1. Labour costs Methods used to calculate costs

2. Labour costs Labour costs can be made up as: – Basic pay – Overtime – Bonuses Additional costs could be – Employer’s National insurance – Employer’s pension contribution – Training costs – Benefits – company car (NI) From here you analyse the cost as direct or indirect – Direct - Production – Indirect – Administration, canteen, supervisory

3. Methods of calculations There are different methods to calculate the labour costs Can be called Remuneration They are: – Time-rate – Overtime – Piecework – Bonus – Salary

4. Time- rate & Overtime Remuneration is worked on: – The time of hours worked by the basic rate of pay – Each employee is contracted to work a set number of hours a day or week – If the employee works more than it’s contracted hours they are paid overtime for the number of hours – This is paid at a higher hourly rate

5. Piecework Piecework is an amount paid for each unit / task completed successfully On top of the basic wage Used as an incentive to produce more Remuneration is used on certain situations as: – A set value paid for each unit produced to a specific quantity in a time scale and then a higher value for a quantity above and up to – Example: 0.80p per unit up to 150 per day and rising to 0.85p per unit for 151 to 200 per day

6. Bonus system Involves paying additional monies where the output was better then expected There are different bonus types – Time performance bonus, completing task in shorter time than planned – Discretionary bonus (awarded where employer feels staff deserve) – Group bonus scheme, paid to workers who contributed to successful job – Profit- sharing bonus, proportion of business’s profit to employees This remuneration can take same method as piecework

7. Salary Employees are paid an agreed amount for the year of employment Salaries are usually paid on a monthly basis Overtime, bonuses and commission on sales are paid on top Salaries are usually an indirect cost in manufacturing, but can be a direct cost in certain service industries

8. Recording of labour costs The information for labour costs is required by two departments – Payroll, to calculate employee’s pay – Management accounting department, to analyse and calculate the labour costs for each cost centre The time worked by the employee is recorded on one of the following: – Attendance card – Signing-in book – Clock cards

9. Labour costing Job costing is the method used to collate all the costs relating to a specific job/task Where an employee works on more than one job they record the hours worked on: – a Timesheet (shows the employee’s hours worked, during the timescale and on the job/s) – Job card, relates to individual jobs giving details of the employee and time worked – Piecework ticket, relates to the number of units produced, completed & rejected is authorised by supervisor