Meaning of Overtime Work
Normal working hours of each worker is determined in every factory. Overtime occurs when worker works beyond normal working hours. For example, if the normal, working hours are 8 hours every day and worker work for 9 hours on particular day, excess one hour will be called overtime.
According to 559 (i) of India Factory Act, ‘any worker working for more than 9 hours per day or more than 48 hours per week is entitled to overtime payment. The Factory Act also provides for payment for overtime wages as double the normal rates of wages.
For example, if a worker is paid normal wages @Rs.50 per hour, overtime for one hour work will be Rs. 100 (50 × 2).
Necessity of Reasons of Overtime work
The reasons of overtime work can be divided into two parts:
(a) Normal Reasons
(b) Abnormal Reasons
(a) Normal Reasons
These are also known as appropriate reasons considered in the following cases:
(i) Increase in production due to increase in demand of product.
(ii) For completion of work due to labour shortage and continuous and absence of worker.
(iii) For working due to seasonal rush.
(iv) Full capacity utilization of plant and machinery.
(v) Production of goods for supply of most urgent order.
(b) Abnormal Reasons
These are also known as improper reasons and considered in the following cases:
(i) Less work is normal time due to mismanagement.
(ii) Work is not completed due to carelessness of worker, Though any reason may be responsible for overtime work but it is not useful from comparative point of view.
Actually overwork may be allowed when it is most urgent so inexpensive labour may be prevented. General worker do not work intentionally in normal hours for overtime work, this should be discouraged.
If it is not possible to a avoid it, the following precautions should be taken in respect of overtime:
(i) A list of such worker should be proper by the foreman.
(ii) The said list should be approved by the manager.
(iii) Overtime should be sanctioned by a competent authority.
(iv) Overtime should be strictly controlled and discouraged. It should be permitted only in emergencies.
Disadvantages of Overtime Work
It is common experience that overtime working is not a healthy practice. It should be avoided as far as possible due to the following disadvantages attached to it:
(i) It leads to excessive labour cost.
(ii) During overtime hours, production is decreased because of diminishing labour efficiency.
(iii) Increase the wear and tear of the plant & machinery.
(iv) Promotes a tendency among the workers to keeps the work pending so that overtime work is necessitated.
(v) Certain overheads like lighting cost increase because of work in the evening.
(vi) If overtime work is not properly distributed among the workers, it may lead to discontent.
(vii) If affects the health of workers.
(viii) Overtime over a long period leads to fatigue and increase in defective products.
Overtime is helpful in clearing backlog of work and in emergencies or when it is necessitated by uncontrollable causes. Existing resources are fully utilized.
How is overtime wages charged
Treatment of Overtime Wages
Wages consists of direct or indirect. Thus, overtime premium cost can be charged as follows:
(i) Direct charges – When overtime is worked as the request of the customer due to urgency of work and the customer agrees to bear the entire charges of overtime premium, it should be charged direct to the job or work order concerned.
(ii) Factory overhead – When overtime is paid due to normal reasons. it should be charge to factory overhead.
(iii) Abnormal Loss – Overtime required due to abnormal reasons like flood. fire, earthquakes or due to factors like defective planning or faulty management, it should not be charged to cost but to costing profit & loss account.
meaning of Holidays or leave with wages
Holidays or Leave with Wages-Worker are entitled to certain holidays like republic day. Independence day, Diwali, etc. Similarly. every Sunday in week is allowed as leave with wages.
In addition according to the Factories Act, workers are entitled to annual leave with full pay for specified number of days in a year. This may include casual leave, medical leave, earned leave, etc.
The cost of paid leave cannot be charged to any work order unit since no work is done during this period. It is, therefore, treated as indirect labour cost and charged to overheads.
- Meaning of Cost Accounting | Nature and Scope of Cost Accounting
- Cost Accounting | Purpose or Functions of Cost Accounting
- Advantages and Disadvantages of Cost Accounting
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
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