LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
CONTENTS
Title 1. Introduction 2. Definitions - Variable labour - Fixed labour - Skilled labour - Unskilled labour - Direct labour - Indirect labour 3. Components of labour cost 4. Payroll Accounting and Labour Cost Accounting 5. Labour Turnover 6. Human Resource Policies 7. Idle time 8. Over time 9. Labour Cost Control 10. Questions and Answers Page No.
Page 1 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
INTRODUCTION
Wages and labour are usually the most expensive part of running a business. Companies develop strategies to limit the amount of wasted labour hours in their labour force and limit the amount of capital spent on labour. The allocation of labour is a classic economic theory that attempts to determine how much manpower is needed to effectively produce a certain amount of goods or services. Companies use this economic theory along with traditional management accounting process to determine the amount of labour needed for their production processes. Companies develop hiring practices to track labour costs and determine when new employees might need to be hired or current employees laid off. These decisions can be based on employee production efficiency calculations. When employees are unable to meet production output requirements in a timely manner, more employees might need to be hired. If employees are taking more time than is necessary to produce goods or services, the company might need to lay off employees to decrease labour costs and improve production efficiency. Labour cost is important to businesses because it is the way they track the productivity of their employees. Spending too much money on workers who fail to produce a certain amount of goods can lead to negative cash flow situations and cause the company to become unprofitable. Productivity numbers are also used as the company grows, expands or purchases new operations so the company can determine how many employees will be needed for expanded operations.i
DEFINITIONS
Labour costs are typically broken down in one of two groups: Variable or Fixed. Variable labour usually includes hourly employees or individuals who are paid on a contract basis. Companies use variable labour to avoid paying higher wages or benefits to employees, which exponentially increase the company's operational costs. Fixed labour represents salaried employees who are paid certain wage amounts regardless of the amount of hours they work. Companies benefit from fixed labour by not having to pay for any overtime worked by employees. Inside the two basic types of labour cost, variable or fixed, are two labour subgroups: skilled and unskilled. Skilled labour is usually the more expensive labour subgroup since individuals in this category have specific technical or analytical business skills. Companies usually have to pay a premium when hiring workers with these skills. Unskilled labour usually represents individuals with no technical business skills; companies hire these individuals to complete manual tasks or processes in the business operations.i Labour Cost can also be subdivided in to : Direct labour & Indirect labour
Page 2 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
Direct labour is a part of wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service also, we can say also it is the cost of the work done by those worker who actually make the product on the production line. eg: Operators, line workers, samplers & finishers, etc. The direct labour cost is part of the manufacturing cost. Calculation of direct labour cost: In the direct labour cost we need to have the job time and wage we will pay it to the worker to can calculate the direct labour cost as in this formulationsk
irect Labour Cost = Job time x Wage The wage is the payment rendered to the worker per hour as a compensation for the work done.ii Indirect labour usually refers to production support labour costs not so easily associated with specific units. Employees or workers (such as accountants, supervisors, security guards) who do not directly produce goods or services, but who make their production possible or more efficient. Indirect labour costs are not readily identifiable with a specific task or work order. They are termed indirect costs and are charged to overhead accounts. Indirect labour includes labour cost that cannot be traced directly to units of production and therefore needs to be allocated to production via the predetermined overhead rate. Indirect labour is classified as factory overhead and includes foreman’s salary, factory manager’s salary and store person’s salary.
Components of Labour Cost : Labour costs represent the various items of expenditure Such as: A. Immediate Monetary Benefits: Page 3 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
Basic Salary & Wages; Dearness Allowance & other allowances; Production Incentives or Bonus B. Fringe Benefits (Non Monetory Benefits): i) ii) iii) iv) v) vi) Subsidised Food; Subsidised Housing; Subsidised Education to the children of the workers; Medical facilities; Holidays pay; Recreational facilities. C. Monetory Benefits after some time in future Employer’s Contribution to Provident Fund;Employer’s Contribution to Employee’s State Insurance (ESI) Scheme; Old age Pension; Retirement Gratuity.
