accounting for labor

ACCOUNTING FOR LABOR
LABOR even if an established quota of production is

– The physical or mental effort exerted by individuals not attained by an employee. If the
in the creation of a product. established quota is exceeded, an additional
– Labor cost is the price paid for using human payment per piece would be added to the
resources minimum wage level.
– The compensation paid to employees who engage
in production related activities represent factory labor. Proper Costing of Labor
– A second major element of cost.
Direct Labor - represents payroll costs that are

allocated directly to the product
Indirect labor - labor costs incurred for a variety of
jobs that are related to the production process but
are considered either too remote or too insignificant to
be charged directly to production.
Wages - payments made on an hourly, daily, or
piecework basis.
Salaries - fixed payments made regularly for
managerial or clerical services. Payroll
A calculation of all employee's compensation,
The accounting system of a manufacturer must statutory contributions, taxes, deductions, and net
include the following procedures for recording payment for a certain time period. The formal
payroll costs. document to present payroll is called payroll register.
1. Recording the numbers of hours used in total
and by job. Payslip
2. Recording the quantity produced by the A document that explains the components of an
workers. individual's pay for a certain time. period. It is a
3. Analyzing the hours used by employees to personal version of payroll register.
determine how time is to be charged.
4. Allocation of payroll costs to jobs and factory
overhead accounts.
5. Preparation of the payroll, including
computation and recording of the employee's
gross earnings, deductions, and net
earnings.
Wage Plan
- the plan established by management
Hourly-Rate Plan
- Under this plan, a definite rate per hour is set Special Considerations in Factory Labor:
for each employee. The employees' wages – When the jobs are rushed, overtime pay is normally
are calculated by multiplying the rate per encountered to cover the extra hours the worker has
hour by the number of hours worked. rendered. Normally, overtime premium is charged to
factory overhead. However, if because of a rush job, it
Piece-Rate Plan is inevitable to work overtime, the whole overtime pay
- Under this plan, earnings are calculated by is charged to production.
multiplying the employee's output by the rate – Workers are also paid during idle time. Idle time
per piece. refers to the time workers have no work to perform
due to temporary changes in production setup. This is
Modified Wage Plan charged to FOH. However, a loss account is to be
- This plan combines the features of established when the changes production is due to
hourly-rate and piece-rate plans. Minimum negligence or inefficiency.
hourly wage will be paid by the company
ACCOUNTING FOR LABOR
1. Normal Idle Time - waste of time which we can not Holiday Pay (Regular Holiday)
stop because it is normal and employers have to pay – For work performed on a regular holiday, plus 100%
laborers for this idle time. Examples: Walking time or a total of 200% of the employee's daily wage rate
from one department to another department,
consuming time to set the machines, etc. Compensation for Rest Day, Sunday or Holiday
Work
2. Abnormal Idle Time - wastage of time which we ● Plus 30% of the daily basic rate or a total of
can stop by good supervision, Examples: Waste of 130% for work performed on rest day or
time due to inefficiency of engineers, delay of supply special day.
of material. ● Plus 50% of the daily basic rate or a total of
150% for work performed on special day
Computation of Net Pay falling on the employee's rest day.
● Plus 30% of the daily basic rate or a total of
260% for work performed on a regular
holiday falling on the employee's rest day.
Regular Holidays and Nationwide Special Days

(ART.94 Sec.26 of Labor Code of the Philippines)
Regular Holidays
New Year's Day - January 1
Maundy Thursday Movable date
Good Friday - Movable date
Eid Ul Fitr - Movable date
Eidul Adha - Movable date
Day of Valor- Monday nearest April 9
Nationwide Special Holidays

According to Labor Code of the Philippines: Ninoy Aquino Day Monday nearest Aug 21
Normal Hours of Work All Saints Day - November 1
– The normal hours of work of any employee shall not Labor Day Monday nearest May 1
exceed 8 hours a day. Independence Day Monday nearest June 12
Meal Periods National Heroes Day - Last Monday of Aug.
– Not less than 60 minutes for regular meals of Bonifacio Day Monday nearest Nov.30
employees which is non- compensable. Rest periods Christmas Day - December 25
or coffee breaks running from 5 to 20 minutes shall be Rizal Day Monday nearest Dec.30
considered compensable working time. Last Day of the year - December 31
Right to Weekly Rest Day
– Not less than 24 hours after every 6 normal work
days.
Night-Shift Differential
– Refers to the additional compensation for work
performed from 10 O'clock in the evening to 6 O'clock
in the morning. Plus 10% of the hourly rate for work.
Overtime Pay
– Refers to the additional pay for work performed in
excess of 8 hours a day. Plus 25% of the hourly rate
for work performed in excess of 8 hours on an
ordinary day. Work performed beyond 8 hours on a
holiday or rest day shall be paid an additional
compensation equivalent to the rate of the first eight
hours on a holiday or rest day plus at least 30%
thereof.

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accounting for labor

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ACCOUNTING FOR LABOR

LABOR even if an established quota of production is

Direct Labor - represents payroll costs that are

Regular Holidays and Nationwide Special Days

Nationwide Special Holidays

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