Concept And Meaning Of Wage Payment System. Its Importance And Essential Characteristics

Concept And Meaning Of Wage Payment System , Its Importance And Essential Characteristics

The system of wage payment is the method adopted by manufacturing concerns to remunerate workers. It is the way of giving financial compensation to the workers for the time and effort invested by them in converting materials into finished products. It indicates the basis of making payment to the workers, which may be either on time basis or output basis. The selection of the system depends on the type and nature of the concern and its products. The wage payment systems can be divided into two main systems as follows.

1. Piece rate system

2. Time rate system

Importance Of Wage Payment System

The amount of wages paid to the workers is one of the major elements of cost. It has a great bearing on the cost of production and profitability of the concern. Hence, every concern is required to adopt a fair system of wage payment.

The importance of wage payment system can be summarized as follows:

• Wage payment system facilitates the preparation of wage plan for future.
• Wage payment system helps to determine the cost of production and the profitability of the organization.
• Wage payment system determines the amount of earning of the workers and their living standards.
• Wage payment system affects the interest and attitude of the workers.
• Wage payment system determines the level of satisfaction of the workers and affects the rate of labor turnover.
• Wage payment system helps in recruiting skilled, experienced and trained workers.
• Wage payment system helps to increase the productivity and goodwill of the organization.

Essential Characteristics Of A Good Wage Payment System

A sound system of wage payment is one that satisfies employer and employee by fulfilling following criteria.

• Wage payment system should be fair and justifiable to the workers and organization.
• Wage payment system should help in maximizing workers' satisfaction and minimizing labor turnover.
• Wage payment system should assure minimum guaranteed wages to all workers.
• Wage payment system should assure equal pay for equal work.
• Wage payment system should provide more wages to efficient and skilled workers.
• Wage payment system should follow government policy and trade union's norms.
• Wage payment system should be simple and understandable to all the workers.
• Wage payment system should help in improving performance and productivity of the workers.
• Wage payment system should be flexible enough to suit the needs of the organization.

Importance Or Needs Of Labor Cost Control

The need of labor cost control arises to fulfill the following purposes.

1.  Labor cost control is important to make economic utilization of labor force in production process.
2. Labor cost control is important to obtain maximum quantity of output with the least amount of materials and other resources.
3. Labor cost control helps to obtain better quality output with the least effort and time of workers.
4. Labor cost control reduces the cost of production of products manufactured or services rendered.
5. Labor cost control ensures the satisfaction of the workers by creating a good working environment in the factory.
6. Labor cost control helps to adopt the fair system of wage payment and to minimize labor turnover.
7. Labor cost control is helpful in minimizing wastage of materials by workers , idle time and unusual overtime work.
8. Labor cost control is helpful to maintain safety working environment.
9. Labor cost control is important to keep complete records of the employees and to supply information to the management regarding availability, efficiency, utilization and absenteeism of the workers.
10. Labor cost control is very useful to increase the profitability and competitiveness of the organization.

Concept And Meaning Of Labor Cost Control

Concept And Meaning Of Labor Cost Control

Labor cost covers one of the major portion of the total cost of a product or job. It may increase unnecessarily due to inefficiency of workers, wastage of materials by workers, idle time, unusual overtime work and high labor turnover. Hence, the management should devise effective techniques for controlling labor cost to ensure maximum outputs of better quality at low cost through proper utilization of the labor force.

Basically, management is concerned with controlling labor cost. Labor cost control involves such systems, procedures, techniques and tools used by the management in order to keep the labor cost of the product or job as minimum as possible. Labor cost control consists of a number of such regular activities which are carried on by various departments of the organization in a coordinated manner to ensure the availability of the best employees and their optimum utilization. It is the system followed by the management to maximize quality output at a minimum cost. Labor cost control includes the process of developing various forms, studying and recording the activities and performance of workers, calculating the correct amount of wages and making payment in time. It also include the process of analyzing and reporting labor cost to the management for planning and decision making.

Importance of Labor cost

Importance Of Labor Cost

Proper study, analysis and control of labor costs are important to all manufacturing concern because of the following reasons.

*   Labor cost is main element of cost which covers one of the major portions of the total cost of a product or job.

*   Labor cost is more difficult to control as compared to material cost due to the involvement of human element.

*   Labor cost is affected due to a change in government policy and requirement of trade union.

*   Labor cost is adversely affected due to dissatisfaction , irregularity, inefficiency,   idle time, high labor turnover, lack of interest and negative attitude of the       workers.

*   Labor cost is important from the fact that the direct labor cost is taken as the     basis of estimating the amount of factory overheads while determining the       product cost.

Types of Labor cost

Like the labor, labor costs are of two types such as follows

1. Direct Labor Cost

Direct labor cost is the amount spent by the factory for those workers involved directly in the manufacturing process. It can be measured conveniently and accurately on per unit of output basis. Direct labor cost can be identified and allocated to the specific job or process or product. It forms a part Types Of Labor Costs

of the prime cost. The examples of direct labor costs are the payments made to the workers engaged in making table, printing a book and constructing a dam etc.

2. Indirect Labor Cost

Indirect labor cost is the amount spent by the factory for those workers who are not directly engaged in the production process. Indirect labor cost refers to the expenses incurred in remunerating such workers who assist the direct labor to complete the manufacturing processes. It can not be identified and measured accurately on per unit of output basis. It is incurred for the benefits of a number of cost centers. It forms a part of the overhead costs. Payment made to the sweepers, watchmen, cleaners, supervisors and accounting personnel are the examples of indirect labor cost.