Payroll Accounting and Labour Cost Accounting Payroll Accounting is concerned with the maintenence of records for the amount due to the employees like salary, wages, allowances, contribution to PF and E.S.I., etc and the deductions to be made from the employees earnings. Payroll accounting requires the information related to employees attendance, leaves, rates of pay, amounts to be deducted, etc. Labour Cost Accounting is concerned with identifying the amount of laour cost to be charged to individual jobs and overheads. For this purpose, information relating to the time spent on each job or process or no. Of units produced is otained form the job cards, Piece work tickets, etc. The idle time analysis is also necessary for labour cost accounting Accounting for Labour in a manufacturing organisation usually involves 3 activities, namely : Time Keeping, Allocation & Payment. 1. Time Keeping To determine the total numbers of hours spent at work by each employee to enable the calculation of periodic earnings, be it weekly, fortnightly etc. The source document used to record hours spent at work by employees is referred to as either a time card, clock card or bundy card. This source record is used to calculate the pay due to the employees based upon their attendance. 2. Allocation Analysis of labour costs enabling : Page 4 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
• •
direct labour to be charged to production indirect labour to be charged to factory overhead The source document used to enable the allocation of labour time and costs to production or overhead is referred to as either a time ticket or Labour job ticket which summarises the time spent on direct labour and indirect labour during the hours spent at work by each employee. For each employee, the sum of the time tickets for a pay period should be equal to the total time card (see ‘time keeping’ above..) 3. Payment Being the implementation of controls over the payment of wages to determine net wages payable to employee. In a manufacturing situation factory employees (excluding factory management) are usually covered by a pay award or enterprise agreement which sets out :
• employee conditions including hours of work per day, annual leave, sick leave, long service leave entitlement. • • basic rates of pay, and penalty rates to be paid for overtime and shift allowances
Wage system While designing the labour cost, the wage system plays an important aspect. It is very important to have a right wage system so as to control on labour effectively. The wage system should be selected by taking the following consideration into consideration.
?
Acceptance by employees Page 5 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
? ? ? ?
Provision for flexibility Provision for economy in administration Minimize absenteeism Provision for incentive plan
Types Of Wage Systems There a two type of wage system an organization may adopt to pay for labour 1. Straight Time 2. Piece-Work
1.Straight Time This method is used on the basis of the attendance of the worker. A fixed wage rate is paid to the workers on the basis of the time spent by them on the production floor. Under this method, wage rate is calculated as follows, Wage = Hourly rate x No. of hours (spent) Or Daily wage rate x No. of days. This sort of wage system is suitable for organization under the following cases: 1. It is difficult to measure the work done by the employee. 2. The quality of work is of utmost importance. 3. When work done is not repetitive in nature. 4. Where work can be closely monitored. Advantages: • As the worker are in a no hurry to produce unit, scraps and spoilage and defective units are minimized to a great extent. • • • Firm’s quality standards of output are met. Quality inspection costs are minimized. As all workers are paid alike, labour unions welcome this method. Disadvantages: • It is difficult to set standards for labour. Page 6 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
• • •
Labour cost may increase. There are chances of decrease in productivity. It, induces more idle & inefficiency.
2. Piece-Work This method rewards worker based upon their output. A fixed wage rate is paid for each unit produced or number of operations completed or job completed. Time taken to produce a unit is immaterial under this method. Under this method, wage rate is calculated as follows: Wage = No. of units produced x Rate per unit It is necessary to pay minimum “day wages” in compliance to the statutory provision of the Minimum Wages Act, 1948. This method of wage system is suitable under the following cases: 1. Where the production of units are repetitive. 2. Where the quantity of output does not require any specialized skill. 3. Where there is flow of work without any interruption. 4. Where the price rate can be fixed easily. Advantages: • • • • • It promotes efficiency among worker. It reduces costs. Idle time is controlled. It reduces the cost and the need of supervision. It leads to higher production. Disadvantages: • This method may result is higher scrap, spoilage and wastage since workers are more interested in producing more units. • • • • The firm’s standard qualities for units are not met. Machineries may get obsolete due to careless handling in order to increase output. Workforce may suffer incase of breakdown, power failure and so on It is not easy to determine piece rate of a unit in practice.
