STRATEGIC COMPENSATION A Human Resource Management Approach

STRATEGIC COMPENSATION A Human Resource Management Approach
Chapter 13: Compensating the Flexible Workforce: Contingent Employees and Flexible Work Schedules Copyright © 2015 Pearson Education, Inc.

Copyright © 2015 Pearson Education, Inc.
Learning Objectives List and define each of the four groups of contingent workers and the reasons for U.S. employers’ increased reliance on them. Discuss at least one compensation issue and one employee benefits issue for each of the four groups of contingent workers. List the four categories of flexible work schedules. Copyright © 2015 Pearson Education, Inc.

Learning Objectives Summarize one pay and employee benefits issue for flexible work schedules, compressed workweeks, and telecommuting arrangements. Describe at least three reactions unions have about the use of contingent work and flexible work schedule arrangements. Identify two strategic issues and choices companies have regarding the use of contingent workers. Copyright © 2015 Pearson Education, Inc.

Learning Objective 1 List and define each of the four groups of contingent workers and the reasons for U.S. employers’ increased reliance on them. Changing business conditions and personal preferences for flexibility to accommodate nonwork demands have led to an increase in contingent workers and the use of flexible work schedules in the United States. Copyright © 2015 Pearson Education, Inc.

Contingent Workers 5.7 million contingent workers employed in February 2005 27 million employees worked some form of a flexible schedule in May 2004 Contingent workers and those on a flexible schedule made up 27.5% of civilian workforce There are 5.7 million contingent workers employed in February million employees worked some form of a flexible schedule in May Contingent workers and those on a flexible schedule made up 27.5% of civilian workforce. Copyright © 2015 Pearson Education, Inc.

Types of Contingent Workers
Part-time employees Temporary and on-call workers Leased employees Independent contractors, freelancers, consultants Contingent workers consist of five main groups including part-time employees, temporary and on-call employees, leased employees, independent contractors, freelancers, and consultants. Copyright © 2015 Pearson Education, Inc.

Employed Contingent Workers in February 2005
TYPE NUMBER Part-time 2,294,000 On-call 2,500,000 Temporary 1,200,000 Leased 813,000 Here, we can examine the employed contingent workers in Part-time employees were almost 2.3 million, on-call employees were 2.5 million, temporary employees were 1.2 million, and leased employees around 0.8 million. Copyright © 2015 Pearson Education, Inc.

Part-Time Employees Two kinds Voluntary: chooses to work fewer than 35 hours Involuntary: work fewer than 35 hours per week because they are unable to find full-time employment There are two types of part-time employees includingvoluntary and involuntary. Voluntary part-time employees choose to work fewer than 35 hours. Involuntary part-time employees work fewer than 35 hours per week because they are unable to find full-time employment. Copyright © 2015 Pearson Education, Inc.

Costs for Full- and Part-Time Employee Benefits, 2012
The cost of benefits (per employee per hour worked) in 2012 was substantially higher for full-time workers. Copyright © 2015 Pearson Education, Inc.

Job Sharing Two or more part-timers perform one job Reduces costs Increases flexibility Maintains productivity levels May increase morale and loyalty In job sharing two or more part-time employees perform a single full-time job. Job sharing reduces costs, increases flexibility, maintains productivity levels, and may increase morale and loyalty. Copyright © 2015 Pearson Education, Inc.

Temporary Workers Fill in for core employees Help ease high demand periods Help determine future employment needs May be assessed for a core position Don’t receive company benefits Reasons for hiring temporary workers can be listed as filling in for core employees on approved leave, offering extra set of hands during busy business activities, allowing employers to determine need for more core employees, allowing employers to evaluate performance of workers for possible full-time employment, allowing temporary workers the chance to determine if the company is the right employer for them, and saving on discretionary benefits costs. Copyright © 2015 Pearson Education, Inc.

Leased Employee Arrangements
Lease company does all HRM functions Fees either percentage of payroll or percentage per employee Employees work for contract duration Food service, security, building maintenance, administration Leased employee arrangements have either placement fees that are a percentage of the client’s payroll or a fixed fee per employee. Employees usually work for duration of contract. Lease company is responsible for all HRM functions. Examples include food service, security, building maintenance, and administration. Copyright © 2015 Pearson Education, Inc.

