GROUP 1 LABOR COSTS

● Labour turnover is the number of employees leaving or being recruited in a

period of time
● Basic wages is the amount contracted for
● Idle time is non predicted time paid for
● Allowances are payment in addition to an employee wage or salary and are paid
as compensation for a particular feature of work inconvenience or discomfort
incurred as part of your position
● Overtime premium is compensation paid to employee addition to normal wages
for hours worked in excess of working hours
● Shift premium is the payment of labour over and above the standard rate when
they work on shifts especially during the nights

Measured day rate

-this is where although the employee is paid on the basis of the number of hours worked
before such payment is made.
Graduated time rate
-the rate of pay is adjusted to reflect changes in the cost of living.
Time analysis
-is usually achieved by having the employee complete a daily or weekly timesheet or by
having job cards or piecework tickets.
Efficiency Ration = Standard time over Actual Hours Worked x 100%
Overtime premium
-this is the compensation paid to employees in addition to normal wages for hours
worked in excess of normal working hours
Shift premium
- this is the payment of labor over and above the standard rate when they work on shifts
especially during the night or period outside the normal working hours
Bonus payment
- is paid to employees to increase their efficiency
Idle time
-is non predictable time paid for workers but no goods have been produced
Idle time ratio= Idle time over Total hours worked x 100%
Labour turnover
-is the number of employees leaving or being recruited in a period of time
Labour turnover = Replacement over Average no. Of employees in a period x 100%

* Total time saved = Expected time - Time taken

* Accepted time saved = Basic hourly minimum rate x Total time saved
* Bonus pay = Bonus hours x Basic Pay per hour
* Gross wages = Regular pay + Bonus pay
* Labour cost per Unit = Gross wages / Good units
* Hourly rate = Time x Rate
* Piece rate = Units x Rate

GROUP BONUS PLAN

* used to encourage teamwork and cooperation among employees working in a group
or team.
* the intention is to create a collective interest in the work.

Characteristics of an effective bonus scheme

1. Efficiency in production: volume of production
2. Effect on workers: to motivate the employees
3. Both the employer and the employees should share the gains in labour efficiency.
4. The method of calculating the bonus should be known and acceptable to the
employees
5. The standard hours set should be achievable and realistic.

Benefits associated with group bonus schemes

* It encourages cooperation and teamwork among workers since each member in the
group has an interest in the work.
* It reduces absenteeism since an absent worker is found to reduce the group earnings
and the group may dislike him
* The approach reduces supervision time and cost, thus it is administratively much
simpler.
* It greatly reduces the number of rates to be negotiated.
* It may encourage flexible working arrangements within the group.

Setbacks associated with group bonus schemes

* It may not provide a strong incentive to the individual workers, as it is group based.
* Less hardworking group members are similarly rewarded as the very hardworking
ones: this may cause demotivation in the group.
* It is hard to determine each group members’ fair share of the bonus.

Co-ownership Incentive Scheme

Profit-sharing scheme is where a proportion of company profits is allocated to
employees either in the form of cash or in company stock.

Departments involved in the accumulation of labour costs:

(I) Personnel department
(II) Production planning department
(III) Time keeping department
The documents used are:
(1) clock card
(2) job card
(3) time sheet
(IV) Wages department
(V) The cost accounting department

Control of Labour Costs

Most of the firms aim at maximizing profits by minimizing costs, while optimizing on the
revenues received.
Labour costs being a significant expense in the books of account must be controlled in
order to ensure that no overpayments are made and that only authorized payments are
affected.

Effective Control Techniques

1. Production Planning
2. Labour budget and use of labour standards
3. Labour performance reports
4. Wages incentives schemes
5. Identification of direct labour

Total Relevant Labour Cost= Normal Labour Cost Charged+Contribution Forgone