Level 1 Paper 7 Cost and Management Accounting: Mat-Cpa-P7 Lecturer: SAMUEL MUKOBE

LEVEL 1
PAPER 7
Cost and Management Accounting
May 2021 Examination

/
Labour costing
Lecturer: Samuel Mukobe
______________________________________________________________________________________
1
MAT-CPA-P7 Lecturer: SAMUEL MUKOBE
LABOUR COSTS
Labour costs refer to all the expenses incurred in compensating the human resources
employed to provide a service in the production process.
Classification of Labour costs
Direct Labour costs. These are the costs that are directly identified with a particular cost
unit. The cost unit may be a job, product, process, contract etc for example wages paid to
a carpenter.
Indirect Labour costs. These are costs that are not directly identified with a cost unit. For
example, the salary of a workshop supervisor in a carpentry workshop
Labour turnover
The ratio of the number of employees that leave a company during a period to the number
of employees on payroll during the same period
It also refers to a measure of the number of employees leaving/being recruited in a period

of time expressed as a percentage of the total labour force.
Formulae:
Replacement method
Labour turnover rate = replacements x 100%

Average number
of employees in a period
separation method
= number of workers who left during the period x 100

Average number of workers
Flux method
=number of workers who left + no of workers replaced x 100
Average number of workers
The reasons for labour turnover
Unavoidable
 Illness or accidents
 A family move away from the locality
 Marriage, pregnancy or difficulties with child care provision
______________________________________________________________________________________
2
 Retirement or death
Avoidable
 Paying a lower wage rate than is available elsewhere

 Requiring employees to work in unsafe or highly stressful conditions
 Requiring employees to work uncongenial hours
 Poor relationship between management and staff
 Lack of opportunity for career enhancement
 Requiring employees to work in inaccessible places (e.g. no public transport)
 Discharging employees for misconduct, bad time keeping or unsuitability.
Cost of labour turnover
i) Preventive costs
ii) Replacement costs
Replacement costs
These are costs incurred as a result of hiring new employees and include the following;
 Cost of selection and replacement

 Inefficiency of new labour, productivity will be lower
 Costs of training
 Loss of output due to delay in new labour becoming available
 Increased wastage and spoilage due to lack of expertise among new staff.
 The possibility of more frequent accidents at work
 Cost of tool and machine breakages.
Preventive costs
Are costs incurred in order to prevent employees leaving and they include the following:
 Cost of personnel administration incurred in maintaining good relationships

 Cost of medical services including check-ups, nursing staff and so on.
 Cost of welfare services, including sports facilities and canteen meals.
 Pension schemes providing security to employees.
______________________________________________________________________________________
3
EFFECTS OF LABOUT TURNOVER
 Increased cost of recruitment and training,
 Decrease in production due to inefficiency and inexperience of newly appointed

workers,
 Loss arising due to defective work and increased wastage in production,
 Newly employed workers are likely to mishandle tools and equipment resulting in
breakages of tools,
 The new workers are more accident-prone and increased number accidents cause
loss of output and increase in medical expenses and cost of repairs.
 Lack of cooperation and coordination between old and new workers resulting fall
in output and increased cost of production.
The overall effect of labour turnover, therefore, is a higher cost of production and lower
profitability
The prevention of high labour turnover
Labour turnover will be reduced by the following actions:
 Paying satisfactory wages

