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Leave Wages Annual Bonus

Leave wages

Leave is a normal incident of industrial employment. Occasionally every worker has to be granted leave. If on account of contingencies of work, a worker cannot be granted an accrued leave, compensation for such leave has to be paid. Thus, wages for leave are a cost of labour. Expenditure in respect of leave can be dealt in any of the following two ways in cost accounts:

(i) Leave waves may be debited to factory overhead account.

(ii) The rate of wages of direct workers, for adjustment in cost accounts, may be raised appropriately so as to include expenditure so as to include expenditure on account of leave wages. The amount by which wage rate should be increased can be computed as follows:

In case a worker is not entitled to leave but leave is granted ex-gratia to him (e.g. when he has fallen ill), wages paid for the leave period will be an abnormal charge and, therefore, should be debited to costing profit and loss account.

Annual bonus

In case a certain amount of bonus has to be paid to the workers on account of legal provisions (e.g. a minimum amount of bonus if payable to workers in India under the Payment of Bonus Act) the amount of bonus is a cost of production and, therefore, may be charged to production either as an overhead or by adjusting the wage-rate (in case of direct workers) in cost accounts. However, if the bonus has been voluntarily paid by the employer with a view to win the goodwill of workers, the bonus will have to be charged to costing profit and loss account.