CHAPTER 5 ACCOUNTING FOR LABOR

LABOR is ONE OF THE THREE MANUFACTURING COSTS. LABOR cost DIRECTLY ASSOCIATED with
PRODUCTION. WITHOUT LABOR, PRODUCTION CANNOT PROCEED. LABOR is still NEEDED IN a
PRODUCTION OPERATION.
MACHINES CANNOT RUN WITHOUT an OPERATOR. Hence, LABOR WILL ALWAYS BE an IMPORTANT
component IN PRODUCTION.

EMPLOYEES are the MOST IMPORTANT ASSETS of the company and are considered the KEY
to the SUCCESS of the organization.

COMPENSATION including BENEFITS was the MAIN FACTOR for the EMPLOYEES'
SATISFACTION. however, the reason why some good employees leave their employment is
because of the working
environment, particularly supervisor. many companies invest in training not only to
improve the skills of the workers but also those of the supervisors and managers.

CLASSIFICATION OF LABOR
1. DIRECT LABOR
2. INDIRECT LABOR

DIRECT LABOR = wage paid to workers DOING ACTUAL WORK

SOME EXAMPLES OF DIRECT LABOR ARE WAGES OR SALARIES OF THE FOLLOWING:

1. CHEMICAL MIXING MACHINE OPERATOR
2. CARPENTER
3. LEATHER CUTTER
4. LABORATORY TECHNICIAN PERFORMING THE TEST
5. ARCHITECT
6. SEWER
7. KNITTING MACHINE OPERATOR

DIRECT LABOR can be DIRECTLY TRACED.

DIRECT LABOR is a PRIME COST like the direct raw materials, IT IS ALSO A CONVERSION
COST like the indirect labor and other factory overhead. it is the only
manufacturing cost that is BOTH a
PRIME COST and CONVERSION COST.

INDIRECT LABOR = work or service that CANNOT BE DIRECTLY IDENTIFIED with any
particular process or service. INDIRECT LABOR refers to WORK OF SUPPORT STAFF such
as MATERIAL ISSUER, QUALITY
INSPECTOR, RAW MATERIALS WAREHOUSEMAN, MAINTENANCE and CLEANING STAFF.
= INDIRECT LABOR, like indirect materials, is TREATED as FACTORY
OVERHEAD.

COMPUTATION OF WAGES
WAGE is PAYMENT FOR WORK perfomed by an EMPLOYEE. SALARY is FIXED AMOUNT paid to a
MONTHLY-RATED EMPLOYEE while WAGE is REMUNERATION to an EMPLOYEE who is PAID BY the
HOUR or by NUMBER OF
UNITS PRODUCED.

REGULAR WORKING DAY is composed of EIGHT HOURS FOR SIX DAYS IN A WEEK. Anything
EXCESS OF EIGHT HOURS or in EXCESS of SIX DAYS is considered OVERTIME and HAS TO BE
PAID with a PREMIUM.

MONDAY-SATURDAY are REGULAR DAYS & SUNDAY is a REST DAY.

NOVEMBER 2018, MINIMUM WAGE in the NATIONAL CAPITAL REGION for NON-AGRICULTURAL
EMPLOYEES is P537.00 PER DAY and P500 PER DAY for AGRICULTURAL WORKERS; RETAIL AND
SERVICE ESTABLISHMENTS
EMPLOYING 15 WORKERS OR LESS; MANUFACTURING ESTABLISHMENTS REGULARLY EMPLOYING LESS
THAN 10 WORKERS. HIGHEST RATES of all the regions.

PIECE-RATE WAGE
PIECE-RATE WAGE SYSTEM, worker is PAID BY NUMBERS of UNITS PRODUCED. worker is
given FIXED RATE PER UNIT, RATE is USED IN COMPUTING his WAGE BASED on NUMBERS OF
UNITS HE PRODUCES. In the
Philippines, PIECE-RATE WAGE is NOT POPULAR. law allows it to be used as long as
THE TOTAL AMOUNT OF WAGE IS NOT LESS THAN THE MINIMUM WAGE. the worker MAY EARN
MORE but NOT LESS THAN the
minimum wage each day.

