Unit – 3
Labour Cost: Attendance and Payroll Procedures (Time-Keeping, Time
Booking, Payroll Procedure, Payment of Wages)
Labour cost represents one of the primary expenses for any organization and
refers to the total compensation provided to employees for their work.
Managing labour cost effectively requires implementing accurate attendance
and payroll procedures. This includes time-keeping, time booking, payroll
procedures, and different systems of paying wages (e.g., piece rate,
differential piece rate, and time rate).
Below is an explanation of each component involved in labour cost
management:
1. Time-Keeping
Time-keeping is the process of recording and tracking the time employees
spend at work, ensuring that employees are paid correctly based on their
working hours. Accurate time-keeping is essential for calculating wages,
complying with labor laws, and managing productivity.
Methods of Time-Keeping:
• Manual Timecards/Timesheets: Employees fill in their start and end
times on paper. Supervisors or managers review and verify the entries.
• Clocking In and Out: A mechanical or electronic time clock records when
an employee starts and finishes their shift.
• Biometric Systems: These systems use fingerprints, facial recognition, or
other biometric data to log employees' time in and out.
• Online or Mobile Apps: Digital systems allow employees to record their
time via computer or smartphone apps, providing real-time data for
managers.
• Mobile Time-Tracking: For employees who work remotely or on field
jobs, mobile time-tracking apps can verify work hours based on GPS
locations.
Key Components of Time-Keeping:
, • Arrival and Departure Times: Exact time when employees clock in and
out.
• Breaks and Absences: Recording scheduled or unscheduled breaks,
including lunch hours.
• Overtime Hours: Tracking hours worked beyond the standard working
schedule.
• Leave (Sick/Vacation): Documenting any unpaid or paid leaves, which
may affect payroll.
2. Time Booking
Time booking is the process of recording the time employees spend on specific
tasks, jobs, or projects. It is useful in industries where production or work is
task-specific, and labour costs need to be allocated accurately to different jobs
or products.
Types of Time Booking:
• Job-Time Booking: Time spent on a specific job or project is recorded.
This method is often used in job order costing systems where
production is based on specific customer orders.
• Operation-Time Booking: Time is logged against specific operations or
tasks. This method is common in manufacturing environments where
processes are standardized.
• Piece-Rate Time Booking: Employees are paid based on the number of
units they produce, so their time is booked against the production of
these units.
• Machine-Time Booking: In manufacturing environments, employees
record the time spent operating machines or equipment.
Benefits of Time Booking:
• Accurate Job Costing: Helps in allocating labour costs to specific jobs or
tasks, enabling precise cost control.
• Productivity Measurement: Provides insights into how efficiently time is
being spent on each task.
, • Cost Control: Helps identify tasks or jobs where excessive time is being
spent, leading to process improvements.
3. Payroll Procedure
Payroll procedures involve calculating employees' wages and ensuring timely
and accurate payment based on the hours worked and the payment system
used. The process also includes calculating deductions, generating pay slips,
and maintaining records for compliance.
Steps in Payroll Procedure:
1. Collection of Time and Attendance Data:
o Gather attendance data, including working hours, overtime, and
any leave taken.
o Verify the accuracy of recorded hours, and resolve discrepancies if
necessary.
2. Calculation of Gross Pay:
o Multiply the hours worked by the employee's hourly rate (for time
rate) or calculate based on the piece rate.
o Add bonuses, commissions, or allowances, if applicable.
Example:
If an employee worked 40 hours at an hourly rate of $15 per hour:
o Gross Pay = 40 hours × $15/hour = $600.
3. Deductions:
o Subtract any mandatory deductions such as:
▪ Income tax (federal, state, and local).
▪ Social security and Medicare taxes.
▪ Health insurance premiums.
▪ Pension or retirement contributions.
o Other deductions (e.g., union dues, loan repayments).
4. Net Pay:
, o Subtract total deductions from gross pay to arrive at the net pay.
o For example, if total deductions amount to $100:
▪ Net Pay = $600 (Gross Pay) - $100 (Deductions) = $500.
5. Distribution of Payments:
o Employees are paid via direct deposit, checks, or pay cards.
o Provide detailed pay slips or pay stubs showing gross pay,
deductions, and net pay.
6. Compliance and Reporting:
o Prepare and submit tax filings (quarterly or annually).
o Ensure that employee records are kept for auditing and
compliance with labor laws.
4. Payment of Wages: Different Types of Wage Systems
Wages can be paid in different ways, depending on the organization’s policies
and the nature of the work. The most common methods of wage payment are
piece rate, differential piece rate, and time rate.
A. Piece Rate:
Piece-rate is a payment system where employees are paid based on the
number of units they produce, rather than the number of hours they work.
This system is commonly used in industries such as manufacturing, agriculture,
and textiles.
• Advantages:
o Encourages high productivity, as workers are directly
compensated for the quantity they produce.
o Motivates employees to increase efficiency.
• Disadvantages:
o Quality of work might suffer if employees prioritize speed over
quality.
o Not suitable for jobs that do not have easily measurable outputs.
