1. Introduction and Objectives
Labor cost represents one of the largest fluid expenditures in manufacturing, service, and knowledge sectors. Controlling this expense requires accurate, verified source data. This lesson introduces time-tracking systems, structural audit trails, and modern Enterprise Resource Planning (ERP) integrations required for regulatory compliance under global labor standard frameworks.
 
2. Dual System of Time Recording
To prevent payroll fraud (such as “buddy punching”) and ensure accurate product costing, organizations use two parallel, interlocking recording mechanisms:
                  ┌───────────────────────────────┐
                  │   Employee Enters Facility    │
                  └───────────────┬───────────────┘
                                  ▼
                [Attendance Time Recording System]
                • Tracks total hours on site
                • Bio-metrics, RFID, Geofencing
                • Basis for Gross Payroll Calculation
                                  │
         ┌────────────────────────┴────────────────────────┐
         ▼                                                 ▼
[Reconciliation Audit Match]                      [Job Time Recording System]
• Must reconcile time on site                     • Tracks time per cost object
• Explains Idle Time gaps                         • Job cards, digital time logs
• Flagged for payroll audit                       • Basis for Cost Allocation (WIP)

  • Attendance Time Recording (Timekeeping): Records the exact arrival, break, and departure times of employees. It captures the total hours an employee is physically present on-site and serves as the legal source document for calculating gross base wages.
  • Job Time Recording (Time Booking): Tracks the specific tasks, operations, or cost objects an employee works on during their shift. This system isolates how long an worker interacts with specific inventory items or service accounts, providing the source data for Work-in-Progress (WIP) ledger updates.

3. Internal Controls and Verification
Under auditing standards like Sarbanes-Oxley (SOX), time records require digital authorization from immediate operational supervisors. This prevents unapproved overtime and ensures that direct labor variances are flagged and reviewed daily.
 
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