Page 7 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
Labour Turnover Labour turnover is the movement of people into and out of the organisation. It is usually convenient to measure it by recording movements out of the firm on the assumptions that a leave is eventually replaced by a new employee. The term seperation is used to denote an employee who leaves for any reason. Labour turnover is the rate of change in the number of employees of the concern during definite period. Labour turnover studies is helpful in manpower planning. Ahigh turn over rate may mean poor personnel ploicies, poor supervisory practices or poor company policies. Too lower rate of turnover can also be a danger singnal. Frequent changes in labour normally affect output and increases cost. The effect of high labour turnover, such as increased cost of selection and training of new workers result in higher costs. The overall production goes down due to lower lever of effeiciency among the new team of workers and time loss between labour turnover and finding suitable replacements. There are two types of costs i) Preventive cost- Personnel Administration, Medical Services, Welfare activities and services, Pension scheme, Bonus, Incentives schemes, etc. ii) Replacement costs- Cost of recruitments, Training and induction, Loss of output due to delay in recruitment, Cost of inefficiency of new workers, Cost of breakage of tools and machinery, Cost of increased spoilage and defectives, Cost of frequent accidents
Causes of Labour Turnover The workers leave the factory either by i) Resignation, or by
ii) Discharge by the employer, or iii) Unavoidable Causes.
Cause for Resignation The causes may be: 1. Low salary wages paid as compared to the salary wages paid in other factory which he is induced to join. 2. 3. 4. a. b. Ill health and bad working conditions Lack of safety measures Dissatisfactions due to various causes such as : Hours of work Improper placement Page 8 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
c. d.
Unfair method of promotion Bad relationship with Supervisor, or with fellow-workers in some cases.
Causes for Discharge 1. 2. 3. 4. 5. Incompetence; Insubordination, disobedience, and disregard of the rules and regulations; Unpunctuality or lack of attention to duty; Accidents or suffering from infectious disease; Immoral character.
Unavoidable Causes 1. only; 2. 3. 4. 5. 6. 7. Seasonal character of the industry where work is carried on during some part of the year Death of the worker; Family Circumstances Health Conditions Marriage (in case of woman) Migratory nature of workers Community conditions
Human Resource Policies 1. Recruitment : Employees are hired for replacement of existing employee or to meet additional requirements arising from expansion of organisatinal activities. Replacement may be for someone who has left the firm or for someone who has been eleveted to higher position or transferred to other activity. The organisation (HR dept.) locates prespective candidates through advertisements or through Referrals, Internal Job Postings (IJP), Professional social Networks eg. Linkedin, Advertisements on Webportals Naukri, Monster etc.iii 2. Training : A company needs productive staff who enjoy what they are doing and increase the productivity of the company. After the candidate join HR dept organises Induction training of the employee. Additional Trainings are also arranged in form of On Job Training, Summer training, Management Trainee, tele calling script, Short term training for enhancing productivity, new Product training. Business Etiquettes, Grooming skills for customer facing employees. Page 9 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
3. Development : The company has to groom the individuals in order to create successors for key positions. If some senior member decides to move out then the business of the company is not affected. The moment someone leaves, a new person can take charge immediately. The companies provide financial support for higher education related to job work, short term manegement courses, loan facility for education, Career progression plan, Internal Job Postings. 4. Retention : Employee retention is most critical issue facing corporate leaders as a result of the shortage of skilled labor, economic growth and employee turnover. The old "my-way-or-thehighway" style of management is a thing of the past. Employee retention involves being sensitive to people's needs and demonstrating the various strategies for keeping good people. Employee retention takes effort, energy, and resources. Rewards and recognitions, Various Employee Engagment activities like Birthday celebrations, offsite meeting, Outbound trainings with team building exercise, Family picnics, Annual Days, Sports day, Health care and welfare activities like yoga, gymnasium, music room, newspaper room & coffee room with ean bags, TV room, indoor games – carrom, table tennis, dart board, etc, Power nap facility, Creche (Baby Care). Informal work culture (like google) meetings are held on a pool table rather than in conference room.
