Cost and Management accounting Overtime & Overtime wages

Cost and Management accounting Overtime & Overtime wages

Work performed by an employee or worker in excess of a basic workday (typically 8 hours in a day, 5 days a week) as defined by the Factories and Shop Establishment Act. It has also specified the rate of overtime and maximum hours of overtime.

Overtime is beyond the normal working hours spent by workers to do the extra work or to complete the incomplete work. Overtime wages is the amount payable to the worker for the extra time spent by the worker to do extra and/or incomplete work.

Reasons people end up working overtime

1. Too much work.
2. To meet overload.
3. Rush orders or Special orders or urgent orders.
4. Scheduling more production.
5. For making up the time lost due to unavoidable reasons.

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Disadvantages of Overtime

• Cost of Overtime: The expense of premium overtime rates
• Inefficiency: If employees slacken their pace of work in order to qualify for overtime
• Health of Employees: Regular long working hours, which can adversely affect employees’ work, health and home lives
• Fatigue: This may increase absence levels and lead to unsafe working practices
• Resentment: Employee expectations of overtime, leading to resentment and inflexibility.

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Treatment of Overtime Premium in Cost Accounting

1. If overtime has been done at the desire of the customer then the complete overtime cost will be charged to the job directly.
2. It overtime is due to the general pressure then overtime cost is charged to general overheads.
3. If it is due to the negligence of employees, then it may be charged to the concerned department.
4. It is for reasons beyond control, then it may be charged to Profit & Loss Account.

Steps for Controlling Overtime

1. Schedule employees for no more than 40 hours in a work week.
2. Insist employees take scheduled lunch and rest breaks as it increases the employee efficiency.
3. Inform employees in writing that they are not authorized to work beyond their regularly scheduled hours
4. Coordinate projects in such a way that they can reasonably be completed in an average scheduled work week.
5. Instruct employees to notify a supervisor if they are approaching overtime hours so scheduling can be adjusted.

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