 Offering satisfactory hours and conditions of work.
 Creating a good informal relationship between members of the workforce.
 Offering good training schemes and well-understood career or promotion ladder.
 Improving the content of jobs to create job satisfaction
 Proper planning so as to avoid redundancies
 Investigating the cause of an apparently high turnover.
The human Resource Department: It recruits employees in an organization and

maintains a data base for them. Together with the Engineering department, it plays the
following roles:
Job specification; this is a description of the specific knowledge, skills and abilities that
are required to perform a job.
Job Analysis is a process to identify and determine in detail the particular job duties and
requirements and the relative importance of these duties for a given job.
Job evaluation is the systematic process for assessing the relative worth of jobs within
an organization.
______________________________________________________________________________________
4
A comprehensive analysis of each position's tasks, responsibilities, knowledge, and skill
requirements is used to assess the value to the employer of the job's content and provide
an internal ranking of the jobs
Payroll Accounting; this involves the determination of the employees’ gross pay and all
relevant compulsory deductions.
Functions of the Payroll Department
Timekeeping
During payroll processing, the timekeeper gathers timekeeping data. She calculates time
worked, including overtime. She consults with employees’ managers or supervisors on
time card issues and verifies that the data is correct before paycheck processing occurs.
Paycheck Processing
The paycheck processor verifies that the payroll system has the correct compensation
data for each employee. This includes salary, hourly rates, regular hours and overtime
hours. She verifies other types of pay, such as bonuses, commissions, severance, piece
rate, expense reimbursements, back pay and retroactive pay increases.
Record-keeping
Employers must keep documents that determine wage calculations, including time cards,
piece rate tickets, deductions from or additions to wages, and time schedules.
Employee Benefits
Employee benefits processing is essentially a human resources function; however, HR

and payroll often go hand in hand. For example, both departments work together so
employees do not take more vacation, personal or sick time than they have available, and
if they do, both departments collaborate to correct the balances.
Payroll Accounting
Through payroll accounting, the company tracks wages paid, deductions from
employees’ paychecks, and all employer-paid payroll expenses. Depending on the
structure of the business, payroll and the accounting department handle payroll
accounting.
______________________________________________________________________________________
5
Employee Relations
The payroll department addresses internal payroll inquiries from managers, supervisors
and employees. It also addresses related external concerns, such as from government
agencies that need information on employees for wage garnishment
Pay roll fraud

This involves paying employees amounts they don’t qualify to earn.
Cases;
 Nonexistent/ ghost workers on the payroll.
 Showing absentee workers as present
 Overstating hours worked
 False expense reimbursement
 Paying workers for no work done
 Paying employees at a rate higher than the approved rate
 Payment of leave wages to workers who don’t qualify.
Remedies;
 Establish internal controls – separation of duties
 Clock in and clock out
 Regular reconciliation of the payroll with appointment letters
 Ensure that payroll staff take leave
 Have department heads regularly review their head count
 Follow up on overtime payments
 Always verify claimed expenses
 Use of CCTV cameras
 Training staff on payroll management
______________________________________________________________________________________
6
Merit rating/performance evaluation. Is a systematic way of assessing employees’
performance in terms of job requirements?
Advantages of Merit Rating:
The following are the advantages of Merit Rating:
 It provides a scientific basis for judging the capability of employees who will
try to improve their performance if it is not up to their satisfaction. Hence it
helps in making comparisons.
 It provides a sound basis for the purpose of promotion, demotion, transfer or
termination of employees. Better persons are selected for promotion. The
systematic evaluation remains as a part of permanent record.
 It helps in distinguishing between efficient and inefficient workers. In this way,
defects in the selection procedure are identified.
 Workers may receive a pay rise or any other incentives in case of good
performance. Spot judgments and decisions are avoided.
 It develops confidence among the workers since the methods of evaluation are
systematic and impartial. A sense of competition develops among the workers
leading to improved productivity.
 It creates a congenial atmosphere in which employer-employee relations are
improved. Subordinates are motivated to work harder for getting favorable
rating.
______________________________________________________________________________________
7
 Merit rating helps in stimulating and guiding the development of an employee
as it points out the weakness of the employees. Training needs can be identified
and programs prepared accordingly.
 It is a systematic evaluation technique which produces better supervisors and
executives.
Limitations of merit rating
 There is a tendency to rate employees basing on only one factor (blending
tendency).
 Each rater may apply his own standards hence making the final results
incomparable.
 Lenient raters give high ratings while strict raters always give low ratings.
 Generally, the raters evaluate employees by keeping them in the average category
hence creating a central tendency that may be a drawback to this technique.
 Usually there is a tendency to a person performing a higher paid.
Remuneration methods
There are three basic groups of remuneration methods

