Professional Documents
Culture Documents
OF LABOR
YOGIE IRVANDA SAPUTRA/ 165020200111020/ BE
DEFINITION AND CLASSIFICATION
• Labor cost is the price paid for using human resources. The compensation to
employees who work in production represents labor cost.
• Direct labor was defined as all labor that is directly involved in the
production of a finished product, that can be easily traced to the product,
and that represents a major labor cost of producing that product
COSTS INCLUDED IN LABOR
• Gross earnings equals regular earnings plus overtime premium, and applies
to direct and indirect labor
• Regular earnings represents the total hours worked, including overtime,
multiplied by the regular pay rate
• Overtime premium represents the overtime hours multuiplied by the premium
rate
• The premium rate for overtime is usually one-half the regular rate
• Wages are payments made on an hourly, daily, or piecework basis
• Salaries are fixed payments made regularly for managerial or clerical
services
OVERTIME AND SHIFT PREMIUM
• The overtime premium is charged to overhead, and spread over all
production
• Thus, if a production employee’s wages are $4.00 per hour, the direct labor
cost would be $4.00 per hour for all hours worked, and the overtime premium
would be $2.00 per hour for only the overtime hours worked
• As with the overtime premium, the shift premium or shift differential should
should be charged to factory overhead rather than production, and spread
over all units produced
BONUS
• Bonus is payment given in addition to an employee’s usual compensation
and may be given for a variety of reasons, but generally it is a reward for
greater productivity or effort
• The amount of the bonus may be a set figure, a percentage of the profits, or
a percentage of one’s salary
• Theoretically, the bonus should be assigned to the work-in-process account
where appropriate
VACATION AND HOLIDAY PAY
• Factory employees are generally entitled to paid vacations after an initial
period of employment
• The amount of vacation time is usually based on length of employment
• Vacation pay should not be charged to work-in-process
• Vacation pay should be included in factory overhead costs, and accrued
over the period of productive labor
PENSIONS
The total costs of a pension plan are based on the following factors:
1. Number of employees retiring each year
2. Amount of benefits paid to each retired employee
3. Length of time that benefits will be paid
4. Amount of income earned from pension fund investments
5. Amount of administrative expenses
6. Benefits for employees who leave before reaching retirement age
FRINGE COSTS
• Paid vacations and pensions are only two of the fringe benefits frequently
given to employees
• Total payroll costs are now generally far above the cost of wages
SOCIAL SECURITY AND FICA TAXES
• The Federal Inscurance Contributions Act (FICA) requires employers to
match the employees’ contribution to social security
• To determine the amount of contribution, a fixed percentage is applied to
gross earnings up to a maximum limit
FEDERAL UNEMPLOYMENT TAXES
• Unlike FICA, this tax is levied on employers only
• The funds collected by the federal government are divided among the
states to administer their programs
STATE UNEMPLOYMENT TAXES
• In most states this taxes is levied on employers only, but few states also
require employee contributions
• To determine amount of contribution, a fixed percentage is applied to gross
earnings up to a maximum limit
STATE WORKMEN’S COMPENSATION
INSURANCE (TAX)
• This insurance or tax is levied on employers and is based on earnings per
employee
• The rates vary according to degree of occupational hazards; the highest
rates are paid for jobs having the greatest risks
INCENTIVE PLANS
• A wage-incentive plan is a system employed by some companies as a
means of minimizing and controlling labor cost
• It involves the payment of additional compensation for greater productivity
• Two commonly used plans are the Gantt Task and Bonus Plan; and the Taylor
Differential Piece-Rate System
• Before adapting an incentive plan, management must examine the possible
negative effects
ACCOUNTING FOR LABOR
Accounting for labor in a manufacturing company usually involves three
activities:
1. Time Keeping
2. Computation of total payroll
3. Allocation of payroll costs