Labour Cost & Wage Payment System

Presented by:-

Aman Agarwal Roll no:- 20

MBA 5 year, 3rd Semester

The Labour Cost is the sum of all wages paid to employees, as well as the cost of employee benefits and payroll taxes paid by an employer.

Consideration includes wages, salaries, contractual payments and benefits, as applicable, or any payment made on behalf of the employee.

LABOUR COST

Direct Labour Cost- It 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.

It consists of activities like Alteration, Composition, Construction & Confirmation.

Example. Cost incurred for machine operator, carpenter, tailor, etc.

Classification of Labour Cost

Indirect Labour Cost- It is the wages paid to those workers who are not directly engaged in converting raw materials into finished products.

It consists of activities like Supervision, Maintenance or Transportation.

Example. Salaries paid to watchmen, peons, clerks, supervisors, cleaners etc.

Compensation & IncomesMonetary Non Monetary

Salary Overtime Wages Commission Provident Fund Bonus Pension

Education For Children Free Parking Food Medical Facility Company Parties Training Opportunities Recognition

Wage Payment System is the way of giving financial compensation to the workers for the time and effort invested by them in converting materials into finished products.

In other words we can say that, it is a method adopted by manufacturing industry to remunerate workers.

Wage Payment System

Facilitates the preparation of wage plan for future.

Determine the cost of production and the profitability.

Determine the earning of workers and their living standard.

Affects the interest and attitude of the workers and the rate of labour turnover.

Helps in recruiting skilled, experienced and trained workers.

Helps to increase the productivity and goodwill.

Importance of Wage Payment System

Fair and justifiable Maximizes workers’ satisfaction and labour

turnover Minimum guaranteed wages to all workers More wages to efficient and skilled workers Follow government policy and norms of trade

union Simple and Understandable Improves performance and productivity of the

workers. Assure equal pay for equal work. Flexible

Essentials of Good Wage Payment System

1. Time Rate System2. Piece Rate System

Methods of Wage Payment System

Under this method, Labourers get wage on the basis of time which is utilized in organisation. This wages may be charged on per hour, per day, per month or per year basis.

Wages=No. of hours worked*Rate Per Hour

Time Rate System

Workers can easily compute their own remuneration.

Earnings are regular and fixes and do not suffer from temporary loss of efficiency.

No pressure, the quality of work can be kept high.

Learners can concentrate on learning the best methods of work.

Advantages

No incentive for better performance. Guaranteed remuneration makes workers

indifferent and complacent. Calculation of labour cost per unit is

difficult. Control over labour cost becomes difficult

and more payment may be made for the lesser amount of work.

Disadvantages

Units of output are non-measurable (office work and mental work)

Quality of work is important. (artistic furniture, fine jewellery etc.)

Workers are new and learning the job. Collective efforts of a group of persons are

essential for completing the job.

Suitability

Under this method, Labourers can get the wages on the basis of their work done. No time element will be used for calculation of wages.

Wages=Rate per unit*No. of units produced

Piece Rate System

Direct relation between effort and reward. Ambitious and efficient workers are

provided ample opportunity to utilize their talent and increase their earnings.

Management can distinguish between efficient and inefficient workers.

Increase in productivity results in higher output and lower costs of production per unit.

Cost of supervision is low.

Advantages

Difficult to fix piece wage rates. Earnings of workers are not stable. This system may create jealousy between

efficient and inefficient workers. Clerical work is increased This method is not practicable when

contribution of individual workers cannot be calculated, i.e., construction work.

Disadvantages

Work can be measured accurately.(e.g. production of standardized goods in the factory)

When the quantity of output depends directly upon the skill and efforts of the worker.

Repetitive jobs. Quality and workmanship are not very

important.

Suitability