The amount of pay to which an employee is entitled may be earned in a variety of different ways, including:
(a) Basic pay, such as:
(b) Other pay, such as:
(c) Bonuses and commission, such as:
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Some employees are paid on the basis of a set amount for every hour that they work. This may be so even if they have agreed to work a certain number of hours per week. If hours in excess of the agreed amount have been worked, or hours are worked outside set times, they may be paid at a different rate, as overtime. Overtime is discussed more fully later.
Workers paid on the basis of an hourly rate normally receive their pay weekly.
If an employee is paid according to the number of hours worked, there must be a method of recording the hours worked.
The exact method will vary according to the type and size of the employer, but some examples are described below.
(a) Clock cards
Each employee has an individual card which is inserted into a machine at the start of the working day, and again at the end of the working day. The machine records on the card the times of arriving and leaving work.
An example of the format of a clock card is given below. In this example the employee has 'clocked on' at 08.49 on Monday morning by inserting the clock card into a machine which stamps the time on the card. When the employee next places the card in the machine - breaking for lunch at 12.12 on Monday -the card slips further down into the machine and therefore the time stamp appears above the previous one. The employee returns to work at 12.55 on Monday and 'clocks off at 16.42. Tuesday shows a similar pattern.
The example contains space for the payroll department to analyse the time between basic hours and overtime hours. It may also contain space to record the basic pay and overtime pay, along with deductions.
(b) 'Smart' cards
Clock cards may be replaced by smart cards. These cards record the same information, but it is recorded on a magnetic strip on the card. Smart cards may also be used for other purposes not related to the payroll.
(c) Timesheets
Each employee is required to fill in a list of the hours worked on a standard form, known as a timesheet. The timesheet may require additional information, such as what tasks the employee carried out, and how long each task took After completion, the timesheet is then, usually, authorised by the supervisor/manager.
Weekly, fortnightly or monthly timesheets may also be used. These are more common among professional salaried staff, such as solicitors or accountants, who are not paid on an hourly basis, but when the employer needs to know the time spent working on behalf of each client, so that the client can be charged accordingly. Normally the employee will need to keep daily records which are summarised, so that entries are not omitted.
A simple timesheet for an hourly paid worker may look like this:
The timesheet should also record idle time. Idle time occurs when the employee is unable to complete a task because of something outside their control, for example waiting for a replacement part to be delivered. The cost of each job is completed later by the payroll department.
A weekly timesheet for a professional salaried employee may look like this:
The weekly timesheet may contain space for daily totals, or they may be kept by the employee separately. If the employee is paid overtime, there will be space to record this on the timesheet.
In addition to calculating the amounts owed to employees, businesses need to keep track of the costs incurred in manufacturing, perhaps for cost control purposes or to arrive at a selling cost for a job or product.
One simple approach to keeping track of costs is to have a system of job cards. These cards may be used in circumstances where each job undertaken has the potential to be unique, such as work done on cars in garage workshops.
Each job is allocated an identifying number and the time and materials applied to it can then be recorded on the job card.
A garage repairing cars for customers has three employees. Whenever one of the employees is working on a car, they are required to complete a job card for that particular job. Upon completion of the job, the customer is then invoiced for the total on the job card. A typical job card for a recent repair is shown below.
This form of record will enable the business to justify charging a customer a particular amount for work done on a vehicle, or to enable it to determine whether or not it made a profit or a loss on a job that was undertaken for a fixed cost
An alternative form of record is better suited to manufacturing, particularly where there are complicated manufacturing processes that may be undertaken in different sequences or combined in different ways. These documents are called route cards.
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Building a customised truck body may be tackled in a variety of different ways. Perhaps painting can be done before or after certain fabrication work has been completed, perhaps electrical work can be done at different stages in the process, and so on. A route card may be prepared in advance to give staff an indication of how a unit or a batch should be made. If staff are empowered to make such decisions themselves then the card should be completed in as the work progresses so that the approach being taken can be reviewed regularly and any lessons drawn for future reference. A simplified example of a completed route card for the manufacture of a customised truck is shown below
To calculate basic pay for hourly paid workers (excluding overtime), the hourly rate is simply multiplied by the number of hours worked.
