Labour Cost

Labour Cost 

Meaning of Labour Cost –

Labour Cost is an important element of total cost of any products or services. It is the cost paid by a business for the use of the skill, efforts & time of various employees in course of the business activity. Labour cost may form around 50% or more of total cost, especially in industries having labour intensive production methods. As labour is a human element of production, this cost is more complex to ascertain & control as compared to other cost elements. Labour mainly comprises of Direct & Indirect labour.

Direct Labour – It is the labour involved in manufacturing activity, or in the task of converting raw material in to finished product. Labour involved in construction, machine operators or shop floor workers in a plant are called as direct labour & the wages paid to them is known as the Direct Labour Cost. Such cast is directly variable to output level & is treated as part of prime cost.

Indirect Labour – It is the labour not actively engaged in the task of production or manufacturing. The supervisors, inspectors, stores staff in a factory; staff of administration or security department are included in this. The remuneration payable to them is called as Indirect Labour Cost & it is taken as overheads while calculating the total cost.

Time Keeping & Time Booking – These are certain activities carried out in the organization in order to keep records of working of various employees

(A) Time Keeping – The process of recording attendance of various employees in the organization along with the time of their arrival & departure (incoming & outgoing times) is called as Time keeping . The process of Time keeping may be carried out in a factory by a separate department or by  a time keeping attendant .

Objectives of Time keeping -: 1) To calculate wages payable to employees

2) To calculate normal & overtime working hours

3) To meet requirements of factories act.

4) To introduce incentive systems

5) To ensure discipline among workers

A good Time keeping system should have provisions for recording of attendance for both time & piece workers. It should be able to locate & control proxy workers. The system should be simple, smooth & adaptable to changes.

Methods of Time keeping -  a) Manual Method –         

1) Attendance roll or Muster roll – A register is maintained by the organization. It consists of names of all employees. They have to sign their arrival & departure timings in them every day. The method is simple & most suitable for administration / clerical staff. It is also convenient when the number of students is less. But it is not suitable for large or even medium scale organizations. 

2) Token or Disc method - A metal disk or token is issued for each employee. At the entrance of factory 2 boards are maintained for keeping the disks of incoming & outgoing workers. TThe method can adapt to a large no. of workers. It is a simple method & does not require any heavy investment. However in this method there is a scope for dishonesty & proxy attendance.

b) Mechanical method – 

1) Time Recording Clocks – In this method, each worker is allotted a clock card. The card shows his name, ID no, department name etc. The attendance recording is done with the help of a special recording clock. This ensures accuracy. The card shows details of arrival & departure of each day. 

2) Dial Time recorders – The method is similar to time recording clock. Here, instead of separate clock cards, the clock cards themselves are fitted with recording slips. The clock dial is surrounded by numbered holes; each worker is allotted a number. The timings are recorded on the pressing of keys of respective numbers. The advantages are same as previous method. However the method can accommodate only a limited number of workers.

(B) Time Booking – This is the process of recording the time spent by a worker on different jobs carried out by him during his total stay in organization. In this process the actual working & idle time is separated.

Methods of Time Booking -

  a) Manual Method –        

1) Daily Time Sheet – Each worker is provided every day a card or sheet in which he has to make entries about his time of arrival, ID number, time spent on each job, idle time, over time job number etc. The worker carries the sheet as he moves from job to job in different departments. The sheet is submitted daily to the foremen of workers for checking. . The method is used for maintenance staff & when the number of jobs is more. It however has extra clerical work & there is scope for manipulation by workers.

2) Weekly Time Sheet - The process almost similar as daily time sheets. However, as the jobs here are more time consuming & therefore instead of using daily cards, weekly cards are used. They reduce the amount of recording & the quantum of paper work. The method is used in construction, or field of interior decoration.

3) Job cards – Cards are issued separately for different jobs. Every worker who works on the job records his working time on that job in the card. The cards are submitted for the checking of the supervisor when the job is over. The time between two jobs is marked as idle time. The cards may be issued for different departments or different jobs.

4) Time & Job cards – This is a combination card. The first part contains time details & the second part contains job details. The card helps in reconciliation of time keeping & time booking.

5) Piece Work Card – The card is allotted to workers who work on piece basis. Each worker or each group is given this card & they have to record the number of units allotted to them & actually produced by them. Based on production details, time taken to manufacture & idle time can be recorded. The card helps in maintaining discipline among piece workers & out workers.

6) Idle Time Cards – This card separates & records from all the previous cards, the details of idle time. Based on the information, idle time can be analyzed & controlled

Reconciliation of Time keeping & Time booking - It is necessary to reconcile the records of TK & TB to maintain accuracy. Wages paid on the basis of time keeping records should agree with productive time as per time booking records. The 2 activities are complementary as well as supplementary by nature. However they are not same by nature.

Difference between TK & TB –

Time Keeping	Time Booking
1) Record of attendance time, arrival & departure timings 2) First step in Labour accounting 3) Record of total working time 4) Carried out by a separate department or attendant 5) Used for preparation of payroll	1) Record of productive & non productive working time 2) Second step in Labour accounting 3) Record of break up of working time 4) Carried out by workers employed on various jobs & checked by respective supervisors 5) Used for ascertainment of job costs

Idle Time – When workers are paid in Time basis there is usually a difference between the time for which they are paid & the time they actually spend on productive activity. This difference is termed as Idle Time.  Though the time is unproductive, it still has to be paid for by the organization. Therefore idle time wages represent a loss for the organization & it should try to locate the causes for idle time & try to reduce it.

Causes of Idle Time -  1) Productive causes – They are the causes related to production activity  for e.g. machine break down, power failure, waiting time for work in production schedule, lack of instructions or shortage of any factor of production.

2) Administrative causes – They are causes related to general work in the organization for e.g. strikes, lock outs, statutory requirements like lunch breaks, time spent in attendance etc.

3) Economic causes – They are related to general economic conditions like market fluctuations, competition, lay off due to lack of demand etc.

The causes can be further subdivided into controllable & non controllable.