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Strategic Compensation: A Human Resource Management Approach

Ninth Edition

Chapter 13

Compensating the Flexible Workforce: Contingent Employees and Flexible Work Schedules

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Introduction

Changing business conditions and personal preferences for flexibility to accommodate non work demands have led to an increase in contingent workers and the use of flexible work schedules.

Compensating contingent workers is a complex proposition.

Human Resource (HR) and compensation professionals encounter tremendous challenges in managing both core and contingent workforces.

Many companies employ both types of workers, often in the same job.

Contingent Workers

Individuals who do not have an implicit or explicit contract for ongoing employment

In contrast, core employees generally plan on long-term or indefinite relationships with their employers. They have full-time jobs.

Persons who do not expect to continue employment for personal reasons such as returning to school or retirement are not contingent workers

Contingent Workers

The duration of their employment varies according to their convenience and employers’ business needs.

More and more companies favor contingent employment to control staffing levels and costs.

Contingent Workers

Compensating contingent worker is a complex proposition. Human resource (HR) and compensation professionals encounter tremendous challenges in managing both the core and the contingent worker forces.

Core employees have full time job

Whether Individuals Expect Employment to Continue

Types of Contingent Workers

Part-time employees

Temporary and on-call workers

Leased employees

Independent contractors, freelancers, consultants

Part-Time Employees

Two kinds:

Voluntary: chooses to work fewer than 35 hours . In some cases, individuals supplement full-time employment with part-time employment to meet financial obligations.

Involuntary: works fewer than 35 hours per week because they are unable to find full-time employment

Part-Time Employees

Companies may experience advantages and disadvantages from employing part-time workers. Flexibility is the key advantage,

Most companies realize a substantial cost savings because they offer few or no discretionary benefits.

In addition companies realize cost savings for benefits that are linked to hours worked (e.g. retirement plan contributions)

Employers save considerable money in the areas of paid leave, insurance, and legally required benefits.

Part-Time Employees

Employers save considerable money in the areas of paid leave, insurance and legally required benefits.

Hiring part-time workers during peak business periods minimizes overtime pay cost. ( because company, and according to the law ,must pay employees at a rate equaling one and one half their regular hourly rates.)

Reasons for Working Less Than 35 Hours per Week (1 of 2)

Table 12-1 Reasons for Working Less than 35 Hours per Week, February 2015 (Numbers in Thousands)

Reasons for Working Less than 35 Hours	Total	Usually Work Full-Time	Usually Work Part-Time
Total, 1 to 34 hours	35,719	10,170	25,549
Economic reasons	6,772	1,660	5,112
Slack or casual work or business conditions	4,011	1,399	2,612
Could only find part-time work	2,355	Blank	2,355
Seasonal work	297	152	145
Job started or ended in the middle of week	109	109	Blank
Noneconomic reasons	28,947	8,510	20,437
Child-care obstacles	1,016	101	915
Other family or personal obligations	5,020	697	4,323
Health or medical limitations	844	Blank	844

Reasons for Working Less Than 35 Hours per Week (2 of 2)

[Table 12-1 continued]

Reasons for Working Less than 35 Hours	Total	Usually Work Full-Time	Usually Work Part-Time
In school or training	6,385	55	6,331
Retired or Social Security limit on earnings	2,316	Blank	2,316
Vacation time or personal day	2,836	2,836	Blank
Holiday, legal, or religious obligation	604	604	Blank
Weather-related curtailment	1,463	1,463	Blank
All other reasons	8,464	2,755	5,709
Average weekly hours, economic reasons	22.9	24	22.6
Average weekly hours, noneconomic reasons	21.5	25.6	19.8

Note: Dash indicates no data or data that does not meet publication criteria.

Source: U.S. Bureau of Labor Statistics. (March 6, 2015). Labor Force Statistics from the Current Population Survey. Available: https://www.bls.gov/web/empsit/cpseea25.htm, accessed March 17, 2015.

Costs for Full- and Part-Time Employee Benefits, 2014

Table 12-2 Employers’ Hourly Costs for Full and Part-Time Employee Benefits, December 2014

Benefit	Full-Time ($)	Part-Time ($)
Total hourly benefits costs	11.80	3.37
Paid leave	2.77	0.45
Supplemental pay	1.41	0.22
Insurance	3.18	0.70
Retirement and savings	1.65	0.32
Legally required benefits	2.78	1.68

Source: U.S. Bureau of Labor Statistics. (2015). Employer Costs for Employee Compensation, December 2014. USDL: 15-0386. Available: https://www.bls.gov/, accessed March 9, 2015.

Job Sharing

Job sharing is a special kind of part-time employment agreement. Two or more part-time employees perform a single full-time job.

These employees may perform all job duties or share the responsibility for particular tasks.

Some job sharers meet regularly to coordinate their efforts.

Job sharing represents a compromise between employees’ needs or desires not to work full-time and employers’ need to staff jobs on a full-time basis.

Job Sharing

Two or more part-timers perform one job

Reduces costs

Increases flexibility

Maintains productivity levels

May increase morale and loyalty

Benefits of Job sharing

Benefits to Employers	Benefits to Employees
Maintenance of productivity because of higher moral and maintenance of employee skills	Continued employee benefit protection
Retention of skilled workers	Continued employment when the likelihood of unemployment is high
Reduction or elimination of the training costs	Maintenance of family income
Greater flexibility
Minimizing costs of hiring and training new employees
Strength employee’s loyalty to the company

Temporary and On-Call Workers

Fill in for core employees who are on approved leaves of absence.