Independent Contractors, Freelancers, and Consultants
Establish working relationships with companies on their own Possess specialized skills Ex: Adjunct faculty Independent contractors, freelancers, and consultants establish working relationships directly with host companies. They typically possess specialized skills that are in short supply in the labor market. For instance, adjunct college professors are hired to cover for professors on sabbatical or until a tenure-track professor is hired. Copyright © 2015 Pearson Education, Inc.

Rise in Use of Contingent Workers
Economic recessions International competition From manufacturing to service More females in workforce Runaway health insurance costs Five main reasons for U.S. employers’ increased reliance on contingent workers can be listed as economic recessions, international competition, shift from a manufacturing to a service economy, rise of women in the workforce, and runaway costs to provide employer-sponsored health insurance. Copyright © 2015 Pearson Education, Inc.

Service Divisions Transportation Communication Public utilities Wholesale trade Retail trade Government Six broad divisions of service industries can be listed as transportation, communication, public utilities, wholesale trade, retail trade, and government. Copyright © 2015 Pearson Education, Inc.

Learning Objective 2 Discuss at least one compensation issue and one employee benefits issue for each of the four groups of contingent workers. The second learning objective addresses the pay and employee benefits issues for contingent workers. Copyright © 2015 Pearson Education, Inc.

Federal Compensation Guidelines
ERISA NLRA ADA ADEA Title VII of 1964 Civil Rights Act FLSA COBRA All parties involved employing contingent workers possess liability under federal and state laws, including overtime and minimum wage guidelines under FLSA, state workers’ compensation insurance premiums, nondiscriminatory compensation, and employment practices under ERISA, NLRA, Civil Rights Act of 1964, ADEA. Copyright © 2015 Pearson Education, Inc.

Wage Comparisons, 2012 Benefit Full-Time Part-Time Management and professional workers $37.05 $26.70 Production workers $17.57 $11.09 Service workers $12.16 $09.18 Overall (all workers) $23.22 $11.95 The table shows the average hourly wages from 2012 for full-time and part-time employees. Part-time workers generally earn less. Copyright © 2015 Pearson Education, Inc.

Leased Workers’ Benefits
Leasing company is legal employer In 2005, average weekly wage was $204 for part-time and $756 for full-time workers Leasing and hiring companies responsible for discretionary benefits Covered by safe harbor rules In February 2005, leased workers earned an average weekly wage of $204 for part-time and $756 for full-time. Leased employees are generally entitled to participation in the client companies’ qualified retirement programs. Leasing companies become responsible for leased employees’ retirement benefits when the safe harbor rule requirements are met. Under COBRA, the IRC requires employers to provide leased workers continued coverage of group medical insurance, group life insurance, and educational assistance programs. Copyright © 2015 Pearson Education, Inc.

Safe Harbor Rules Leased employees covered by leasing company’s pension plan Nonintegrated employer contribution rate of 10% Full and immediate participation in vesting Leased employees less than 20% of nonhighly paid workforce The leased employee must be covered by the leasing company’s pension plan, which must be a money purchase plan with a nonintegrated employer contribution rate for each participant of at least 10% of compensation, provide for full and immediate vesting, and allow each employee of the leasing organization to immediately participate in such a plan. Leased employees cannot constitute more than 20% of the recipient’s nonhighly compensated worker. Copyright © 2015 Pearson Education, Inc.

Independent Contractors
Freelancers and consultants Companies not responsible for: Federal taxes FLSA overtime or minimum wage Workers’ compensation ERISA, FMLA, NLRA, ADA, Title VII of Civil Rights Act Economic reality test Right to control test Pay levels are not monitored by the Bureau of Labor Statistics for independent contractors. Hiring companies are not obligated to pay federal income tax withholding, FLSA overtime, or minimum wage, insurance premiums required under state workers’ compensation laws, or protection under ERISA, FMLA, NLRA, ADA, Title VII of Civil Rights Act. Copyright © 2015 Pearson Education, Inc.

Economic Reality Test Extent a worker controls methods and results The control a company has on worker’s earnings Importance of worker’s service to the company Initiative or skill level required Permanency, exclusivity, or length of assignment Worker’s investment in materials or equipment Economic reality test criteria can be listed as extent a worker controls methods and results, the amount of control the employer has over the individual’s opportunity to realize a profit or sustain a loss, the extent to which the services are an integral part of the employer’s business operations, the amount of initiative or level of skill required for the worker to perform the job, the permanency, exclusivity, or duration of the relationship between the employer and the worker, and the extent of the worker’s investment in equipment or materials required for the job. Copyright © 2015 Pearson Education, Inc.

