Student:

Instructor: Leanne Coder

Assignment: Chapter $2$: Crunch the

Date:

Course: Compensation $-$ Spring $2018$

Numbers: $1$

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 $1\mathrm{.}5$ 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 $$22$ per hour. Because manufacturing output will increase by $25$ percent, each employee would have to work an additional $10\mathrm{.}00$ hours per week. For each of these additional $10\mathrm{.}00$ hours, employees would earn $$33\mathrm{.}00$ per hour $($ $$22$ per hour $1\mathrm{.}5$ 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 workforce $25\%).$ 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 new employee$),$ 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?

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 th term of the contract would be: in five years.

Hire additional employees option

A$.$ Compensation Only

If ACME decides to hire additional workers, what would be the compensation during the term of the contract?

What is the number of additional hours to meet the additional demand? hours per week.

What would be the weekly compensation of new hires?

per week

What would be the annual compensation of new hires $($assume $52$ week per year$)?$ $ per year. Vhat would be the compensation for new hires during the $5-$year contract? in five years.

Associated Costs during the $5-$year contract

uring the term of the contract, the benefits costs would be: $S.$