Idle time Due to several reasons there could be time loss e.g. machine breakdown, power failure, temporary lack of work, tea and lunch breaks etc. Thus idle time is difference between hours paid and hours worked. It is the labour time paid for but not utilised in production. Over time The time worked over and above the normal hours is overtime. The remuneration usually paid for the overtime work is at higher the normal rate. The need for over time work arises due to: Increase in demand for the products where the production during the normal hours falls short to meet it; Shortage of workers, Utilization of perishable raw materials, Execution of urgent orders, limiting machine hours available. The overtime wages consits of two elements : 1. 2. Normal wages for extra time Additonal wages paid for the overtime worked Labour cost control: Labour cost control aims at the control of the labour cost per unit of production and not at the reduction of the wage rates of the workmen. Labour cost is second major element of cost. Economic utilization of labour is a need of the present day industry to reduce the cost of production of the products manufactured or service rendered.iv Primary Objectives: i) ii) Determining labour costs in the cost of production; Reporting labour cost for planning & control;
Page 10 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
iii) Reporting labour costs for decision making. eg: replacement of plant & equipment eg: pricing decisions etcv
Labour Costing Procedure: The operation of a labour costing system requires the completion of the following steps : 1. 2. Calculation of the PAY due to each employee. The breakdown of the total payroll in to DIRECT and INDIRECT labour.
3. The treatment of overtime premiums - whether it is charged to WIP or FACTORY OVERHEAD. 4. 5. The costing and accounting for labour “on” costs or labour “related” costs. The PAYMENT of wages and the treatment of withholdings from the employee’s pay.
CASE STUDY
Labour in typical xyz
MCQ
1. Carpenters engaged in cutting of wood in a furniture making shop is an example of..... Page 11 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
a. b.
DRAFT
Indirect labour Direct labour 2. Indirect labour cost forms a part of overheads. True False
a. b.
ANSWERS
1. b) Direct Labour 2. a) True
REFERENCES
Pandey I M: Financial Management, Ninth Edition, 2006 Jawaharlal: Cost Accounting, 2009
Page 12 of 13
i ii iii iv v
ehow: http://www.ehow.com/about_6418519_definition-labour-cost. Ravi Kishore: Students Guide to Cost Accounting with Problems and Solutions Bhattacharya AK: Principles and Practices of cost acounting, Edition 3, 2004
doc_659692949.doc
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
CONTENTS
Title 1. Introduction 2. Definitions - Variable labour - Fixed labour - Skilled labour - Unskilled labour - Direct labour - Indirect labour 3. Components of labour cost 4. Payroll Accounting and Labour Cost Accounting 5. Labour Turnover 6. Human Resource Policies 7. Idle time 8. Over time 9. Labour Cost Control 10. Questions and Answers Page No.
Page 1 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
INTRODUCTION
Wages and labour are usually the most expensive part of running a business. Companies develop strategies to limit the amount of wasted labour hours in their labour force and limit the amount of capital spent on labour. The allocation of labour is a classic economic theory that attempts to determine how much manpower is needed to effectively produce a certain amount of goods or services. Companies use this economic theory along with traditional management accounting process to determine the amount of labour needed for their production processes. Companies develop hiring practices to track labour costs and determine when new employees might need to be hired or current employees laid off. These decisions can be based on employee production efficiency calculations. When employees are unable to meet production output requirements in a timely manner, more employees might need to be hired. If employees are taking more time than is necessary to produce goods or services, the company might need to lay off employees to decrease labour costs and improve production efficiency. Labour cost is important to businesses because it is the way they track the productivity of their employees. Spending too much money on workers who fail to produce a certain amount of goods can lead to negative cash flow situations and cause the company to become unprofitable. Productivity numbers are also used as the company grows, expands or purchases new operations so the company can determine how many employees will be needed for expanded operations.i
DEFINITIONS
Labour costs are typically broken down in one of two groups: Variable or Fixed. Variable labour usually includes hourly employees or individuals who are paid on a contract basis. Companies use variable labour to avoid paying higher wages or benefits to employees, which exponentially increase the company's operational costs. Fixed labour represents salaried employees who are paid certain wage amounts regardless of the amount of hours they work. Companies benefit from fixed labour by not having to pay for any overtime worked by employees. Inside the two basic types of labour cost, variable or fixed, are two labour subgroups: skilled and unskilled. Skilled labour is usually the more expensive labour subgroup since individuals in this category have specific technical or analytical business skills. Companies usually have to pay a premium when hiring workers with these skills. Unskilled labour usually represents individuals with no technical business skills; companies hire these individuals to complete manual tasks or processes in the business operations.i Labour Cost can also be subdivided in to : Direct labour & Indirect labour
