What does mean by Idle Time and Overtime of Workers?
When workers are paid on the basis of time, there may be some difference between the time paid for and the time actually spent on production. This difference is known as idle time. In other words, idle time is a period or duration for which workers have been paid but they have not worked towards production in the factory. This is a wastage which needs some effective control so that payment of wages without actual work maybe minimized. Idle time may be categorized as:
- Normal idle time due to unavoidable factors in the factory.
- Abnormal idle time caused by avoidable factors.
Causes of Idle Time: The reasons for idle time may be multiple. Some of the examples of situations which causes idle time are represented as follows: Treatment of Idle Time Cost: Cost of idle time should be treated in the following manner:
- Item: Cost of Normal and Controllable Idle Time, Charged to: FACTORY OVERHEAD.
- Item: Cost of Normal but Uncontrollable Idle Time, Charged to: JOBS (by inflating the rates of wages).
- Item: Cost of Abnormal and Uncontrollable or Unavoidable Idle Time, Charged to: COSTING PROFIT AND LOSS ACCOUNT.
When workers have to work beyond their normal duty hours, the additional period is treated as Overtime. Overtime is an extra time over and above the scheduled hours of work or beyond the usual working hours. When workers are detained for overtime, they are normally paid at double the usual rate for extra hours.
Overtime may be considered useful under the following circumstances:
- When the urgency of work demands an immediate completion of the job for the customer.
- When the organization desires to make up any shortfall in production.
- When the company needs extra production to meet additional market demand or seasonal rush.
- When the number of workers is less than the requirement.
Since overtime involves an extra cost, it needs proper authorization and control. One has to ensure that the system is not put to misuse. This will expect a careful scrutiny of (i) the justification for overtime, and (ii) the workers who are required to be retained for this purpose.
Treatment of Overtime Cost: Additional payment for overtime should be charged as follows:
- Nature of Overtime: Due to customers request to complete a job within a specified period, Charged to: JOB directly.
- Nature of Overtime: Due to general pressure of work, Charged to: GENERAL OVERHEAD.
- Nature of Overtime: Due to delayed schedule, Charged to: DEPARTMENT.
- Nature of Overtime: Due to loss of time for unavoidable reasons, Charged to: COSTING PROFIT AND LOSS ACCOUNT.
- Nature of Overtime: Due to seasonal rush and peak load, Charged to: PRIME COST.