Right to Control Test IRC test to determine workers’ independence 20 considerations, including: Hiring, training, supervising, firing Hours Services Compensation Equipment, materials, location IRC test to determine workers’ independence. It is used to determine whether an individual is an employee or an independent contractor. Possessing the right to control work activities classifies individuals as employers rather than independent contractors. There are 20 considerations including hiring, training, supervising, firing, hours, services, compensation, equipment, materials, and location. Copyright © 2015 Pearson Education, Inc.

Learning Objective 2 Federal compensation guidelines Wage comparisons in September 2010 Benefits offered 2010 Leased workers’ benefits Safe harbor rules Independent contractors Economic reality test Right to control test For learning objective 2, federal compensation guidelines, wage comparisons in September 2010, benefits offered 2010, leased workers' benefits, safe harbor rules, independent contractors, economic reality test, and right to control test were discussed. Copyright © 2015 Pearson Education, Inc.

Learning Objective 3 List the four categories of flexible work schedules. Addresses the key features of flexible work schedules, compressed workweeks, and telecommuting. Copyright © 2015 Pearson Education, Inc.

Flexible Work Schedules
Flextime Compressed workweeks Telecommuting The major types of flexible work schedules are flextime schedules, compressed work weeks, and telecommuting. Copyright © 2015 Pearson Education, Inc.

Flextime Set weekly not daily hours May have to work core hours Possible employer benefits Lower tardiness and absenteeism Higher productivity Extended business hours Possible employer drawbacks Increased overhead costs Coordination problems Flextime along with compressed work schedules are the most common and apply to both core and contingent employees. An employee can set work hours within parameters. Possible employer benefits include lower tardiness and absenteeism, higher productivity, and extended business hours and better service. Possible employer drawbacks include increased overhead costs and coordination problems. Copyright © 2015 Pearson Education, Inc.

Compressed Workweeks Example: 40 hours in 3 to 4 days Possible benefits Can promote recruitment and retention Can reduce commuting time Can allow more family time Same work hours in fewer days per week, such as four 10-hour days or three 12-hour days. Possible benefits of compressed workweeks include: 1) it can promote recruitment and retention, 2) it can reduce commuting time, 3) it can allow more family time. Copyright © 2015 Pearson Education, Inc.

Telecommuting Employees work on-site and off-site Constant direct contact with other employees Possible benefits Same as with flextime Possible disadvantages Less direct employee interactions Makes performance appraisals difficult Employees perform work away from business like home or remote locations in telecommuting. Work time is generally split between business and off-site locations. It is more appropriate for work that does not require regular direct contact with other employees, like accounting and telephone sales. Possible employer benefits include increased productivity, lower overhead costs, effective recruiting and retention practices. Possible employee benefits include more family time, less commuting time, less commuting costs, and higher performance. Possible disadvantages can be listed as less direct employee interactions, difficulty in conducting accurate performance appraisals, and disruption in personal life. Copyright © 2015 Pearson Education, Inc.

Telecommuting Arrangements
Satellite work centers Neighborhood work centers Nomadic executive office Work off-site and/or on-site Temporary or permanently In satellite work centers, employees work from a remote extension of the employer’s office that includes a clerical staff and a full-time manager. In neighborhood work center, employees work from a satellite office shared by several employers. In a nomadic executive office, executives who travel extensively maintain control over projects through use of telephone, fax, and . Employees sometimes work entirely outside the office. Others might work off-site only once a month or two to three days a week. Telecommuters can be full- or part-time employees. Moreover, telecommuting arrangements can be temporary or permanent. Copyright © 2015 Pearson Education, Inc.

Learning Objective 4 Summarize one pay and employee benefits issue for flexible work schedules, compressed workweeks, and telecommuting arrangements. The fourth learning objective discusses pay and employee benefits issues for flexible work schedules, compressed workweeks, and telecommuting. Copyright © 2015 Pearson Education, Inc.

Pay for Flexible Employees
Pay examples: Alaska A 10 hour day, 40 hour workweek  premium pay after 10 hours a day instead of after 8 hours Rhode Island Time-and-one-half premium pay for work on Sundays and holidays in retail and certain other business is required Maximum hours before overtime for Alaska and Rhode Island are shown as pay examples for flexible employees. For Alaska, a 10-hour day, 40-hour workweek may be instituted with premium pay after 10 hours a day instead of after 8 hours. For Rhode Island, time-and-one-half premium pay for work on Sundays and holidays in retail and certain other businesses is required under two laws that are separate from the Fair Labor Standards Act minimum wage provision. Copyright © 2015 Pearson Education, Inc.