 time work/rate
 piecework schemes
bonus/incentive schemes
Time work
The most common form of time work is a day-rate system in which wages are calculated
by the following formula
Wages = hours worked x rate of pay per hour
______________________________________________________________________________________
8
 Overtime will be paid if an employee works beyond the basic daily requirement
 Hours of overtime are usually paid at a premium rate e.g. if the basic day rate is ₤4
per hour and overtime is paid at ₤1and a quarter, eight hours of overtime would be
paid the following amount.
£
Basic pay (8 x £4) 32
Overtime premium (8 x £1) 8
Total (8 x £5) 40
 The overtime premium is the extra rate per hour which is paid, not the whole of the
payment for the overtime hours.
If employees work unusual hours, for instance overnight, they may be entitled to a
shift premium. The extra amount paid per hour, above the basic hourly rate is the
shift premium.
 Day rate systems may be summarized as follows;

a) They are easy to understand
b) They do not lead to very complex negotiations when they are being revised.
c) They are most appropriate when the quality of output is more important than the
quantity, or where there is no basis for payment by performance.
Piecework schemes (piece rate)
In a piecework scheme, wages are calculated by the following formula
Wages = units produced x rate of pay per unit
As output increases, wages also increase
 It is normal for piece workers to be offered a guaranteed minimum wage, so that they
do not suffer loss of earnings when production is low through no fault of their own.
 If an employee makes several different types of product, it may not be possible to add
up the units for payment purposes. Instead a standard time allowance is given for
each unit to arrive at a total of piecework hours for payment.
Example: Piecework
An employee is paid £5 per piecework hour produced. In a 35-hour week he produces

the following output.
Piece time allowed per unit

3 units of product A 2.5 hours
5 units of product B 8.0 hours
______________________________________________________________________________________
9
Required: Calculate the employee's pay for the week
Solution
Product A 3 x 2.5 hours 7.5 hours

Product B 5 x 8 hours 40.0 hour
Total piecework hours 47.5 hours
Therefore, employee's pay = 47.5 x £5 = £237 for the week.
Differential piecework schemes
Differential piecework schemes offer an incentive to employees to increase their output

by paying higher rates for increased levels of production
e.g.
Up to 80 units per week, rate of pay per unit = £1.00

80 to 90 units per week, rate of pay per unit = £1.20
Above 90 units per week, rate of pay per unit = £1.30
Employers should obviously be careful to make it clear whether they tend to pay the
increased rate on all units produced or on the extra output only.
Piecework schemes may be summarized as follows:
 They enjoy fluctuating popularity

 They are occasionally used by employers as a means of increased pay levels
 They are often seen to drive employees to work too hard to earn a satisfactory wage
Careful inspection of output is necessary to ensure that quality doesn't fall as production
increases.
______________________________________________________________________________________
10
Bonus/incentive schemes
They were originally designed to compensate workers paid under a time-based system for
their inability to increase earnings by working more efficiently.
Characteristics
a) Employees are paid more for their efficiency.

b) The profits arising from productivity improvements are shared between employer and
employee.
c) Morale of employees is likely to improve since they are seen to receive extra reward
for extra effort.
A bonus scheme must satisfy certain conditions to operate successfully.
a) Its objectives should be clearly stated and attainable by employees.

