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Cost Accounting · Employee Costs

Attendance and Payroll Procedure in Cost Accounting

Updated 10 October 2026 · Fact-checked

Attendance and payroll procedure is the system that records when employees work, what jobs they work on, and how their pay is calculated and paid. Time keeping records attendance for wages. Time booking records how that time was spent on jobs. Payroll turns both into wage sheets, deductions and net pay.

Understand Attendance and Payroll Procedure

Labour is a major cost, so a firm must control who is paid, for how many hours, and for which work. The attendance and payroll procedure does this through records and checks, not through trust alone.

Time keeping records the arrival and departure time of each worker. Its purpose is to decide how much wage is payable. It also shows late coming, early leaving, overtime and absence. Methods include a manual attendance register, a time card punched in a clock, and modern systems such as biometric or swipe cards.

Time booking records how the paid hours were spent: on which job, process, work order or department. Its purpose is cost allocation, not wage payment. It uses a job card, daily or weekly time sheet, or piece work card. The gap between hours kept (attendance) and hours booked (jobs) is idle time, which needs investigation.

Payroll is the process of preparing the pay roll or wage sheet. It uses attendance, rates, output and approved overtime to compute gross wages. It then subtracts deductions such as provident fund, ESI, tax deducted at source and advances to get net pay. Payment is made against receipt or by bank transfer.

Four departments work together. Personnel (HR) recruits, fixes rates and grades, and issues rate change and leave notices. Time keeping records attendance. Payroll prepares wage sheets and pays. Cost accounting takes the wage analysis and charges direct wages to jobs and indirect wages to overheads. Keeping these duties separate is an internal control: the person who records time should not pay wages.

Key rules to remember

Gross wages
Gross wages = Basic wages + Overtime premium + Allowances and bonus
Basic wages cover all hours paid at normal rate. Include only items payable for the period.
Net wages payable
Net wages = Gross wages − Employee deductions (PF, ESI, TDS, advances, recoveries)
Employer contributions are not deducted from the employee. They are an extra cost to the employer.
Idle time (hours)
Idle time = Hours paid (time keeping) − Hours booked on jobs (time booking)
Used to reconcile the time keeping and time booking records.
Wage analysis check
Direct wages + Indirect wages = Gross wages as per payroll
The analysis of wages in cost records must agree with the payroll total.

How to solve Attendance and Payroll Procedure questions

Use this method for theory questions on documents and departments, and for numerical questions that build a wage sheet or reconcile time.

  1. 1Identify what is asked: a difference, a procedure, a department role, or a calculation.
  2. 2For theory, state the purpose first (wages for time keeping, cost allocation for time booking), then the documents and the user.
  3. 3For calculations, list hours paid from attendance and hours booked from job cards for each worker.
  4. 4Compute gross wages: normal hours at rate, plus overtime premium or other allowances as given.
  5. 5Deduct employee deductions to find net pay. Treat employer contributions separately.
  6. 6Split the gross wages into direct (booked to jobs) and indirect (idle time, overtime premium, supervision), following the question's instructions.
  7. 7Reconcile: direct plus indirect must equal total gross wages. Check hours paid equals hours booked plus idle time.
  8. 8Write a short conclusion or comment, for example on high idle time or control weaknesses.

Quickest way: Purpose, document, department test

When to use it: Use for short theory questions and MCQs on who does what and which record is used.

  1. Ask: is this about paying the worker or charging the job?
  2. If paying: time keeping, time card or attendance register, payroll department.
  3. If charging: time booking, job card or time sheet, cost accounting department.
  4. If about rates, grades, joining, leaving: personnel department.
  5. For numbers, find idle time first as hours paid minus hours booked, then price it.

Common mistakes in Attendance and Payroll Procedure

  • Treating time keeping and time booking as the same thing.

    Both deal with worker time, so they sound alike.

    Fix: Remember purpose: time keeping is for wage calculation, time booking is for job costing.

  • Naming the job card as a time keeping document.

    Students link any time record with attendance.

