Advantages of Labour Efficiency Ratio

Advantages of Labour Efficiency Ratio

Labour efficiency ratio provides useful information about the performance or efficiency of the labour work force. This information can be used by the management for performance appraisal of employees.

1.    Performance Controlling Tool

Labour efficiency ratio can be used as performance controlling tool. This ratio provides vital information about the performance of employees.

2.    Performance appraisal & Rewards

Management can use this ratio for performance appraisal of employees; furthermore, such ratio can also be helpful in deciding the rewards for the employee or particular group of employees.

Example

Labour Hours required per unit = 4 Hours

Total Number of unit produced =600 units

Actual hour taken in production =2500 Hour

Management has policy to announce bonus, if standard performance is achieved, suggest management for bonus in this case.

Solution

Standard hours = 600 unit x 4 hr= 2400 hrs

Labour Efficiency Ratio =   Expected Time.   x 100

                                        Actual Time

2400/2500 x 100

= 96% (Labour efficiency)

The performance is 4% below than standard performance; therefore bonus should not be announced by the management.