b) The rules and conditions of the scheme should be easy to understand
c) It must win the full acceptance of everyone concerned
d) It should be seen to be fair to employees and employers
e) The bonus should be ideally paid soon after the extra effort has been made by the
employees.
f) Allowances should be made for external factors outside the employees control which
reduce their productivity (machine breakdowns, material shortages)
g) Only those employees who make the extra effort should be rewarded.
h) The scheme must be properly communicated to employees.
Types of incentive schemes
i) High day-rate system
A high day-rate system is a system where employees are paid a high hourly wage rate in
the expectation that they will work more efficiently than similar employees who are on a
lower hourly rate in a different company.
Advantages
a) It is simple to calculate
b) It guarantees the employee a consistently high wage
Disadvantages
a) Employees cannot earn more than the fixed hourly rate for their extra effort.
b) There is no guarantee that the scheme will work consistently
c) Employees may prefer to work at a normal rate of output, even if this entails
accepting the lower wage paid by comparable employers.
______________________________________________________________________________________
11
ii) Individual bonus schemes
An individual bonus scheme is a remuneration scheme whereby individual employees

qualify for a bonus on top of their basic wage, with each persons' bonus being calculated
separately.
a) The bonus is unique to the individual. It is not a share of a group bonus.

b) The individual can earn a bonus by working at an above-target standard of efficiency.
c) The individual earns a bigger bonus the greater his efficiency.
For the scheme to be successful;
 Each individual should be rewarded for the work done by that individual
 Work should be fairly routine, so that standard times can be set for jobs.
 The bonus should be paid soon after the work is done, to provide the individual with
the incentive to try harder.
iii) Group bonus schemes
A group bonus scheme is an incentive plan which is related to the output performance of
an entire group of workers, a department, or even the whole factory.
Where individual effort cannot be measured, and employees work as a team, an

individual incentive scheme is impracticable but a group bonus scheme would be
feasible.
Advantages
a) They are easier to administer because they reduce the clerical effort required to
measure output and calculate individual bonuses.
b) They increase corporation between fellow workers.
c) They have been found to reduce accidents, spoilage, waste and absenteeism
Disadvantages
a) The employee group demands low efficiency standards as a condition of accepting

the scheme.
b) Individual employees are browbeaten by their fellow workers for working too slowly.
iv) Profit sharing schemes
A profit sharing scheme is a scheme in which employees receive a certain proportion of

their company's year-end profits (the size of their bonus being related to their position in
the company and the length of their employment).
______________________________________________________________________________________
12
The advantage of these schemes is that the company will only pay what it can afford out
of actual profits and the bonus can be paid to non-production personnel,
Disadvantages
 Employees must wait until the year-end for a bonus.

 Factors affecting profit may be outside the control of employees, inspite of their
greater efforts.
 Too many employees are involved in a single scheme for the scheme to have a great
motivating effect on individuals.
v) Incentive schemes involving shares
 A share option scheme is a scheme which gives its members the right to buy shares in
the company for which they work at a set date in the future and a price usually
determined when the scheme is set up.
An employee share ownership plan (ESOP) is a scheme in which a company acquires

shares on behalf of a number of employees, and it must distribute those shares within 20
years of acquisition.
It makes workers feel that they have a stake in the company which employs them.
Disadvantages
a) The benefits are not certain, as the market value of shares at a future date cannot
realistically be predicted in advance.
b) The benefits are not immediate, as a scheme must be in existence for a number of
years before members can exercise their rights.
vi) Value added incentive schemes
Value added is an alternative to profit as a business performance measure and it can be

used as the basis of an incentive scheme. It is calculated as follows: -
Value added = sales - cost of bought in materials and services
The advantage of value added over profit as the basis for an incentive scheme is that it
excludes any bought in costs and is affected only by costs incurred internally such as
labour.
A basic value added figure would be agreed as the target for the business, and some of
any excess value added earned would be paid out as a bonus.
______________________________________________________________________________________
13
For example, it could be agreed that value added should be, say, treble the payroll costs
and a proportion of any excess earned, say one third, would be paid as bonus.
Payroll costs per month £40,000

Therefore value added target (x3) £120,000
Value added achieved £150,000

Therefore, excess value added £30,000
Employee share to be paid as bonus £10,000

(⅓ x £30,000)
Organization for controlling and measuring labour costs
Several departments and management groups are involved in the collection, recording
and costing of labour.
 Personnel
 Production planning
 Time keeping
 Wages
 Cost accounting
Personnel department
It is headed by a professional officer.

