Labour Cost System of wages Piece Rate or Piece Work Why Control labour costs? Idle Time Cost Types of incentive wage plans Halsey premium method and Rowan’s method Merrick Differential Piece Rate System Measuring workforce performance Labour turnover Turnover and costing Calculation Methods Labour productivity

1. Labour Cost
• Wages paid to workers during an
accounting period on daily, weekly,
monthly, or job basis, plus payroll and
related taxes and benefits (if any).
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2. The Manager’s Thought
Prime cost of
concern for
the HRD
Important part
of production
process
Decides price
of product
LABOUR COST IS:
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3. Labour Costs
Direct
That portion of wages or
salaries which can be
identified & charged to a
single costing unit
Indirect
Cannot be correlated with
production of specific goods,
applicable to mfg activities
generally (paid to
foreman,stockkeeper,clerical
staff)
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4. Other Benefits
• Employees contribution to PF,
production & profit bonus,
holiday & vacation bonus, old
age pension
Financial
• Subsidised food & housing,
transport to the workplace ,
employee’s children education
, recreational facilities etc.
Non-
financial
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5. System of wages
• Should satisfy employees & employer
System of
wages
Time Wage or
Day Rate
Piece Rate or
Piece Work
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6. Time Wage or Day Rate system
• Wages to worker are paid on time basis irrespective of
quantum of production
• Wage measured on basis of unit of time, i.e., hourly,
daily, weekly or monthly
• Formula:
SUITABILITY :Volume of production is not within the
control of labor. E.g. Oil Refinery
• The nature of work is such that there is no basis for
incentive plan. E.g. Night watchman
Hrs worked X Rate per Hr
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7. Piece Rate or Piece Work
• Remuneration of work is paid on the basis of
production and not time taken by to perform the work
• Simple and most commonly used incentive schemes
• Formula:
SUITABILITY :
• If the productivity is closely related to skill & efforts
• The unit cost can be easily determined
• If it is possible to fix a fair and acceptable piece rate
Units Produced X Rate per Unit
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8. Why Control labour costs?
• Inefficiency of labor
• Wasting material due to improper supervision
• Idle time – normal & abnormal causes.
• Unusual overtime work
• Inclusion of dummy names in payrolls, etc

9. Controlling accomplished by:
Personnel department
Rate or time & motion study
Production planning
Budgeting
Engineering department
Time - keeping
Cost accounting department
Payroll department

10. OTHER COSTS
• Idle time
• Overtime
• Bonus & premiums
• Incentive wage plans
• Group bonus schemes
• Co –partnership schemes

11. Treatment of Idle Time Cost
• Treatment of normal idle time cost
(i) Treated as direct wages
(ii) Treat as an item of factory expenses and recover as
indirect charges
• Treatment of abnormal idle time cost
(i) Does not form part of cost of production
(ii) Directly transferred to Costing Profit & Loss
Account without disturbing the normal costs

12. Overtime & its treatment
• Time spend over & above the normal working
hours on the job
• In India, if worker works more than 9hrs a day or
48 hrs a week.
I. Direct cost- customer pays due to urgency
II. P/L A/c- to makeup any shortfall in production
due to some fault of management or due to
abnormal causes like floods
III.General overhead- when handling seasonal
pressures

13. Bonus and premium
schemes
• To increase the production
and productivity
• To raise the morale
• To retain the services of good
workers
• To establish better labor-
management relations
Group bonus schemes
• To develop team spirit
• Where output is more
dependent upon the efforts on
the group rather than the
individual worker.
• METHODS
• Equally by all workers in
the group.
• Pro rata on the time rate
basis.
• Predetermined percentage
basis.
• Specified proportion basis
depending upon the
different skills of the
workers.
Co-partnership / shares
• Provide an opportunity to
workers to share the
prosperity of the company by
not only being the wage
earner but also the partner of
the undertaking.
• The profits to be distributed
are determined through the
negotiation between the
employer and the employee.
• Normally it is paid in cash,
but it may be in the form of
shares of the undertaking.

14. Types of incentive wage plans
1. Halsey premium plan
2. Halsey- weir premium system
3. Rowan plan
4. Bedaux point premium system
5. Taylor’s differential piece rate system
6. Merrick differential piece rate system
7. Gantt task & bonus plan
8. Emerson efficiency system

15. TYPES OF INCENTIVE WAGE
PLANS
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

16. Cont…
Rowan System
The bonus hours are calculated as the proportion of the
time taken which the time saved bears to the
standard time allowed
Time taken* rate + standard time – time taken* time taken* rate
Standard time

17. Question ???
Time allowed (standard time): 60 hrs.
Rate of wages: Rs10 per hour
Factory A
Halsey PlanRowan Plan
Factory B
Time taken =48hrsTime taken =36hrs
Required: Total earnings according to both the systems

18. The formula of calculating wages by Halsey premium
method and Rowan’s method are as follows:
Time taken* rate + %(standard time-time taken)* rate
Time taken* rate + standard time – time taken* time taken* rate
Standard time
Wage at location A: 36 *10= 360 Rs
Wage at location B: 48 * 10=480 Rs
Bonus : 60-36 * 36 *10= 144 Rs
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19. Bonus : 50% time saved * rate per hr
=50% (60-48) * 10
=60 Rs
‘A’
(Rowan’s method)
Rs.
‘B’
(Halsey’s method)
Rs.
Wages:
Bonus:
360
144
480
60
Total: 504 540

20. Merrick Differential Piece Rate
System
• Has 3 categories for
payment
• Daily wages are not
guaranteed.
20% above
Normal rate
Above 100%
10% above
Normal rate
Up to 100%
Normal rateUp to 83%
Price rate
applicable
Efficiency

21. Methods of measuring workforce performance
– Labour turnover
– Labour productivity
– Absenteeism
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22. Labour turnover
• Labour turnover (staff turnover) can be
defined as the rate of change in a firm’s
labour force.
• look at labour turnover over a period of 1 year.
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23. Turnover and costing
Labour turnover
( High / Low )
Preventive costs
Replacement
costs
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24. Calculation Methods
1.Separation method:
• no.of separations in a period/avg total no.of
workers in a period * 100
2.Flux or separation cum replacement method:
• No. of separation+ no.of replacement/ avg total
no.of workers in a period *100
3.Replacement method:
• No.of workers replaced during a period/avg total
no.of workers* 100
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25. Labour productivity
Output per worker
=Total value of Output
Total Number of workers
• Look at labour productivity
over a period of time e.g. 1
year
Cost per unit
= Total Labour Cost
Number of units produced
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26. THANK YOU
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