Controlling Labor Cost

The timekeeping and payroll departments have the responsibility of maintaining labor records - Controlling Labor Cost introduction. The timekeeping and payroll functions may be established as separate departments or organized as subdivisions of a single department. Increasingly, automated timekeeping technology has replaced ‘‘timekeeping’’ as a separate department. For example, many companies issue magnetic cards to direct laborers who use them to ‘‘log on’’ and ‘‘log off’’ to specific job assignments. They slide the card through a magnetic card reader connected to a remote computer terminal, much as you would do to pay for your groceries at the supermarket.

The computer sends this labor time information to the accounting department for preparation of the payroll and distribution of labor costs to the appropriate jobs. The payroll department, or payroll function within the accounting department, uses the labor time records, whether manually or electronically generated, to compute each employee’s gross earnings, the amount of withholdings and deductions, and the net earnings to be paid to the employee. The payroll function includes completing and maintaining the payroll records, the employees’ earnings records, and the payroll summaries. Labor Time Records. The labor time record shows the employee’s time spent on each job, as well as the time spent as indirect labor on machine repair. •Payroll Function. The payroll function’s primary responsibility is to compute the employees’ wages and salaries. It involves combining the daily wages, determining the total earnings, and computing deductions and withholdings for each employee. Payroll is often a function within a single accounting department, as opposed to being a separate department.

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Also, many companies now outsource their payroll function to payroll preparation services such as ADP or Paychex, Inc. The department must maintain current information concerning regulatory requirements regarding wages and salaries because a specified amount of the employee’s wages are subject to social security (FICA) and income tax deductions. Additional deductions, approved by the employee, can be taken for group insurance premiums, union dues, contributions to a tax-sheltered annuity, and so on. The department must aintain current information concerning regulatory requirements regarding wages and salaries because a specified amount of the employee’s wages are subject to social security (FICA) and income tax deductions. Additional deductions, approved by the employee, can be taken for group insurance premiums, union dues, contributions to a tax-sheltered annuity, and so on.

•Payroll Records. Forms used to record earnings information may vary considerably from company to company; however, all forms possess some common characteristics. Employees’ Earnings Records. In addition to the payroll record, payroll keeps a record of the earnings for each employee. This cumulative record of employee earnings is needed to compute the amount of employee earnings subject to FICA and other payroll taxes. It also serves as the basis for reporting payroll information to governmental agencies, such as individual employee earnings to the Social Security Administration and Wage and Tax Statements to employees for the purpose of preparing their individual tax returns.

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