The personnel department is responsible for the following;
 Engagement, transfer and discharge of employees

 Classification and method of remuneration
 Contracting local schools and technical colleges
 Maintain particulars of employees on a personnel record and
 Maintain records of overtime and shift working
 Issuing of reports to management on normal and overtime hours worked, absenteeism
and sickness, lateness, labour turnover and disciplinary action
Production planning department
This department is responsible for the following;
 Scheduling work
 Issuing job orders to production departments
 Chasing up jobs when they run late
Time keeping department

______________________________________________________________________________________
14
The time keeping department is responsible for recording the attendance time and job
time of the following;
 The time spent in the factory by each worker
 The time spent by each worker on each job.
Such time keeping provides basic data for statutory records, payroll preparation,
labour costs of an operation or overhead distribution (where based on wages or labour
hours and statistical analysis of labour records for determining productivity and
control of labour costs.
An attendance record time is kept showing days absent because of holiday, sickness
or other reason.
It is also necessary to have a record of the following.
 Time of arrival
 Time of breaks
 Time of departure
They may be recorded as follows;

 In a signing-in book
 By using a time recording clock which stamps the time on a clock card
 By using swipe cards (which make a computer record)
When the work is not of a repetitive nature, such as in job costing the nature of records
might be one or several of the following:
a) Daily time sheets are filled by the employees as a record of how their time has been
spent.
b) Weekly time sheets are similar to daily time sheets but are past to the cost office at
the end of the week
c) Job cards are prepared for each job or batch. Each employee who has worked on a
particular job will record the time spent on that job. The hours actually taken and the
cost of those hours will be calculated by the accounting department.
d) A piece work ticket or an operation card will be used to determine the wages of piece
workers and the labour cost of work done by them. The card records the total number
of items (or pieces) produced and the number of rejects. Payment is only made for
good production.
Salaried labour
Even though salaried staffs are paid a flat rate monthly, they may be required to prepare
time sheets. The reasons as follows:
a) Time sheets provide management with information (e.g. product costs)

b) Time sheet information may provide a basis for billing for services provided (e.g.
service firms where clients are billed based on the number of hours’ work done)
c) Time sheets are used to record hours spent and so support claims for overtime
payments by salaried staff.
______________________________________________________________________________________
15
Idle time and idle capacity
Idle capacity is the remaining amount of capacity left in a company after productive
capacity and protective capacity have been eliminated from consideration
Idle time occurs when employees cannot get on with their work through no fault of their
own e.g.
 Machine breakdowns
 Shortage of work
Idle time has a cost because employees will still be paid their basic wage or salary for
these unproductive hours and so there should be a record of idle time.
Wages department
Responsibilities of the payroll department include the following: -

 Preparation of one pay roll and payment of wages
 Maintenance of employee records
 Summarizing wages cost for each cost centre
 Summarizing the hours worked for each cost centre
 Summarizing other payroll information e.g. bonus payments, pension, etc
 Providing an internal check for the preparation and payout of wages.
The cost accounting department has the following responsibilities;

 The accumulation and classification of all costs data (which includes labour cost)
 Preparation of cost data reports for management
 Analysis of labour information on time cards and payroll
The following documents are used to establish the labour cost involved in products,
operations, jobs and cost centres.
 Clock cards
 Job cards
 Idle time cards
 Payroll
Analyses of labour costs are used for the following;
a) Charging wages directly attributable to production to the appropriate job or operation

b) Charging wages which are not directly attributable to production as follows:
i) Idle time of production workers is charged to indirect costs as part of the

overheads
______________________________________________________________________________________
16
ii) Wages costs of supervisors, or store assistants are charged to the overhead
costs of the relevant department.
c) Producing idle time reports which show a summary of the hours lost through idle
time, and the cause of the idle time. Idle time may be analyzed as follows:
 Controllable e.g. lack of materials
 Uncontrollable e.g. power failure
 Lack of orders
 Consultations
 Having lunch
 resting
Idle time ratio = idle hours x 100%