Page 2 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
Direct labour is a part of wage-bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service also, we can say also it is the cost of the work done by those worker who actually make the product on the production line. eg: Operators, line workers, samplers & finishers, etc. The direct labour cost is part of the manufacturing cost. Calculation of direct labour cost: In the direct labour cost we need to have the job time and wage we will pay it to the worker to can calculate the direct labour cost as in this formulationsk
irect Labour Cost = Job time x Wage The wage is the payment rendered to the worker per hour as a compensation for the work done.ii Indirect labour usually refers to production support labour costs not so easily associated with specific units. Employees or workers (such as accountants, supervisors, security guards) who do not directly produce goods or services, but who make their production possible or more efficient. Indirect labour costs are not readily identifiable with a specific task or work order. They are termed indirect costs and are charged to overhead accounts. Indirect labour includes labour cost that cannot be traced directly to units of production and therefore needs to be allocated to production via the predetermined overhead rate. Indirect labour is classified as factory overhead and includes foreman’s salary, factory manager’s salary and store person’s salary.Components of Labour Cost : Labour costs represent the various items of expenditure Such as: A. Immediate Monetary Benefits: Page 3 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
Basic Salary & Wages; Dearness Allowance & other allowances; Production Incentives or Bonus B. Fringe Benefits (Non Monetory Benefits): i) ii) iii) iv) v) vi) Subsidised Food; Subsidised Housing; Subsidised Education to the children of the workers; Medical facilities; Holidays pay; Recreational facilities. C. Monetory Benefits after some time in future Employer’s Contribution to Provident Fund;Employer’s Contribution to Employee’s State Insurance (ESI) Scheme; Old age Pension; Retirement Gratuity.
Payroll Accounting and Labour Cost Accounting Payroll Accounting is concerned with the maintenence of records for the amount due to the employees like salary, wages, allowances, contribution to PF and E.S.I., etc and the deductions to be made from the employees earnings. Payroll accounting requires the information related to employees attendance, leaves, rates of pay, amounts to be deducted, etc. Labour Cost Accounting is concerned with identifying the amount of laour cost to be charged to individual jobs and overheads. For this purpose, information relating to the time spent on each job or process or no. Of units produced is otained form the job cards, Piece work tickets, etc. The idle time analysis is also necessary for labour cost accounting Accounting for Labour in a manufacturing organisation usually involves 3 activities, namely : Time Keeping, Allocation & Payment. 1. Time Keeping To determine the total numbers of hours spent at work by each employee to enable the calculation of periodic earnings, be it weekly, fortnightly etc. The source document used to record hours spent at work by employees is referred to as either a time card, clock card or bundy card. This source record is used to calculate the pay due to the employees based upon their attendance. 2. Allocation Analysis of labour costs enabling : Page 4 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
• •
direct labour to be charged to production indirect labour to be charged to factory overhead The source document used to enable the allocation of labour time and costs to production or overhead is referred to as either a time ticket or Labour job ticket which summarises the time spent on direct labour and indirect labour during the hours spent at work by each employee. For each employee, the sum of the time tickets for a pay period should be equal to the total time card (see ‘time keeping’ above..) 3. Payment Being the implementation of controls over the payment of wages to determine net wages payable to employee. In a manufacturing situation factory employees (excluding factory management) are usually covered by a pay award or enterprise agreement which sets out :
• employee conditions including hours of work per day, annual leave, sick leave, long service leave entitlement. • • basic rates of pay, and penalty rates to be paid for overtime and shift allowances
Wage system While designing the labour cost, the wage system plays an important aspect. It is very important to have a right wage system so as to control on labour effectively. The wage system should be selected by taking the following consideration into consideration.
?
Acceptance by employees Page 5 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
? ? ? ?
