ESOP - Employee Benefit Plan and Ownership Instrument !!

The below images encapsulate the conditions imposed by the Indian Regulatory Bodies in relation to Accounting for ESOPs. (Click on the image to enlarge)

Income Chargeable Under the Head Salaries !!

Easy way of remembering and studying the provisions in a nutshell.

(CLICK ON THE IMAGE TO ENLARGE)

Labour Cost - Bonus for the efficiency demonstrated in work helps retain the employees !!!

CA IPCC Group 1 - Cost Accounting - Labour Cost

The below are a glimpse of the material provided in KRISHNA PROFESSIONAL COACHING for the Labour Cost - Chapter 3 , Module 1 of Cost Accounting Paper which will benefit the students aspiring to be a Chartered Accountant ! 

SYSTEMS OF WAGE PAYMENTS AND INCENTIVES

Basic division of the systems -

1. TIME RATE SYSTEMS
2. PAYMENT BY RESULTS

1. TIME RATE SYSTEMS

a.Time Rate System
Worker is paid by the hour , day , week or month. Time Worked *  Appropriate time rate

b. High Wage Plan

First introduced by the Ford Motor Company in USA in order to induce workers to put in extra effort in the work. Worker is paid a substantially higher rate than the prevailing rate in the area or in the industry.

c.Measured Day Work

The hourly rate of the worker consists of two parts - fixed and variable. Fixed - Job requirement based. Variable part - Merit rating and cost of living index based. Both components together is termed as a measured day’s work of a worker. 

d.Differential Time Rate

Different hourly rates are fixed for different levels of efficiency. (As it is linked to the output and worker’s efficiency cannot be strictly called as the time rate method of wage payment.

2. PAYMENT BY RESULTS

1	PIECE WORK
		Straight Piece Work		Earnings = Number of units * Piece rate per unit
		Differential Piece Work	Tylor System	The payment depends upon the efficiency of the worker. The efficiency is divided into less than 100% or otherwise. Less than 100% efficiency - payment is 83% of the normal piece rate or 80% of piece rate when below standard.  Either 100% or more efficiency - Payment  is 125% of the normal piece rate or 120% of piece rate when below standard.
			Merrick System	The payment depends upon efficiency of the worker. The efficiency is divided into three categories -  a) Upto 83%  - Payment is ordinary piece rate b) 83% to 100%- 110% of ordinary piece rate and c) Above 100% - 120% or 130% of ordinary piece rate
2	COMBINATION OF TIME AND PIECE WORK	Gnatt Task and Bonus System		Payment depends upon output Output below standard - Guaranteed time rate Output at standard - 120% of time rate Output above standard - 120% of piece rate
		Emerson’s Efficiency System		Payment depends upon efficiency. Efficiency below 66-2/3% - No bonus only guaranteed time rate is paid. 66-2/3% to 100% - Hourly rate is paid + Increase in bonus based on step bonus rates. Bonus can be upto 20% Above 100% - 120% of time wage rate + additional bonus of 1% for every 1% increase in efficiency.
		Points Scheme	Beadaux System	The payment depends upon the number of hours worked and the beadaux or B points earned by working efficiently.  Earnings = Hours worked * Rate per hour + (75/100 * Beadaux points earned / 60 * Rate per hour )
			Haynes Manit System	Similar to Beadaux method. The MANIT - Man-Minutes saved are measured for payment of bonus. Bonus distribution 50% to workers 10% to supervisors 40% to employer
			Accelerated premium method	Individual employer makes his own formula. The below formula can be used for the general idea of the scheme  Y = 0.8 * x2 Y = wages and x = efficiency
3	Premium Bonus Methods	Halsey Premium Plan		Earnings = Hours worked * Rate per hour + ( 50 / 100 * Time saved * Rate per hour) Bonus - 50% of time saved. Remaining advantage of 50% goes to the employer
		Halsey and Halsey Weir System		Earnings = Hours worked * Rate per hour + ( 30 / 100 * Time saved * Rate per hour) Bonus - 30% of time saved. Remaining advantage of 70% goes to the employer
		Rowan System		Earnings = Hours worked * Rate per hour + ( Time saved / Time Allowed * Time Taken* Rate per hour) Memorise - By using SAT - saved /allowed * taken for Time.
		Barth System		Earnings = Rate per hour * Square root ( Standard Hours * Hours Worked )
4	GROUP SYSTEM OF WAGE PAYMENT	Priestman’s Production Bonus		1917 - Adopted by Preistman Brothers Actual Production > Standard Production Workers paid additional wages equivalent to percentage of actual output over standard output.
		Cost Efficiency Plan	Nunn Bush Plan	Direct Labour Cost = Fixed = Percentage of Sales Value = Credited to a fund Actual Labour Cost = Debited to the fund Remaining credit balance in the fund = Distributed to workers and employees as bonus.
			Scanlon Plan	Similar to the above a fund is created. Fund credit = Normal cost of wages and salaries Fund debited = Actual Labour costs Remaining credit balance in the fund =   2/3rd to 3/4th Distributed to workers and employees as bonus.  Remaining is kept as reserve for any future setbacks
			Rucker Plan	Similar to the Nunn Bush Plan.  Difference - Rather than sales value , total value added by manufacturer (Cost - Value of Material ) and not the Sales Value is considered.
			Town Gain Sharing Plan	Bonus = 50% of savings achieved. Saving in labour cost as compared to standard.
			Budgeted Expense Bonus	Bonus is paid as a percentage of total savings effected in the actual total expenses as compared to the budgeted expense.  Applicable to indirect workers also.
			Waste Reduction Bonus	Bonus paid if the team of workers brings about reduction in material wastage as compared to the standard set.  Applicable to industries where material cost assumes greater proportion of total cost.
5	SYSTEM INCENTIVE SCHEMES  FOR INDIRECT WORKERS			Setting of standards and measurement of output is very difficult for indirect workers.  But for various reasons like dissatisfaction among workers , team spirit and efficiency , to name a few - the need has arisen.  Examples  Incentives to supervisors and foremen - Bonus dependent on savings effected over standards. Incentives to maintenance and repair staff - Reduction in breakdown and reduction in number of complaints.

Dr. CA Aseema Dake Kulkarni

PhD , Chartered Accountant , MCM , DISA (ICAI) and Cert (IFRS)