Cost Accounting: Unit-3 - Labour Cost

A chapter on labor cost typically delves into the intricacies of understanding, calculating, and managing the expenses associated with employing labor within a business or organization.

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COST
ACCOUNTING
UNIT-3
LABOUR COST

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LABOUR
INTRODUCTION
•Theterm"labour"generallyrefersto
humaneffortorwork,especiallywhenit
isdoneinthecontextofproducinggoods
andservices.
•Theconceptoflabourencompasses
varioustypesofactivities,rangingfrom
physicaltaskstointellectualpursuits,all
ofwhichcontributetothecreationand
developmentofsocieties.

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Meaning of Labour
Theterm"labour"referstothehuman
effort,skill,andworkinvolvedinthe
productionofgoods.
Labourisacrucialfactorinthe
manufacturingprocess,andit
encompassesvariousactivities
performedbyworkerstotransformraw
materialsintofinishedproducts.

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Meaning of Labour Cost
•Labourcostinthemanufacturingindustry
referstothetotalexpensesincurredbya
companyincompensatingitsworkforce
fortheproductionofgoods.
•Itencompassesthe wages,salaries,
benefits,andotherexpensesassociated
withemployingworkersinvolvedinthe
manufacturingprocess.
TYPES OF LABOUR

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TYPES OF EMPLOYEES BASED ON SKILLS
1.DirectWagesorSalaries:
•HourlyWages:Paymentsbasedonthenumberofhoursworked.
•SalariedWages:Fixedpaymentsregardlessofthenumberofhoursworked.
2.OvertimePay:
•Extracompensationforhoursworkedbeyondthestandardworkweekorworkday.
3.BonusesandCommissions:
•Additionalpaymentsbasedonperformance,salestargets,orothercriteria.
4.Benefits:
•HealthInsurance:Costsassociatedwithprovidingmedicalcoveragetoemployees.
•RetirementPlans:Contributionstopensionor401(k)plans.
•PaidTimeOff:Vacationdays,sickleave,andotherpaidtimeoffbenefits.
5.SocialSecurityandMedicareTaxes:
•EmployercontributionstosocialsecurityandMedicarebasedonemployees'wages.
TYPES OF LABOUR COST

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6. Workers' Compensation Insurance:
•Insurance providing coverage for work-related injuries or illnesses.
7. Training and Development:
•Costs associated with employee training and skill development programs.
8. Recruitment and Hiring Costs:
•Expenses related to finding, interviewing, and hiring new employees.
9. Severance Pay:
•Payments made to employees upon termination or retirement.
10. Payroll Processing Costs:
•Administrative costs associated with processing payroll, including software, personnel, and other
related expenses.
11. Employee Assistance Programs (EAPs):
•Costs related to providing support services for employees dealing with personal or work-related
issues.
Continue…
ATTENDANCE
PROCEDURE
Time
Keeping
Time
Booking

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DIFFERENCE BETWEEN TIME KEEPING AND TIME BOOKING
1.Timekeeping:
•Employeesrecordtheirworkinghoursthroughmethodssuchastimecards,biometricsystems,or
electronictimekeepingsoftware.
2.AttendanceTracking:
•HRorrelevantpersonneltrackemployeeattendance,includingleaves,vacations,andanyothertimeoff.
3.SalaryStructureandDeductions:
•Establishaclearsalarystructurethatincludesbasepay,bonuses,overtime,andotherallowances.
•Deductapplicabletaxes,socialsecuritycontributions,andotherdeductions.
4.EmployeeInformation:
•Maintainaccurateandup-to-dateemployeerecords,includingpersonaldetails,taxinformation,and
benefitelections.
5.CalculateGrossPay:
•Calculatethetotalearningsforeachemployeebasedonthehoursworked,overtime,andanyadditional
bonuses.
6.Deductions:
•Deductapplicabletaxes,socialsecuritycontributions,healthinsurancepremiums,retirement
contributions,andanyotherauthorizeddeductions.
PAYROLL PROCEDURE

