ACCOUNTING FOR

LABOR COST
Razmen R. Pinto
Accounting for
Labor Cost
Accounting for labor may be divided into three
phases:

TIMEKEEPING
1

FINANCIAL
ACCOUNTING PHASE 2

COST ACCOUNTING
PHASE 3
 Forms Used in
Controlling Labor Cost
Clock Card (or Time Card)
Time Ticket (or Job Ticket)
Daily Time Report
Payroll Sheet
Employee’s Earnings Record
 Employees’ Earning Records
These shows periodic and accumulated earnings of each employee aside
from the payroll deductions made.

1 2 3 4 5
Wages shall be Timekeeping Checking of the Time card and Accounting
paid not less often department collects clock cards and daily time report department
than once every 2 and controls clocks daily reports are subsequently prepares the
weeks of twice a (or time) cards and forwarded to the payroll based on
month job ticket (or daily accounting time (or clock)
report). department. cards.
Example
Problem
Job Order
Lucio Montano, a worker with
801- 12 hours
daily rate of P320, timed in 802- 10
total of 45 hours for the week 803- 5
August 2-8. His daily time 804- 15
reports show that during the Waiting time- 3
45 hours
same week, he accounted for
the 45 hours as follows:
 Regular Holiday, Special Days

Regular Holidays Special Days

• New Yaer’s Day - January 1 • All Saints Day - November 1
• Maundy Thurdays - movable date • Last Day of the Year - December 31
• Good Friday - movable date
• Araw ng Kagitingan - April 9
(Bataan and Corregidor)
• Labor Day - May 1
• Independence Day - June 12
• National Heroes Day - Last Sunday of August
• Bonifacio Day - November 30
• Christmas Day - December 25
• Rizal Day - December 30
Computation for Daily Rate
Daily rate = Monthly rate x 12months
Total working days in a year

If you have an employee with a

monthly rate of 11,000 and working
5 days a week.
11,000 x 12months
261
= 505.75
Premium Pay
Premium pay refer to the additional
compensation for work performed with
in eight (8) hours on non working days
(such as rest days and special day) as
acquired by law.

For work performed on Rate of

Pay Based
on Daily
rate
Rest days 130%
Special days 130%
Rest day which is also a 150%
special day
Regular holiday 200%
Regular is also a rest day 260%
 Example Problem
Based on the foregoing rates, the amount
earned by a worker with daily rate is
P400 and who works for eight (8) hours in
one day shall be as follows

1. On a rest day: P520.00

2. On a special day: 520.00
3. On rest day which is also a
special day: 600.00
4. On regular holiday: 800.00
5. On regular holiday which is also
a rest day: 1,040.00
Normal hours of Work, Overtime
Work and Overtime Pay
The Labor Code of the Philippines (Presidential Decree
No. 442, as amended) states that:
The normal hours of work of any employee shall not
exceed eight (8) hours a day (Art. 83) Work performed
eight (8) hours in one day is considered overtime work
and the employee is entitled to overtime pay of at least
125% (Art 87).
Example
Thus, an employee with daily rate of P400 who works for
then 10 hours on working day is entitled to at least P525.
1
Answer

Computation:
For regular eight (8) hours P400
For overtime work of two (2) hours
P400/8hrsx125%x2hrs 125 1
Total earned for ten (10) hours P525
 Overtime work rendered on a schedule rest day, a special day or a
regular holiday is entitled to overtime premium of 30% based on the
hourly rate he is entitled to on that particular day.

Working day Rest day Special day

125% 169% 169%

Rest day which is also Regular holiday Regular holiday which

special day 260% is also rest day
195% 388%
Day Type Formula
On a rest day Hourly rate x 130% x 130% x no. of
hours OT work
On a special day Hourly rate x 130% x 130% x no. of
hours OT work
On a rest day which is also a Hourly rate x 150% x 130% x no. of
special day hours OT work
On regular holiday Hourly rate x 200% x 130% x no. of
hours OT work
On a regular holiday which is also Hourly rate x 260% x 130% x no. of
a rest day hours OT work
 Example
Based on the foregoing rates, the amounted earned ten (10) hours by a worker
(with daily rate of 400) must be as follow

Worked Performed Overtime Pay Regular Premium Amount Earned

On rest day: 50 x( 130% x = P169 P520 P689

130%) x 2hrs
On special day: 50 x( 130% x = 169 520 689
130%) x 2hrs
On a rest day which is also a = 195 600 795
special day: 50 x( 150% x
130%) x 2hrs
On regular holiday: 50 x( 200% = 260 800 1060
x 130%) x 2hrs
On regular holiday which is also = 338 1040 1378
a rest day: 50 x( 260% x 130%)
x 2hrs
Accounting for Premium
Pay and Overtime Premium
01. They may be charged either to direct
labor cost or to factory overhead depending
on the reason for the overtime work.

