Labour Cost: Remuneration and Incentive Systems
What this domain tests
Labour questions test wage computation under time rate, straight piece rate, Taylor's differential piece rate, Halsey, Rowan and Emerson plans, and the treatment of idle time, overtime premium and labour turnover.
Core rules
- Time rate: wages = hours worked × hourly rate. Piece rate: wages = units produced × rate per unit.
- Halsey: bonus = stated percentage (usually 50%) of time saved × hourly rate; total = time taken × rate + bonus.
- Rowan: bonus = (time saved ÷ time allowed) × time taken × rate.
- Taylor's differential piece rate: a low rate (often 83%) below standard output and a high rate (often 120%) at or above standard.
- Idle time: normal idle time is an indirect cost absorbed in overheads; abnormal idle time is written off to the costing profit and loss account.
- Overtime premium is indirect unless the overtime was worked at the specific request of a customer.
Worked example
Time allowed 10 hours, time taken 8 hours, rate ₹20 per hour. Basic wages = 8 × 20 = ₹160. Under Halsey at 50%, time saved is 2 hours, bonus = 50% × 2 × 20 = ₹20, total ₹180. Under Rowan, bonus = (2 ÷ 10) × 8 × 20 = ₹32, total ₹192. Rowan never pays more than the value of the time saved at the base rate, which is why it is called a guaranteed time-saving plan.
Traps
- Inverting the Rowan fraction, using time allowed ÷ time saved.
- Paying bonus on time allowed instead of on time saved.
- Treating every overtime premium as direct wages.
- Omitting the employer's statutory contributions when the question asks for the total cost to the employer rather than the wage.