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7.NetPayCalculation:
•Subtractalldeductionsfromthegrosspaytodeterminethenetpaythattheemployeewillreceive.
8.PaymentMethods:
•Chooseapaymentmethod(e.g.,directdeposit,physicalcheck)anddistributepaymentsto
employeesonthescheduledpayday.
9.TaxFilingsandPayments:
•Ensuretimelyfilingofpayrolltaxeswithrelevantgovernmentagenciesandmakerequired
payments.
10.PayrollReports:
•Generatepayrollreportsforinternalrecord-keepingandcompliancepurposes.Thismayinclude
summariesofgrosspay,deductions,andnetpay.
11.Compliance:
•Stayupdatedontaxlawslaborlawsandlaborregulationstoensurecompliancewithlocal,state,and
federalrequirements.
12.RecordKeeping:
•Maintainaccurateandorganizedrecordsofpayrolltransactions,includingemployeeearnings,
deductions,andtaxfilings.
Continue…
Meaning of Idle Time
•Laboridletimereferstothe
periodduringwhichworkers
arenotengagedin
productiveactivitiesortasks.
•Idletimeisgenerally
consideredundesirableina
businessorproductionsetting
becauseitrepresentsalossof
potentialproductivityand
efficiency.

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1.Scheduled Breaks
2.Meal Breaks
3.Shift Changes
4.Planned Maintenance
5. Meetings
Normal Idle Time
Causes Treatment
1.Efficient Scheduling
2.Cross-Training
3.Synchronized Maintenance
1.Equipment Failure
2.Supply Chain Issues
3.Unplanned Absenteeism
4.Poor Planning
5.External Factors
Abnormal Idle Time
Causes Treatment
1.Preventive Maintenance
2.Inventory Management
3.Employee Engagement
4.Strategic Planning
5.Contingency Plans

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MEANING OF OVER TIME
"overtime"referstotheadditionalhoursthatemployees
workbeyondtheirregular,standardworkinghours.
Standardworkinghourstypicallyconstitutethenormal,
agreed-uponhoursofafull-timeemploymentcontract.
1.WorkloadandDeadlines
2.InadequateResources
3.PoorTimeManagement
4.CultureofOverwork
5.LackofWork-LifeBalance
6.UnclearExpectations
Over Time
Causes Treatment
1.EffectiveWorkPlanning
2.ResourceAllocation
3.TrainingonTimeManagement
4.PromotingaHealthyWorkCulture
5.FlexibleWorkArrangements
6.PerformanceEvaluation
7.ClearCommunication
8.EmployeeAssistancePrograms(EAPs)
9.MonitoringandFeedback
10.PolicyReview

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LABOUR TURNOVER
MEANING OF LABOUR TURNOVER
Labourturnover,alsoknownasemployeeturnoveror
staffturnover,referstotherateatwhichemployees
leaveacompany andarereplacedbynew
employees.

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Labor Turnover
1.JobDissatisfaction
2.BetterOpportunities
3.LackofCareerAdvancement
4.PoorWork-LifeBalance
5.InadequateTrainingandDevelopment
6.PoorManagement
7.PersonalReasons
Reasons Effects
1.FinancialCosts
2.DecreasedMorale
3.LossofInstitutionalKnowledge
4.DisruptioninOperations
5.ImpactonCustomerRelationships
6.ReputationDamage
7.ReducedEmployeeEngagement
METHODS OF WAGE PAYMENT
•Wagepaymentmethodsrefertothe
variouswaysinwhichemployees
receivetheircompensationforwork
performed.
•Themethodofwagepaymentcan
varydependingonfactorssuchas
industrypractices,companypolicies,
andlegalregulations.

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Methods of Wage Payment
1. Time rate system
2. Piece rate system
3. Incentive schemes
-Halsey plan
-Rowan plan
-Taylor differential piece rate system
-Merrick’s Differential piece rate system