Whether to Work Overtime or Hire Additional Employees The Fair Labor Standards Act requires employers to...
Whether to Work Overtime or Hire Additional Employees
The Fair Labor Standards Act requires employers to pay nonexempt status employees an overtime rate at least equal to 1.5 times the normal hourly wage for each hour worked beyond the 40-hour workweek period.
ACME manufacturing has just signed a lucrative contract to produce the casings for flashlights. The contract spans five years. During this time, ACME must increase its total manufacturing output by 25 percent. To meet this added demand, the company's compensation and HR leadership will have to decide whether to require current manufacturing employees work additional hours per week, hire additional workers, or both. Making this decision will require an analysis of compensation costs and other HR-related expenses (for example, training).
Overtime Pay Scenario: Let's assume that ACME employees 1,000 manufacturing employees and each of these employees earns$25 per hour. Because manufacturing output will increase by 25 percent, each employee would have to work an additional 10.00 hours per week. For each of these additional 10.00 hours, employees would earn $37.50 per hour ($25 per hour times×1.5 hourly overtime pay premium). Hiring Additional Workers Scenario: To meet this additional demand (25% of output), ACME would have to increase their workforce by 25 percent, or 250 employees(1,000 person work force times×25%). Besides hourly pay, there are costs associated with hiring new employees. These include employee benefits $10,000 annually per new employee), recruitment ($5,000 on a one-time basis per newemployee), training ($3,000 on a one-time basis per employee), and termination ($12,000) upon the end of the contract period.
Is it more cost effective to have current manufacturing employees work on an overtime basis during the life of the contract or to hire new employees?
1) Overtime option
If current manufacturing employees work additional hours per week (overtime), what would be the additional compensation during the term of the contract?
What is the number of overtime hours needed per week to meet the additional demand?___hours per week
What would be the weekly overtime compensation?___ per week
What would be the annual overtime compensation (assume 52 week per year)? ___per year
What would be the compensation during the 5-year contract? The total cost of the additional compensation during the term of the contract would be: ___in five years.
Homework Answers
Overtime Option:
If current manufacturing employees work additional hours per week (overtime), the additional compensation during the term of the contract:
10 hours a week *1,000 employees*52 weeks per year*5years*$37.5 per hour
= $975,00,000
What is the number of overtime hours needed per week to meet the additional demand?
= 10*1,000
= 10,000
What would be the weekly overtime compensation?
=10,000*37.5
= $375,000
What would be the annual overtime compensation (assume 52 week per year)?
= $375,000*52
= $195,00,000
What would be the compensation during the 5-year contract? The total cost of the additional compensation during the term of the contract would be:
= $195,00,000*5
= $975,00,000
Add Answer to:
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