Salalah Bakery is a food processing and distribution company, whose main products are packed cakes and buns. The company has been in this business for the last 20 years and was considered to be profitable.
However, during the last few years, labour costs have increased because of several factors. First, government regulations on the minimum wage have raised the cost of labour, since most of the workers in the company are local and unskilled. The change in regulation and the increased wage rate have affected the company very badly and as a result, its profit margin has declined during the last 5 years. Due to the cost increase company is expecting heavy losses in next few years. Other costs like material and FOH are not major part of cost of goods sold.
A second challenge is the entry of a newly established bakery that is part of an international chain. Customers are expected to be attracted to the new products that will be on offer. Also, the wages paid to staff by new company are much higher compared to those paid by Salalah Bakery so there is a real chance that the senior and trained staff may move to the new company. Labour shifting to the new company is likely to cause skilled labour shortages for Salalah Bakery.
The third problem facing Salalah Bakery is Ghost workers. The company has many small manufacturing units in different parts of Sultanate. It is suspected that this some supervisors are paying wages to dummy workers who are not actually working.
Currently, the company is maintaining all wages records manually, which are sent to head office on weekly basis where it is recorded in computer system. Wages are sent in cash to different manufacturing units and paid on weekly basis. In the past, there have been some reported cases of cash theft in transit.
At the moment, the company is paying the labour according to hourly rate and no overtime is offered. Because of the worker shortage, the company has two alternatives of either hiring new workers and training them, or offering overtime to the current workers but changing the payment plan from an hourly rate to a piece rate plan or a differential piece rate plan.
Because of these three issues, the company is expecting heavy losses in next few years. Other costs like material and FOH are not major part of cost of goods sold and can be ignored.
You are required to discuss and analyse the following aspects of labour cost with proper solutions of issues faced by management.
1. Different Wages Payment plans available for wages Payment.
2. The costs and benefits of hiring new labour.
3. Laws Governing the payment of wages to workers in Oman.
4. Motivational factors for workers and effect of these factors on productivity.
5. Procedures to control labour cost and avoid payment to ghost workers.
6. Role of IT for wage calculation, wage payment and controlling wage cost.
7. Different options for payments of wages, is there any other alternative to cash payment?