An employee worked 35 hours during a particular week. How much was the employee be paid if their hourly rate is $4.50 per hour?
Their pay will be 35 hours @ $4.50 = $157.50
Some employees are paid a set amount on the basis that they work for a standard number of hours every week. The amount that they are paid is usually expressed as an annual sum.
For example, an employee may be paid $12,000 per annum, for working from 9.00am break), and with an entitlement to 20 days of annual leave (in addition to public holidays).
Such employees are often referred to as salaried staff, and their earnings are referred to as salary. There is no difference in principle between the treatment of wages and salary on the payroll. Salaried staff usually receive their pay monthly.
When an employee is paid an agreed annual salary, the salary will be spread evenly over the year. The spreading disregards the periods over which holidays are taken, so that the employee knows precisely how much pay they will receive.
The way in which the salary is spread is:
(a) Weekly paid
1/52 of the annual salary
(b) Fortnightly paid
2/52 of the annual salary
(c) 4-weekly paid
4/52 of the annual salary
(d) Monthly paid
1/12 of the annual salary
Some salaried staff may be entitled to overtime if they work in excess of the agreed hours. Others may not be entitled to overtime, or only after they have worked a certain number of extra hours.
Overtime is discussed more fully later.
If an employee is paid by piecework, it means that payment is made according to the number of items produced by the employee. It usually applies where a high number of small items are produced. It would clearly be inequitable to apply piecework where an employee was expected to complete only a handful of items each week as pay would fluctuate too greatly.
Piecework is often used as an incentive for the workers to work more productively as they can see a direct correlation between their output and their pay.
Piecework can only be applied if an employee's output can be recorded. This is usually done using a job card. A card is prepared for every job, and records the time spent on that job by every employee.
The rate of pay for employees paid by piecework is expressed as a specified amount of pay for a given number of items. It may be an amount per item, per 100 items, or even per 10.000 items, depending on the level of expected output.
The formula is:
Basic pay = Number of units produced × Rate of pay per unit
Piecework schemes can also offer higher rates where more than a certain number of items is produced. For example, an employee may be paid $5 each for the first 100 boxes of components packed, and $6 for any extra boxes packed.
Sometimes the piecework system is backed up by a minimum wage. For example, an employee may be paid $6 for every 100 buttonholes, but not less than $80 per week
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In the simplest case, the employee's basic pay will be the number of items produced. multiplied by the rate per item. This will need to be modified where there are differential rates, by applying the appropriate rate to the appropriate number of items. If a minimum wage is guaranteed, the basic pay will need to be increased to this level if the pay calculated using piecework rates is lower.
Employees A, B and C are each paid by piecework. The terms of their employment are as follows:
(a) Employee A is paid a flat rate of $1.33 for every box produced. In a given week, Employee A produced 121 boxes.
(b) Employee B is paid $0.99 for every box produced, with a guaranteed minimum wage of $80 per week. In a given week, Employee B produced 75 boxes.
(c) Employee C is paid $1.33 each for the first 125 boxes produced, and $1.47 for each subsequent box. In a given week, Employee C produced 145 boxes.
How much basic pay will each employee receive that week?
They will receive the following amounts of basic pay:
(a) Employee A:
121 boxes @ $1.33
$ 160.93
(b) Employee B:
75 boxes @ $0.99 =
74.25
guaranteed minimum wage of
80.00
(c) Employee C:
125 boxes @ $1.33
166.25
20 boxes @$1.47
29.40
145
195.65
A business manufactures packing cases and employs a number of people on a piece rate scheme of $3.00 for each packing case made. If an employee produces more than 100 packing cases in a week, any extra packing cases produced over 100 are paid at a rate of $4.00 per packing case. All employees have a guaranteed minimum weekly wage of $300. In the last week an employee produced 109 packing cases.
What was the employee's gross pay for the last week?
$300
$327
$336
$436
For a suggested answer, see the 'Answers' section at the end of the book.