02. The premium is treated as direct labor

cost when overtime work is due to the rush
nature of a job.

03. The premium is treated as factory

overhead when overtime work is due to
greater volume of work, slow production or
inadequate plant capacity.
Payroll Deductions
The deductions from gross pay or amount earned by employees are income
taxes withheld and the contribution to the Social Security System (SSS),
Medicare, and Pag-IBIG Fund. Occasional deductions are labor union
check off (or unions dues) and collection of receivables and advances

Payroll Preparation
The payroll is prepared based on clock (or time) cards, authority granted
to work on overtime and required payroll deductions.
 INCOME TAXES
WITHHELD
These are estimated income taxes that employees are expected to pay based on their
earnings and personal exemptions and are deducted from their pays.
 THE SOCIAL
SECURITY SYSTEM
• The Social Security Program. It provides sickness, maternity, disability, retirement and death
benefits and financial assistance in the form of salary; stock investment and privatization.
• The Employees’ Compensation Program (EC). It provides double compensation to workers
when the illness, death or accident occurs during work-related activities
• Coverage is compulsory for all employees not over sixty years of age and their employees
and for self-employed.
• For the self-employed, overseas contract workers (DCWs) and the non-working schedule
provided by the SSS. All contributions are remitted to the SSS within ten (10) days after the
covered month.
THE PHILHEALTH
PROGRAM
The PhilHealth (formerly Medicare) program provides
for hospitalization and medical benefits. It was originally
being administered by the SSS but in 1997, it was
privatized and its administration was taken over by the
Philippine Health Insurance Corporation or PhilHealth.
 Pag-IBIG FUND
CONTRIBUTIONS
• Pag-IBIG is the acronym for Pagtutulungan sa Kinabukasan: Ikaw, Bangko,
Industriya at Gobyerno. Primarily, the fund was created in 1978 to address two of
the nation’s basic concerns: generation of savings and provision of shelter for
workers.
• Both employee and employer contribute to the fund with the latter’s contribution
credited to the name of the employee so that the employee’s savings immediately
double or triple in amount.
 Illustration Problem
The following information is given for the payroll period, August 8 to 14:
 Illustration Problem
JOB number 801 802 803 804
Regular OT Regular OT Regular OT Regular OT
Cuenca, Jake
Abrenica, Aljur 15 18 5
Avelino, Paulo 6 12 20
Escudero, Matt 18 19 3 8
Trillo, Dennies 10 12 2 13 2
Gil, Enrique 7 4 16 15 7

Ji Chang Wook did some errands per request by the foreman for four (4) hours.
Cha Junho did some repair work for eight (8) hours.
 Illustration Problem
Employee Regular Pay Overtime Pay Gross Pay
Cuenca, Jake
Abrenica, Aljur
Avelino, Paulo
Escudero, Matt
Trillo, Dennis
Gil, Enrique

Ji Chang Wook did some errands per request by the foreman for four (4) hours.
Cha Junho did some repair work for eight (8) hours.
 Illustration Problem
Employee Regular Pay Overtime Pay Gross Pay
Cuenca, Jake 48 x P55 = P2,640 P 2,640
Abrenica, Aljur 40 x P45 = 1,800 1,800
Avelino, Paulo 43 x P40 = 1,720 1,720
Escudero, Matt 46 x P42 = 1,932 3 x P52.50 2,089.50
Trillo, Dennis 45 x P40 = 1,800 2 x 50 1,900
Gil, Enrique 47 x P35 = 1,645 4 x 43.75 1,820

Ji Chang Wook did some errands per request by the foreman for four (4) hours.
Cha Junho did some repair work for eight (8) hours.
Payroll Sheet
Entry:
a. To take up the Payroll

Payroll 11,969.50
Withholding taxes payable 1,020.00
SSS Premium Payable 1,700.00
PhilHealth Premium Payable 612.50
Pag-IBIG Premiums Payable 600.00
Cash 8,037.00
Weekly Job Time Recapitulation

Ji Chang Wook did some errands per request by the foreman for four (4) hours.
Cha Junho did some repair work for eight (8) hours.
Payroll Charges
Entry:
b. To take up the Payroll charges:

Work in Process – Direct Labor 8,441.00

Factory Overhead Control 3,528.00
Indirect Labor 2,800.00
Cost of Unproductive hours 322.00
Repairs 320.00
Overtime Premium 86.50
Payroll 11,969.50
THANKS