OVERTIME PAY (REGULAR WORK HOURS 8 A.M. - 5 P.M.)

work in EXCESS OF 8 HOURS IN A DAY or EXCESS OF SIX DAYS IN A WEEK IS considered
OVERTIME. PAYMENT OF OVERTIME is with a PREMIUM or with ADDITIONAL AMOUNT on top of
the basic wage.

OVERTIME HOURS & OVERTIME PREMIUM/OVERTIME PAY

EXCESS of 8 HOURS on REGULAR DAY = 125% = 1.25
WORK on a REST DAY (8 HOURS) = 130% = 1.3/1.30
EXCESS of 8 HOURS on a REST DAY = 169% = 1.69
WORK on SPECIAL HOLIDAY (8 HOURS) = 130% = 1.3/1.30
EXCESS of 8 HOURS on SPECIAL HOLIDAY = 169% = 1.69
WORK on a REST DAY FALLING on a SPECIAL HOLIDAY (8 HOURS) = 150% = 1.50
EXCESS of 8 HOURS on REST DAY FALLING on a SPECIAL HOLIDAY = 195% = 1.95
WORK on REGULAR HOLIDAY (8 HOURS) = 200% = 2
EXCESS of 8 HOURS on REGULAR HOLIDAY = 260% = 2.6
WORK on REGULAR HOLIDAY FALLING on a REST DAY (8 HOURS) = 338% = 3.38

Under the LABOR CODE OF THE PHILIPPINES, there are only 10 REGULAR PUBLIC HOLIDAYS.
They are as ff.
JANUARY 1 - NEW YEAR'S DAY
MARCH or APRIL - HOLY THURSDAY & GOOD FRIDAY (TWO DAYS)
APRIL 9 - ARAW NG KAGITINGAN
MAY 1 - LABOR DAY
JUNE 12 - INDEPENDENCE DAY
AUGUST (LAST SUNDAY) - NATIONAL HEROES DAY
NOVEMBER 30 - BONIFACIO DAY
DECEMBER 25 - CHRISTMAS DAY
DECEMBER 30 - RIZAL DAY

Aside from the above, ELECTION or PLEBISCITE is also a REGULAR HOLIDAY. In short,
there will be a total of 11 PUBLIC HOLIDAY in a year when there is ELECTION or
PLEBISCITE. ALL OTHER
HOLIDAY DECLARATIONS by the GOVERNMENT are only SPECIAL HOLIDAYS.

a WORKER GETS PAID for HIS DAILY RATE when he does NOT REPORT TO WORK on a REGULAR
HOLIDAY. However, when he is ABSENT ON THE DAY BEFORE the REGULAR PUBLIC HOLIDAY &
his LEAVE is WITHOUT
PAY, he WILL NOT GET PAID for THAT DAY.

REGULAR PUBLIC HOLIDAY = REGULAR HOLIDAY

SAMPLE COMPUTATION OF GROSS WAGES

CASE 1:
HOLIDAY PAY 560 (AUTOMATIC)
OVERTIME:
HOLIDAY (560 / 8 X 4 X 100% (ONLY WORKS OF 4 HOURS (HALF OF 8 HOURS)) 280

From the GROSS WAGE, DEDUCTIONS will be made for the SOCIAL SECURITY CONTRIBUTION,
Pag-IBIG, PHIL HEALTH & DEPENDING on the WORKER'S STATUS as TAXPAYER, DEDUCTION
also for WITHHOLDING TAX,
which is an INCOME TAX.

PIECE-RATE WAGE
the employer may adopt the piece-wage system in paying its workers as long as the
worker's daily earnings for the whole day's work is NOT LESS THAN the MINIMUM WAGE.
In other words, the
worker will GET his DAILY WAGE, which should NOT be BELOW the MANDATORY MINIMUM
WAGE, or the PIECE-RATE EARNINGS WHICHEVER is HIGHER.

PIECE-RATE is a FIXED AMOUNT PAID to a worker for EVERY UNIT of OUTPUT HE PRODUCES
or for EVERY JOB COMPLETED. The reason why an employer may use piece-rate is to
ENCOURAGE the WORKER TO
PRODUCE MORE.