Labour Cost: Attendance and Payroll Procedures (Time-Keeping, Time
Booking, Payroll Procedure, Payment of Wages)
Labour cost represents one of the primary expenses for any organization and
refers to the total compensation provided to employees for their work.
Managing labour cost effectively requires implementing accurate attendance
and payroll procedures. This includes time-keeping, time booking, payroll
procedures, and different systems of paying wages (e.g., piece rate,
differential piece rate, and time rate).
Below is an explanation of each component involved in labour cost
management:
1. Time-Keeping
Time-keeping is the process of recording and tracking the time employees
spend at work, ensuring that employees are paid correctly based on their
working hours. Accurate time-keeping is essential for calculating wages,
complying with labor laws, and managing productivity.
Methods of Time-Keeping:
• Manual Timecards/Timesheets: Employees fill in their start and end
times on paper. Supervisors or managers review and verify the entries.
• Clocking In and Out: A mechanical or electronic time clock records when
an employee starts and finishes their shift.
• Biometric Systems: These systems use fingerprints, facial recognition, or
other biometric data to log employees' time in and out.
• Online or Mobile Apps: Digital systems allow employees to record their
time via computer or smartphone apps, providing real-time data for
managers.
• Mobile Time-Tracking: For employees who work remotely or on field
jobs, mobile time-tracking apps can verify work hours based on GPS
locations.
Key Components of Time-Keeping:
, • Arrival and Departure Times: Exact time when employees clock in and
out.
• Breaks and Absences: Recording scheduled or unscheduled breaks,
including lunch hours.
• Overtime Hours: Tracking hours worked beyond the standard working
schedule.
• Leave (Sick/Vacation): Documenting any unpaid or paid leaves, which
may affect payroll.
2. Time Booking
Time booking is the process of recording the time employees spend on specific
tasks, jobs, or projects. It is useful in industries where production or work is
task-specific, and labour costs need to be allocated accurately to different jobs
or products.
Types of Time Booking:
• Job-Time Booking: Time spent on a specific job or project is recorded.
This method is often used in job order costing systems where
production is based on specific customer orders.
• Operation-Time Booking: Time is logged against specific operations or
tasks. This method is common in manufacturing environments where
processes are standardized.
• Piece-Rate Time Booking: Employees are paid based on the number of
units they produce, so their time is booked against the production of
these units.
• Machine-Time Booking: In manufacturing environments, employees
record the time spent operating machines or equipment.
Benefits of Time Booking:
• Accurate Job Costing: Helps in allocating labour costs to specific jobs or
tasks, enabling precise cost control.
• Productivity Measurement: Provides insights into how efficiently time is
being spent on each task.
, • Cost Control: Helps identify tasks or jobs where excessive time is being
spent, leading to process improvements.
3. Payroll Procedure
Payroll procedures involve calculating employees' wages and ensuring timely
and accurate payment based on the hours worked and the payment system
used. The process also includes calculating deductions, generating pay slips,
and maintaining records for compliance.
Steps in Payroll Procedure:
1. Collection of Time and Attendance Data:
o Gather attendance data, including working hours, overtime, and
any leave taken.
o Verify the accuracy of recorded hours, and resolve discrepancies if
necessary.
2. Calculation of Gross Pay:
o Multiply the hours worked by the employee's hourly rate (for time
rate) or calculate based on the piece rate.
o Add bonuses, commissions, or allowances, if applicable.
Example:
If an employee worked 40 hours at an hourly rate of $15 per hour:
o Gross Pay = 40 hours × $15/hour = $600.
3. Deductions:
o Subtract any mandatory deductions such as:
▪ Income tax (federal, state, and local).
▪ Social security and Medicare taxes.
▪ Health insurance premiums.
▪ Pension or retirement contributions.
o Other deductions (e.g., union dues, loan repayments).
4. Net Pay:
, o Subtract total deductions from gross pay to arrive at the net pay.
o For example, if total deductions amount to $100:
▪ Net Pay = $600 (Gross Pay) - $100 (Deductions) = $500.
5. Distribution of Payments:
o Employees are paid via direct deposit, checks, or pay cards.
o Provide detailed pay slips or pay stubs showing gross pay,
deductions, and net pay.
6. Compliance and Reporting:
o Prepare and submit tax filings (quarterly or annually).
o Ensure that employee records are kept for auditing and
compliance with labor laws.
4. Payment of Wages: Different Types of Wage Systems
Wages can be paid in different ways, depending on the organization’s policies
and the nature of the work. The most common methods of wage payment are
piece rate, differential piece rate, and time rate.
A. Piece Rate:
Piece-rate is a payment system where employees are paid based on the
number of units they produce, rather than the number of hours they work.
This system is commonly used in industries such as manufacturing, agriculture,
and textiles.
• Advantages:
o Encourages high productivity, as workers are directly
compensated for the quantity they produce.
o Motivates employees to increase efficiency.
• Disadvantages:
o Quality of work might suffer if employees prioritize speed over
quality.
o Not suitable for jobs that do not have easily measurable outputs.
