Labor cost covers one of the major portion of the total cost of a product or job. It may increase unnecessarily due to inefficiency of workers, wastage of materials by workers, idle time, unusual overtime work and high labor turnover. Hence, the management should devise effective techniques for controlling labor cost to ensure maximum outputs of better quality at low cost through proper utilization of the labor force.
Basically, management is concerned with controlling labor cost. Labor cost control involves such systems, procedures, techniques and tools used by the management in order to keep the labor cost of the product or job as minimum as possible. Labor cost control consists of a number of such regular activities which are carried on by various departments of the organization in a coordinated manner to ensure the availability of the best employees and their optimum utilization. It is the system followed by the management to maximize quality output at a minimum cost. Labor cost control includes the process of developing various forms, studying and recording the activities and performance of workers, calculating the correct amount of wages and making payment in time. It also include the process of analyzing and reporting labor cost to the management for planning and decision making.
The need of labor cost control arises to fulfill the following purposes;
- Labor cost control is important to make economic utilization of labor force in production process.
- Labor cost control is important to obtain maximum quantity of output with the least amount of materials and other resources.
- Labor cost control helps to obtain better quality output with the least effort and time of workers.
- Labor cost control reduces the cost of production of products manufactured or services rendered.
- Labor cost control ensures the satisfaction of the workers by creating a good working environment in the factory.
- Labor cost control helps to adopt the fair system of wage payment and to minimize labor turnover.
- Labor cost control is helpful in minimizing wastage of materials by workers, idle time and unusual overtime work.
- Labor cost control is helpful to maintain safety working environment.
- Labor cost control is important to keep complete records of the employees and to supply information to the management regarding availability, efficiency, utilization and absenteeism of the workers.
- Labor cost control is very useful to increase the profitability and competitiveness of the organization.