Employee Benefits for Flexible Employees
Determination of paid vacation and sick leave for flexible employees is complicated (work fewer hours some months and more hours other months) Treatment of paid time off for holidays Determination of paid vacation and sick leave for flexible employees is complicated becausethey work fewer hours some months and more hours other months. Flexible workweek schedules have the greatest impact on paid time-off benefits, like sick leave, vacation time, and holidays. Copyright © 2015 Pearson Education, Inc.

Learning Objective 5 Describe at least three reactions unions have about the use of contingent work and flexible work schedule arrangements. The fifth learning objective addresses unions’ reactions to contingent workers and flexible work schedules. Copyright © 2015 Pearson Education, Inc.

Union Concerns Employers exploit contingent workers by paying them lower wages and benefits Employer’s efforts to get cheap labor will lead to poorly trained and less skilled workforce that will hamper competitiveness Part-time employees are difficult to organize because their interests are centered on activities outside the workplace Here, common union concerns are listed. First, employers exploit contingent workers by paying them lower wages and benefits. Second, employers’ efforts to get cheap labor will lead to poorly trained and less skilled workforce that will hamper competitiveness. Third, part-time employees are difficult to organize because their interests are centered on activities outside the workplace. Fourth, part-time employment erodes labor standards: often denied fringe benefits, job security, and promotion opportunities. Copyright © 2015 Pearson Education, Inc.

Union Concerns (cont’d)
Part-time employment erodes labor standards: often denied fringe benefits, job security, and promotion opportunities Temporary employees generally have little concern for improving the productivity of a company Union’s bargaining power becomes weak when companies demonstrate their abilities to perform effectively with temporaries Fifth, temporary employees generally have little concern for improving the productivity of a company. Sixth, union’s bargaining power becomes weak when companies demonstrate their abilities to perform effectively with temporaries. Seventh, the long days of compressed workweeks for flextime could endanger workers’ safety and health, even if the workers choose these long days. Finally, concerns about employee isolation, uncompensated overtime, and company monitoring in the home. Copyright © 2015 Pearson Education, Inc.

Union Concerns (cont’d)
The long days of compressed workweeks or flextime could endanger workers’ safety and health, even if the workers choose these long days Concerns about employee isolation, uncompensated overtime, and company monitoring in the home Fifth, temporary employees generally have little concern for improving the productivity of a company. Sixth, union’s bargaining power becomes weak when companies demonstrate their abilities to perform effectively with temporaries. Seventh, the long days of compressed wor weeks for flextime could endanger workers’ safety and health, even if the workers choose these long days. Finally, concerns about employee isolation, uncompensated overtime, and company monitoring in the home. Copyright © 2015 Pearson Education, Inc.

Learning Objective 6 Identify two strategic issues and choices companies have regarding the use of contingent workers. The last learning objective of the chapter addresses the strategic issues and choices in using contingent workers. Copyright © 2015 Pearson Education, Inc.

Strategic Issues and Choices in Using Contingent and Flexible Workers
Cost control objectives Contingent employment allows for lower discretionary benefit cost and provides less generous amounts of such benefits Well-trained contingent workers can reduce training costs Cost Control Objectives: Contingent employment allows for lower discretionary benefit costs and provides less generous amounts of such benefits. Well-trained contingent workers can reduce training costs. Overall, contingent workers demonstrate less absenteeism. Product and Service Innovation Objectives: Contingent employment could bring in an influx of new employees with new ideas and minimize group think, where employees agree on mistaken solutions because they share the same mindset and view issues through the lens of conformity. Copyright © 2015 Pearson Education, Inc.

Strategic Issues and Choices in Using Contingent and Flexible Workers
Product and service innovation objectives Contingent employment could bring in an influx of new employees with new ideas and minimize group think Cost Control Objectives: Contingent employment allows for lower discretionary benefit costs, and provides less generous amounts of such benefits. Well-trained contingent workers can reduce training costs. Overall, contingent workers demonstrate less absenteeism. Product and Service Innovation Objectives: Contingent employment could bring in an influx of new employees with new ideas and minimize group think, where employees agree on mistaken solutions because they share the same mindset and view issues through the lens of conformity. Copyright © 2015 Pearson Education, Inc.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc.

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