Provision for flexibility Provision for economy in administration Minimize absenteeism Provision for incentive plan
Types Of Wage Systems There a two type of wage system an organization may adopt to pay for labour 1. Straight Time 2. Piece-Work
1.Straight Time This method is used on the basis of the attendance of the worker. A fixed wage rate is paid to the workers on the basis of the time spent by them on the production floor. Under this method, wage rate is calculated as follows, Wage = Hourly rate x No. of hours (spent) Or Daily wage rate x No. of days. This sort of wage system is suitable for organization under the following cases: 1. It is difficult to measure the work done by the employee. 2. The quality of work is of utmost importance. 3. When work done is not repetitive in nature. 4. Where work can be closely monitored. Advantages: • As the worker are in a no hurry to produce unit, scraps and spoilage and defective units are minimized to a great extent. • • • Firm’s quality standards of output are met. Quality inspection costs are minimized. As all workers are paid alike, labour unions welcome this method. Disadvantages: • It is difficult to set standards for labour. Page 6 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
• • •
Labour cost may increase. There are chances of decrease in productivity. It, induces more idle & inefficiency.
2. Piece-Work This method rewards worker based upon their output. A fixed wage rate is paid for each unit produced or number of operations completed or job completed. Time taken to produce a unit is immaterial under this method. Under this method, wage rate is calculated as follows: Wage = No. of units produced x Rate per unit It is necessary to pay minimum “day wages” in compliance to the statutory provision of the Minimum Wages Act, 1948. This method of wage system is suitable under the following cases: 1. Where the production of units are repetitive. 2. Where the quantity of output does not require any specialized skill. 3. Where there is flow of work without any interruption. 4. Where the price rate can be fixed easily. Advantages: • • • • • It promotes efficiency among worker. It reduces costs. Idle time is controlled. It reduces the cost and the need of supervision. It leads to higher production. Disadvantages: • This method may result is higher scrap, spoilage and wastage since workers are more interested in producing more units. • • • • The firm’s standard qualities for units are not met. Machineries may get obsolete due to careless handling in order to increase output. Workforce may suffer incase of breakdown, power failure and so on It is not easy to determine piece rate of a unit in practice.
Page 7 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
Labour Turnover Labour turnover is the movement of people into and out of the organisation. It is usually convenient to measure it by recording movements out of the firm on the assumptions that a leave is eventually replaced by a new employee. The term seperation is used to denote an employee who leaves for any reason. Labour turnover is the rate of change in the number of employees of the concern during definite period. Labour turnover studies is helpful in manpower planning. Ahigh turn over rate may mean poor personnel ploicies, poor supervisory practices or poor company policies. Too lower rate of turnover can also be a danger singnal. Frequent changes in labour normally affect output and increases cost. The effect of high labour turnover, such as increased cost of selection and training of new workers result in higher costs. The overall production goes down due to lower lever of effeiciency among the new team of workers and time loss between labour turnover and finding suitable replacements. There are two types of costs i) Preventive cost- Personnel Administration, Medical Services, Welfare activities and services, Pension scheme, Bonus, Incentives schemes, etc. ii) Replacement costs- Cost of recruitments, Training and induction, Loss of output due to delay in recruitment, Cost of inefficiency of new workers, Cost of breakage of tools and machinery, Cost of increased spoilage and defectives, Cost of frequent accidents
Causes of Labour Turnover The workers leave the factory either by i) Resignation, or by
ii) Discharge by the employer, or iii) Unavoidable Causes.
Cause for Resignation The causes may be: 1. Low salary wages paid as compared to the salary wages paid in other factory which he is induced to join. 2. 3. 4. a. b. Ill health and bad working conditions Lack of safety measures Dissatisfactions due to various causes such as : Hours of work Improper placement Page 8 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
c. d.
Unfair method of promotion Bad relationship with Supervisor, or with fellow-workers in some cases.
Causes for Discharge 1. 2. 3. 4. 5. Incompetence; Insubordination, disobedience, and disregard of the rules and regulations; Unpunctuality or lack of attention to duty; Accidents or suffering from infectious disease; Immoral character.