Total hours
The ratio shows the proportion of available hours which were lost as a result of idle time.
Halsey Premium Plan
This premium plan was originated by Mr. F. A. Halsey. Under this worker is paid at the
time rate if the actual time taken is equal to or more standard time.
Thus the worker is not penalized for his inefficiency and he gets for the actual time
worked. If the time taken is less than the standard time, l saved is shared by the worker
and the employer. Besides the wages for the actual worked, he gets bonus usually at 50%
of the time saved at time rate.
The main features of Halsey premium plan are:
(i) Standard time is fixed in advance for performing a job.
(ii) Time rate is guaranteed and the worker gets the guaranteed irrespective of whether he
completes the job within the time also takes more time to do it.
(iii) If the job is completed in less than pre-determined standard time worker is paid a
bonus of 50% of the time saved at time rate in ad to his wages for the actual time spent on
the job as a reward to his work.
The advantages and disadvantages of this premium plan are mentioned below:
Advantages
(i) The plan is simple to understand and easy to operate.
______________________________________________________________________________________
17
(ii) It creates a feeling of security among workers as the plan assures a minimum hourly
rate or guaranteed wage.
(iii) The efficient workers are rewarded by way of payment of bonus, whereas the
inefficient workers are not penalized.
(iv) Earnings of workers increase and productivity increases since the workers are
motivated.
(v) The employers also gain since direct labour cost and overheads cost per unit decline.
Disadvantages
(i) The workers do not get the full benefit of their efforts since the employee gets a share
of the wages of the time saved.
(ii) More wastage of raw materials may result due to over-speeding.
(iii) The quality of work may decline as the workers want to rush through the work.
This incentive plan was made by F.A. Halsey in 1891. It formula is given below
Total Wage = Taken Time X Standard Rate + ( Saved Time X Standard Rate) X 50/100
Calculate the wage with incentive of a worker from following information.
Standard time to produce units = 250 hrs
Time taken to produce the units = 220 hrs.
Hour rate of wages Rs. 4 /-
Method of payment Halsey premium plan
basic pay = time taken x time rate
= 220x4 = 880
Bonus (Time saved x std rate) 50/100
30X4=120X (50/100) = 60
______________________________________________________________________________________
18
solution:
Wage = Taken Time X Standard Rate = 220 X 4 = Rs. 880
Incentive Wage or bonus = Time saved X Standard Rate X 50%
= 30 X 4 X 50/100 = 60
Total wage = Rs. 880 + Rs. 60 = Rs. 940
Rowan premium plan is one of important incentive wage plan which was made by James
Rowan of David Rowan and Co.
As per this plan, there is guarantee of minimum wage with time rate. But worker has right
to get bonus on the basis of his time saved
Advantages of Rowan Plan
(i) Checks over-speeding, overstrain by worker.
(ii) Assured minimum base-wage
(iii) Efficiency is rewarded
Disadvantages of Rowan Plan
(i) Discourages workers to over-achieve.
(ii) Difficulty in ascertaining wages as it requires large data processing
(iii) Sharing of profit for over-achievement may not be liked by workers.
Formula of this plan is below.
Total Wage = Time taken X standard rate +

