Overtime & Overtime wages under Cost and Management accounting

Overtime & Overtime wages for Cost and Management accounting

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

Overtime is outside the usual working hours that staff spend doing the additional job or finishing the unfinished job. Overtime wages are the amount owed to the worker for the additional time expended on additional and/or unfinished work by the worker.

Reasons people end up working overtime

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

Disadvantages of Overtime

Cost of Overtime: The expense of premium overtime rate

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.

Treatment of Overtime Premium in Cost Accounting

If overtime has been done at the desire of the customer then the complete overtime cost will be charged to the job directly.

If overtime is due to the general pressure then overtime cost is charged to general overheads.

If it is due to the negligence of employees, then it may be charged to the concerned department.

It is for reasons beyond control, then it may be charged to Profit & Loss Account.

Steps for Controlling Overtime

Schedule employees for no more than 40 hours in a workweek.

Insist employees take scheduled lunch and rest breaks as it increases employee efficiency.

Inform employees in writing that they are not authorized to work beyond their regularly scheduled hours

Coordinate projects in such a way that they can reasonably be completed in an average scheduled workweek.

Instruct employees to notify a supervisor if they are approaching overtime hours so scheduling can be adjusted.

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