    Fix: Time card and attendance register belong to time keeping. Job card and time sheet belong to time booking.

  • Assigning the wrong role to the payroll department, such as fixing wage rates.

    Department roles are memorised loosely.

    Fix: Personnel fixes rates and grades. Payroll only computes and pays using approved data.

  • Deducting employer's PF or ESI contribution from the employee's pay.

    All statutory contributions are lumped together.

    Fix: Deduct only the employee's share. Employer's share is an additional cost of the employer.

  • Ignoring idle time when time paid and time booked differ.

    Students focus on booked hours only.

    Fix: Always compute hours paid minus hours booked and show it as idle time with its cost.

  • Skipping the control point that attendance, payroll and payment should be done by different people.

    Answers describe flow but not control.

    Fix: Add a line on segregation of duties and prevention of ghost workers.

Worked examples

Example 1

Distinguish between time keeping and time booking, and name one document used for each.

Show the solution
  1. Time keeping records the time a worker enters and leaves the factory. Its object is to calculate wages and control attendance.
  2. Time booking records how the time of the worker is spent on jobs, processes or departments. Its object is to charge labour cost correctly to jobs and to find idle time.
  3. Time keeping covers all workers, including indirect workers. Time booking is needed for tracing direct labour to jobs.
  4. Document for time keeping: time card or attendance register. Document for time booking: job card or daily time sheet.
  5. Total booked time plus idle time should agree with time kept.

Answer: Time keeping is attendance recording for wages (time card). Time booking is analysis of attended time by job for cost allocation (job card).

Example 2

A worker is paid ₹80 per hour for 8 hours a day. In a week of 6 days he attended 48 hours. Job cards show 42 hours booked on Job A and Job B (30 hours on A, 12 hours on B). Employee deduction for PF is 12% of gross wages. Find the gross wages, idle time cost, wages charged to each job and net pay.

Show the solution
  1. Gross wages = 48 hours × ₹80 = ₹3,840.
  2. Idle time = 48 − 42 = 6 hours.
  3. Idle time cost = 6 × ₹80 = ₹480, treated as overhead.
  4. Job A wages = 30 × ₹80 = ₹2,400.
  5. Job B wages = 12 × ₹80 = ₹960.
  6. Check: 2,400 + 960 + 480 = ₹3,840, which equals gross wages.
  7. PF deduction = 12% × ₹3,840 = ₹460.80.
  8. Net pay = 3,840 − 460.80 = ₹3,379.20.

Answer: Gross wages ₹3,840; idle time cost ₹480; Job A ₹2,400; Job B ₹960; net pay ₹3,379.20.

Exam tips

  • Write time keeping and time booking answers as a two-column style contrast in sentences: purpose, document, user, outcome.
  • In department-role questions, give one line for each of personnel, time keeping, payroll and cost accounting.
  • In numerical questions, always show the reconciliation of paid hours with booked hours plus idle hours.
  • For MCQs, identify the purpose in the stem first. Options often swap job card and time card.
  • Add one control comment, such as separate persons for attendance, payroll and payment, to earn extra step marks.

Practice questions from Employee Costs

Attendance and Payroll Procedure in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Attendance and Payroll Procedure: frequently asked questions

What is the difference between time keeping and time booking?

Time keeping records attendance, meaning when a worker comes and leaves, to compute wages. Time booking records how the attended time was used on jobs, to allocate labour cost. The difference between the two is idle time.

Which documents are used in labour cost control?

Commonly used documents are the attendance register, time card, job card, daily or weekly time sheet, piece work card, wage sheet or pay roll, and idle time report. Each serves either wage payment or cost allocation.

What is the payroll procedure in cost accounting?

Payroll collects attendance, rates, output and approved overtime, calculates gross wages, subtracts employee deductions and arrives at net pay. It then prepares the wage sheet, pays the worker and passes the analysis to the cost department.

What does the cost accounting department do in payroll?

It analyses wages into direct and indirect labour. Direct wages are charged to jobs or processes, and indirect wages go to overheads. It also checks that the analysis agrees with the payroll total.