in order to control the overall cost of
production and the cost of operating a unit.

However, high wages to the workers do not necessarily mean high labour cost. In fact payment of high wages to workers
is aimed to achieve more than proportionate increase in their output resulting in lower per unit labour cost.

Some other importance of labour cost control given in points:

1. As Labour is a human being, it symbolizes human contribution to a firm’s production.

2. Accounting and control over labour cost necessitates correct time keeping.

3. Proper control on the recruitment of labour is needed for the accounting and control of labour cost.

4. Labour cost is a committed cost because of the existing labour laws which give considerable protection to them.

5. Cost per unit of a product is influenced in a major way by labour cost.

6. In the case of some industries there is a shortage of skilled labour and hence it is necessary to make their effective
utilization.

LABOUR COST CONTROL – TYPES: DIRECT AND INDIRECT LABOUR COST

TYPE # 1. DIRECT LABOUR COST: Direct labour cost refers to that portion of prime cost in a factory that is spent on
workers who were directly involved in production or manufacture of goods in the factory. The cost of direct labour may
also be defined as the amount that is paid to labourers for each unit they have produced or for each hour they have
spent on production.

Direct labour cost can be identified and allocated to the specific job process or product. The examples of direct labour
costs are the payments made to the workers engaged in making furniture in factories, printing newspapers in the
printing press, binder in a binding shop, and tailor in a tailoring shop.

TYPE # 2. INDIRECT LABOUR COST: Indirect labour cost refers to the amount paid to those workers who are not directly
engaged in the production of goods. The indirect labour cost cannot be identified and allocated to a particular cost
centre or cost unit.

Generally indirect labour costs are apportioned on an equitable basis. For example maintenance personnel, supervisors,
sweepers, managers etc., all are indirect labour cost. Though, they also help in the production of goods but indirectly.

The amount of money paid to them cannot be given on the basis of units produced. It is incurred for the benefits of a
number of cost centers for example a manager is responsible for many factory shops. It forms part of the overhead
costs.

2) SALIENT FEATURES OF 7TH PAY COMMISSION

ANSWER:-Here is a list of key highlights and features of 7th Pay Commission -

NEW PAY MATRIX:- 7th Pay Commission has recommended dissolving existing Pay Bands and Grade Pay instead of
introducing a new Pay Matrix. The Central Government approved this recommendation.  Previously, authorities
determined the status of an employee by grade pay, which the level will evaluate in Pay Matrix from now on. They
designed several Pay Matrixes for different groups such as Defense Personnel, Civilians, Military Nursing Services. The
objective of organizing various Pay Matrixes is the same.
MINIMUM PAY:- This Pay Commission has increased the minimum pay from ₹7000 to ₹18000 per month. Now, the
lowest starting salary will be ₹18000 (for newly recruited). On the other hand, a freshly recruited class 1 officer will be
₹56,100. This salary structure shows a compression ratio of 1:3.12, meaning a class 1 officer (on direct recruitment) will
have a salary that is three times more than an entrant at the lowest level.

RATE OF INCREMENT:- This 7th Pay Commission has decided to keep the rate of increment at 3%. This decision will help
employees in the long run on account of higher basic pay as they will get an annual increment of 2.57 times in future
than the present time.

NEW STRUCTURE:- Previously there were several levels at pay structure; a new structure subsumed all of these. The
Central Government has approved the Index of Rationalization and collectively decided to offer a minimum pay in each
level of Pay Matrix based on responsibility, accountability and increasing role as per hierarchy.

HOUSE BUILDING ADVANCE:- Cabinet has approved the recommendation of 7th Pay Commission to raise the ceiling of
House Building Advance from ₹7.50 lakh to ₹25 lakh. Further, to reduce the burden, the Cabinet has retained four
interest-free advances such as TA on transfer or tour, TA for the deceased employee's family, and advances for medical
treatment. However, all other interest-free advances are not functional anymore.

MONTHLY CONTRIBUTION:- 7th Pay Commission recommended raising the amount of monthly contribution towards the
Central Government Employees Group Insurance Scheme (CGEGIS). However, Cabinet did not accept this
recommendation and decided to keep the rate at the existing amount. Thus, the net salary of employees will increase by
₹1470. Additionally, the Cabinet has proposed to the Finance Ministry to introduce a customized group insurance
scheme for personnel engaged with the Central Government with high-risk cover and low premium.

FITMENT FACTOR:- Fitment factor is one of the main features of 7th Pay Commission. Here, a fitment factor of 2.57 will
be applicable in all levels of Pay Matrices. After considering DA, the salary or pension of Government employees or
pensioners will increase at least 14.29% from 1st January 2016.

SUBSUMING OF ALLOWANCES:- After examining around 196 allowances, this Commission has recommended
demolishing 51 allowances and subsuming 37 allowances. As this significant change in the prevailing provisions of
allowances can impact Government employees, the Cabinet has decided to set up a committee (presided by Finance
Secretary) to review the recommendation of 7th Pay Commission on allowances.

This Committee will get 4 months to examine the recommendation and submit reports regarding this. Until then, all the
prevailing allowances will keep operating under existing rates.

OTHER DECISIONS:- Apart from the pointers mentioned above, the 7th Pay Commission proposed a recommendation
that impacts employees, including Defence and Combined Armed Police Forces (CAPF). These are as follows -

GRATUITY:- The Gratuity ceiling increased from ₹10 lakh to ₹20 lakh. Further, when DA rises by 50%, the ceiling of
Gratuity will also enhance by 25%.

MILITARY SERVICE PAY:- 7th Pay Commission has recommended revising rates of Military Service Pay from ₹1,000,
₹2,000, ₹4,200 and ₹6,000 to ₹3,600, ₹5,200, ₹10,800 and ₹15,500 respectively personnel involved in different
categories of Defence Forces.