Unavoidable Causes 1. only; 2. 3. 4. 5. 6. 7. Seasonal character of the industry where work is carried on during some part of the year Death of the worker; Family Circumstances Health Conditions Marriage (in case of woman) Migratory nature of workers Community conditions
Human Resource Policies 1. Recruitment : Employees are hired for replacement of existing employee or to meet additional requirements arising from expansion of organisatinal activities. Replacement may be for someone who has left the firm or for someone who has been eleveted to higher position or transferred to other activity. The organisation (HR dept.) locates prespective candidates through advertisements or through Referrals, Internal Job Postings (IJP), Professional social Networks eg. Linkedin, Advertisements on Webportals Naukri, Monster etc.iii 2. Training : A company needs productive staff who enjoy what they are doing and increase the productivity of the company. After the candidate join HR dept organises Induction training of the employee. Additional Trainings are also arranged in form of On Job Training, Summer training, Management Trainee, tele calling script, Short term training for enhancing productivity, new Product training. Business Etiquettes, Grooming skills for customer facing employees. Page 9 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
3. Development : The company has to groom the individuals in order to create successors for key positions. If some senior member decides to move out then the business of the company is not affected. The moment someone leaves, a new person can take charge immediately. The companies provide financial support for higher education related to job work, short term manegement courses, loan facility for education, Career progression plan, Internal Job Postings. 4. Retention : Employee retention is most critical issue facing corporate leaders as a result of the shortage of skilled labor, economic growth and employee turnover. The old "my-way-or-thehighway" style of management is a thing of the past. Employee retention involves being sensitive to people's needs and demonstrating the various strategies for keeping good people. Employee retention takes effort, energy, and resources. Rewards and recognitions, Various Employee Engagment activities like Birthday celebrations, offsite meeting, Outbound trainings with team building exercise, Family picnics, Annual Days, Sports day, Health care and welfare activities like yoga, gymnasium, music room, newspaper room & coffee room with ean bags, TV room, indoor games – carrom, table tennis, dart board, etc, Power nap facility, Creche (Baby Care). Informal work culture (like google) meetings are held on a pool table rather than in conference room.
Idle time Due to several reasons there could be time loss e.g. machine breakdown, power failure, temporary lack of work, tea and lunch breaks etc. Thus idle time is difference between hours paid and hours worked. It is the labour time paid for but not utilised in production. Over time The time worked over and above the normal hours is overtime. The remuneration usually paid for the overtime work is at higher the normal rate. The need for over time work arises due to: Increase in demand for the products where the production during the normal hours falls short to meet it; Shortage of workers, Utilization of perishable raw materials, Execution of urgent orders, limiting machine hours available. The overtime wages consits of two elements : 1. 2. Normal wages for extra time Additonal wages paid for the overtime worked Labour cost control: Labour cost control aims at the control of the labour cost per unit of production and not at the reduction of the wage rates of the workmen. Labour cost is second major element of cost. Economic utilization of labour is a need of the present day industry to reduce the cost of production of the products manufactured or service rendered.iv Primary Objectives: i) ii) Determining labour costs in the cost of production; Reporting labour cost for planning & control;
Page 10 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
DRAFT
iii) Reporting labour costs for decision making. eg: replacement of plant & equipment eg: pricing decisions etcv
Labour Costing Procedure: The operation of a labour costing system requires the completion of the following steps : 1. 2. Calculation of the PAY due to each employee. The breakdown of the total payroll in to DIRECT and INDIRECT labour.
3. The treatment of overtime premiums - whether it is charged to WIP or FACTORY OVERHEAD. 4. 5. The costing and accounting for labour “on” costs or labour “related” costs. The PAYMENT of wages and the treatment of withholdings from the employee’s pay.
CASE STUDY
Labour in typical xyz
MCQ
1. Carpenters engaged in cutting of wood in a furniture making shop is an example of..... Page 11 of 13
LABOUR
GROUP ASSIGNMENT (ROLL NO.21 TO 30)
a. b.
DRAFT
Indirect labour Direct labour 2. Indirect labour cost forms a part of overheads. True False
a. b.
ANSWERS
1. b) Direct Labour 2. a) True
REFERENCES
Pandey I M: Financial Management, Ninth Edition, 2006 Jawaharlal: Cost Accounting, 2009
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i ii iii iv v
ehow: http://www.ehow.com/about_6418519_definition-labour-cost. Ravi Kishore: Students Guide to Cost Accounting with Problems and Solutions Bhattacharya AK: Principles and Practices of cost acounting, Edition 3, 2004
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