ACCOUNTING FOR LABOUR IN HUMAN RESOURCES

 

Accounting for Labour in Human Resources

Accounting for Labour in Human Resources.

Labour can be explained as the human effort required to produce an organisation’s goods and services. Labour is mostly one of the major expenses of businesses. Labour cost may be direct or indirect.

Direct workers are those workers who are directly part of making an organisation’s product. Indirect workers are those workers who are not directly part of making an organisation’s product. Examples of Indirect labour are factory Supervision, canteen staff and maintenance staff, just to mention a few.

Direct Labour and Indirect Labour; differences.

Direct Labour make up part of the prime cost of a product which includes the basic pay of direct workers and other employment costs such as pension fund contribution of direct workers.

Indirect Labour make up part of the overheads includes bonus payments, idle time, sick pay, employers’ social security contribution and time spent by direct workers doing indirect jobs.

Direct and Indirect Labour cost.

Workers generally get a basic pay plus an overtme premium when they work overtme. Unless overtime premiums and night shift premiums are a direct result of a customer’s urgent request for the completion of an order, they should be treated as indirect costs. When employees work overtime, they receive a basic pay element and overtime premium. For example, if Koo Yennu of Tatasmania Co. Ltd, is paid GH¢8 per hour and overtime is paid at time and a half, when Koo Yennu works overtime, he will receive GH¢12 per hour (GH¢8+GH¢4(50%x GH¢8). It is important to analyse Koo Yennu’s pay into direct and indirect labour cost. The overtime pay is GH¢12 which is made up of basic pay of GH¢8 which is direct labour cost and overtime premium of GH¢4 which is indirect labour cost.

Example 2

Cecilia is a direct labour employee of GIMPA who works a standard 35 hours per week and is paid $12 per hour. Overtime payment is made at time and a third. In week 8, Cecilia worked 42 hours and received a bonus of $50. Calculate the direct labour cost and indirect labour for Cecilia for week 8.


Basic pay for standard hours                                       $ 420 [Direct]

Basic pay for overtime hours                                        $ 84  [Direct]

Overtime premium                                                         $ 28  [Indirect]

Bonus                                                                               $ 50  [Direct]

Workings

1. Basic pay for standard hours = 35 hours’ x $12 per hour = $420

2. Basic pay for overtime hours = 7 hours’ x $12 = $84

This is also a direct labour cost because the basic rate for overtime is part of the direct labour cost. It is the overtime premium which is usually part of indirect labour cost.

3. Overtime premium = 1/3 of $12 = Total overtime premium = 7 hours x $4 = $28. Except overtime is calculated at the exact request of a customer, overtime premium is part of indirect labour costs of an organization.

Example 3

40 direct workers employed by a company operating a factory throughout a four-week period recently ended. A basic rate of GH¢4 per hour for a 38-hour week were paid to workers classified as direct employees. And total hours of the direct workers in the four-week period were 6,528. Overtime, paid at a premium of 35%, is calculated in order to meet general production requirements. Employee deductions amount to 30% of gross wages. Time registered as idle for direct workers amounted to 188 hours.

Calculate the following for the four-week period just ended.

1. Standard Hours of Work

2. Overtime hours worked

3. Basic Wage

4. Deductions

5. Gross wages(earnings)

6. Net wages

7. Direct labour cost

8. Indirect Labour cost                                                                                                                                          

Solution:

Standard Hours of Work (Basic time) =40 workers’ x 38 hrs/week x 4 weeks = 6,080

Overtime hours worked = Total time – Basic time = 6,528-6,080 = 448 hours

Basic pay for a standard hour =GH¢4

Overtime premium =35% of GH¢4 =GH¢1.40

Overtime pay per hour =basic pay + overtime premium =GH¢4+GH¢1.40 =GH¢5.40

Gross Wages (Total Wages) =basic wage + overtime wage

Basic Wage =Standard hours x standard rate per hour =6,080 x GH¢4 =GH¢24,320

Overtime wage =Overtime hours x Overtime rate per hour =448 x GH¢5.40 =GH¢2,419.20

Gross Wages) Total Wages=GH¢24,320 +GH¢2,419.20=GH¢26,739.20

Deductions =30% of Gross Wages =30% x GH¢26,739.20 =8,021.76

Net Wages = Gross Wages – deductions

GH¢26,739.20 – GH¢8,021.76 = GH¢18,717.44

Total productive hours 6,528 - 188 =6,340

                                                              

Basic pay for standard hours (4 x 6, 080) [Direct]             24,320 [Indirect]

Basic pay for overtime hours (overtime hours –idle hours) (488-188 x 4) [Direct]   1,040 [Indirect]

Overtime premium (Overtime hours x overtime premium) (448 x 1.40) [Direct]    627.20 [Indirect]

Idle time costs (idle time x standard rate) (188 hours x 4) [Direct]     752.00 [Indirect]

Example 4

At 1 January 2017, Damsel company employed 3,641 employees and at 31st December, 2017 employee numbers were 3,735. During the year 624 employees chose to leave the company. What was the labour turnover rate for the year?

Solution


Labour turnover rate :

Number of leavers who require replacement/Average number of employees    x 100

Av. No. of employees = (3,641+3,735)/2 = 3,688

624 x 100/3,688 = 16.9%

The turnover rate is 16.9%

Your comments and views are welcome in the comment section below. And for further consultation or questions, please email to hrforumonline@gmail.com.


Also Read: THE VARIOUS PARTS OF A BUSINESS LETTER

Ghana Jobs

4



Comments