( time taken X time saved X standard rate ) / standardtime
Example
A worker takes 12 hrs to complete a job to time wage and 9 hrs on a scheme of payment
by result. The rate of payment is Rs. 5/- per hr.
Calculate his earning if he is paid on the basis of Rowan plan.
______________________________________________________________________________________
19
Basic Wage = Time taken X standard rate
9hrs x5=45
(time taken X time saved X standard rate ) / standard time
(9x3x5)/12 = 11.25
Total pay = 56.25.
Solution
By analysis, we get the following facts:
Standard time = 12 hrs.
Time taken = 9 hrs.
hourly rate = Rs. 5/-
Wage = time taken X standard rate = 9 X 5 = Rs. 45
Incentive wage or bonus = ( time taken X time saved X standard rate ) / standard time
= 9 X 3 X 5 / 12 = Rs. 11.25
Total Wage = 45 + 11.25 = 56.25
Performance Ratios
Efficiency Ratios
This Measures whether we are working faster or slower than expected.
=standard labour hours for actual output x 100

Actual labour hours worked
Productivity ratios
This Measures whether we are able to produce more or less than expected based on the
available time.
Standard labour hours for actual output x 100

Budgeted labour hours
Labour capacity ratio
This Measures whether we are able to obtain more or less working hours than originally
budgeted
Actual hours worked x 100
Budgeted hours
______________________________________________________________________________________
20
When the results obtained exceed 100%, then there is good performance and the reverse
is true.
______________________________________________________________________________________
21

Level 1 Paper 7 Cost and Management Accounting: Mat-Cpa-P7 Lecturer: SAMUEL MUKOBE

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Level 1 Paper 7 Cost and Management Accounting: Mat-Cpa-P7 Lecturer: SAMUEL MUKOBE

Uploaded by

Copyright:

Available Formats

LEVEL 1

May 2021 Examination

Classification of Labour costs

It also refers to a measure of the number of employees leaving/being recruited in a period

Labour turnover rate = replacements x 100%

= number of workers who left during the period x 100

The reasons for labour turnover

 Paying a lower wage rate than is available elsewhere

Cost of labour turnover

 Cost of selection and replacement

 Cost of personnel administration incurred in maintaining good relationships

 Decrease in production due to inefficiency and inexperience of newly appointed

 Loss arising due to defective work and increased wastage in production,

The prevention of high labour turnover

Labour turnover will be reduced by the following actions:

 Paying satisfactory wages

The human Resource Department: It recruits employees in an organization and

Functions of the Payroll Department

Employee benefits processing is essentially a human resources function; however, HR

Pay roll fraud

 Showing absentee workers as present

 Overstating hours worked

 False expense reimbursement

 Paying workers for no work done

 Paying employees at a rate higher than the approved rate

 Payment of leave wages to workers who don’t qualify.

 Establish internal controls – separation of duties

 Clock in and clock out

 Regular reconciliation of the payroll with appointment letters

 Ensure that payroll staff take leave

 Have department heads regularly review their head count

 Follow up on overtime payments

 Always verify claimed expenses

 Use of CCTV cameras

 Training staff on payroll management

Advantages of Merit Rating:

The following are the advantages of Merit Rating:

try to improve their performance if it is not up to their satisfaction. Hence it

helps in making comparisons.

 It provides a sound basis for the purpose of promotion, demotion, transfer or

termination of employees. Better persons are selected for promotion. The

systematic evaluation remains as a part of permanent record.

 It helps in distinguishing between efficient and inefficient workers. In this way,

defects in the selection procedure are identified.

performance. Spot judgments and decisions are avoided.

systematic and impartial. A sense of competition develops among the workers

leading to improved productivity.

 It creates a congenial atmosphere in which employer-employee relations are

improved. Subordinates are motivated to work harder for getting favorable

and programs prepared accordingly.

 It is a systematic evaluation technique which produces better supervisors and

Limitations of merit rating

 There is a tendency to rate employees basing on only one factor (blending

hence creating a central tendency that may be a drawback to this technique.

 Usually there is a tendency to a person performing a higher paid.

There are three basic groups of remuneration methods

Wages = hours worked x rate of pay per hour

 Day rate systems may be summarized as follows;

Piecework schemes (piece rate)

In a piecework scheme, wages are calculated by the following formula

Wages = units produced x rate of pay per unit

As output increases, wages also increase