You are on page 1of 19

LABOUR COST & SYSTEM OF WAGE PAYMENT

OUT LINE
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

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.

MEANING OF LABOUR
Wages paid to workers during an accounting period on daily, weekly, monthly, or job basis, plus payroll and related taxes and benefits (if any). Labour is the physical or mental effort expended in manufacturing a product. Labour cost is the price paid for using human resources. The compensation paid to employees who engage in production-related activities represents factory labor cost.

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

EXAMPLES OF LABOUR

Direct labour: Machine operator, shoe- maker, Carpenter, weaver, Tailor etc. Indirect labour: Supervisors, Watchman, Sweepers, Inspectors, Clears, Peon etc.

LABOUR COST

Labour cost represents the various items expenditure 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 employee compensation.

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 and many other related factors.

CONTROL OVER LABOUR COST

Labour costs are controlled by the co-ordinated efforts 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.

SYSTEMS OF WAGE PAYMENT

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 the unskilled worker. Ensure equal pay for equal work. Flexible to allow necessary changes. Minimize labour turn over, absenteeism and late attendance.

SYSTEMS OF WAGE PAYMENT

Time Wage System.


Piece Rate System. Premium and Bonus Plan.

TIME WAGE SYSTEM

Flat Time Rate or Time Rate at Ordinary level


Workers are paid at a flat on the basis of time they are employed. 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.

Measured Day Rate


Specified work to be perform. Rate is fixed in accordance with the level of performance specified by the worker. High rate is fixed for higher level of performance. Drawback- there is no additional remuneration for any improvement 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.

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 than his time wage earnings. Advantages Employee is able to know his exact labour cost per unit. Less supervision is required because workers have the fear of 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.

Taylors Differential Piece Rate System


Low piece rate for low production and to reward an efficient worker by giving him a higher price rate for a higher production. Inefficient worker had no place in the organization. He decided to give large reward to those who would complete the work within or less than the standard time.

Merricks Multiple Piece Rate System


Has 3 categories for payment. Daily wages are not guaranteed.

Efficiency Up to 83% 83 to 100%

Price rate applicable Normal rate 10% above Normal rate

Above 100% 20% above Normal rate

PREMIUM AND BONUS PLAN

Halsey Premium Plan


The worker is paid a % of the time saved over the standard rate per piece. Standard time is fixed for each job/operation. If the labour completes at standard time or more he is given the standard price. If time saved- wages given for actual hours saved as a bonus.

Time taken* rate + %(standard time-time taken)* rate

Rowan plan
The bonus hours are calculated as the proportion of the time taken which the time saved bears to the standard time 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