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Unit 6: Labour Cost
agency for execution of policy, a systematic approach for tapping appropriate sources of Notes
recruitment and continuous evaluation of policies are among the essential requisites for
control over recruitment. It should be noted that another policy of recruitment is bound to
retard efficiency and hence increase labour cost. Increments are generally granted on a basis
of scale for workers and promotions to better higher positions will lead to improvement of
internal relationship and attainment of more efficiency.
(ii) Formulation of Wage Policy, Incentive Schemes and Method of Wage Payment: A sound
wages policy and incentive scheme can make a positive contribution towards improving
employee-employer relationships in the industry or organisation, increasing productivity
of labour and reducing labour turnover.
(iii) Allocation of Labour Costs: Control over allocation of labour cost aims at securing that
each job or work or process undertaken bears its own share of cost, so that production cost
represents true cost. It has been stated earlier that records of time spent for each job or work
or process done are to be kept for proper allocation of labour costs.
Self Assessment
State whether the following statements are true or false:
14. Labour cost is a significant part of cost of production.
15. Recruitment not an important function for ultimate success in attainment of labour cost
control.
6.7 Summary
z z Labour may be classified as direct when (a) there is a direct relationship of the labour to
a particular production unit or process (b) the labour cost is measurable in terms of such
production unit or process and (c) the labour cost is sufficiently significant in amount and
easily identifiable with particular production unit or process.
z z Indirect labour costs are those costs which are necessary for production purposes but are
not identifiable with a particular production unit.
z z Indirect labour costs consist of (a) labour costs in service departments, such as, purchasing,
engineering, time-keeping, etc. (b) labour cost of certain works of production departments,
viz, salaries of foremen, helpers, clerical assistants, and (c) labour costs connected with
general factory services, viz, salaries of works manager, chief inspector, factory office staff,
etc.
z z Labour turnover denotes the percentage change in the labour force of an organisation. It is
a common occurrence that the workers do change their jobs.
z z Idle time is that time for which the employer pays, but from which he obtains no
production.
z Idle time is of two types:
z Normal idle time, and
z Abnormal idle time
z z Remuneration and incentive systems, according to their characteristics, fall under the
following broad categories:
z Time rates
z piece rates
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