Help ease high demand periods (when companies business activities peak.

Temporary employees perform jobs on a short-term basis usually measured in days, weeks, or months.

Help determine future employment needs

May be assessed for a core position. The employer has the opportunity to decide whether to retain particular workers on an indefinite basis.

The temporary arrangement represents a probationary period.

Don’t receive company benefits

Temporary and On-Call Workers

Companies hire temporary employees from a variety of sources.

Temporary employment agency.

Direct hire arrangement

On- call arrangements

Temporary and On-Call Workers

Companies hire temporary employees from a variety of sources. The most common source is a temporary employment agency.

Companies generally establish relationships with temporary employment agencies based on several factors.

First, companies consider agencies’ reputations as an important factor.

Second, companies also should consider agencies’ fees. Cost is a paramount consideration for companies that are pursuing lowest cost competitive strategies.

Although temporary employees work in a variety of companies, their legal employers are the temporary employment agencies.

Temporary and On-Call Workers

Temporary employment agencies take full responsibility for selecting temporary employee candidates and determine candidate’s qualifications through interviews and testing.

Many temporary agencies train candidates.

Temporary employees receive compensation directly from the agency.

Temporary and On-Call Workers

Companies may hire temporary employees through other means. For example, some companies hire individuals directly as temporary workers. Under direct hire arrangement, temporary employees typically do not work for more than 1 year.

The hiring companies are the temporary workers’ legal employers.

Companies take full responsibility for all HR functions that affect temporary employees, including performance evaluation, compensation and training.

Temporary and On-Call Workers

On- call arrangements are another method for employing temporary workers. On-call employees work throughout the year when companies require their services.

Companies can schedule workers for several days or weeks in a row.

When employed, on-call workers are employees of the hiring companies. Thus the hiring companies are responsible for managing and implementing HR policies, including compensation.

Leased Employee Arrangements

Lease companies employ qualified individual and place them in client companies on a long-term basis.

Most companies bill the client for the direct costs of employing the worker (e.g., payroll, benefits, and payroll taxes) and then charge a fixed fee.

Lease companies base these fees on either fixed percentage of payroll or percentage per employee

Lease company does all HRM functions. Thus, lease companies provide both wages and benefits to their employees.

Employees work for contract duration

Leasing arrangement are common in the Food service, security, building maintenance, administration

Independent Contractors, Freelancers, and Consultants

Establish working relationships with companies on their own

Possess specialized skills that are in short supply in the labor market.

Ex: Adjunct faculty to cover for permanent faculty members who are on sabbatical leave.

Companies select independent contractors to complete particular projects of short-term duration.

Rise in Use of Contingent Workers

Economic recessions: companies often replace core employees with contingent employees

International competition: contingent employment is less costly than core employment, reducing the difference between higher labor costs in the United States compared to other countries to be able to compete

Shift from manufacturing to a service economy

Rise in female labor force participation

Examples of Service Economic Activity

Transportation

Communication

Public utilities

Wholesale trade

Retail trade

Government

Pay And Employee Benefits for Contingent Workers

Compensation practices for contingent workers vary. All parties involved in employing contingent workers possess liability including:

overtime and minimum wages.

Paying insurance premium

Nondiscriminatory compensation and employment practices.

Retirement income security.

Pay And Employee Benefits for Contingent Workers

Temporary employment agencies and leasing companies that place workers in client’s firms are liable under these laws. In addition, the client company may also be liable

Employee Benefits for Part-Time Workers (1 of 2)

Retirement benefits

Companies generally do not provide discretionary benefits to part -time employees.

Employers are not required to offer protective insurance. Few part- time workers had access to medical care benefits.

Employee Benefits for Part-Time Workers (1 of 2)

Employers may be required to provide qualified retirement programs to part time employees. Part time employees who met the following 2 criteria are eligible to participate in qualified retirement programs:

Minimum age of 21,

Completion of a least 1000 hours of work in a 12 month period

Special considerations apply to seasonal employees' eligibilities for qualified retirement benefits because most seasonal employees do not meet the annual service pension eligibility criterion.

Employee Benefits for Part-Time Workers (2 of 2)

Health insurance

Part-time workers are not protected under PPACA

Following resignation, part-time workers are eligible to purchase health insurance under COBRA rules

Temporary Employees

Temporary employment agencies are the legal employers for temporary employees. Temporary employment agencies are therefore responsible for complying with federal employment legislation.

Pay: pay rates varied widely by occupation and workers’ particular qualifications. Equity problems may ( or may not) arise where core and temporary employees work together.

Temporary workers may neither take the time nor have the time to scope out pay differences because their engagements are brief. These temporary employees are therefore not likely to perceive inequitable pay situations.

Temporary Employees

On the other hand, some temporary employees may not work carefully because they did not choose temporary employment arrangements. Individuals who lose their job because of a sudden layoff and who have few core job alternatives are most susceptible. Pay differences between these temporary employees and core employees are likely to intensify perception of inequity.

It is important to distinguish between temporary employees and seasonal employees for determining eligibility Companies hire temporary employees to fill in as needed. However, seasonal employees work during set regular periods every year.

Employee Benefits for Temporary Employees

Companies typically do not provide discretionary benefits

The dual employer common law doctrine establishes temporary workers’ rights to receive workers’ compensation. According to this doctrine, temporary workers are employees of both temporary employment agencies and the client companies. The written contact between the employment agency and client company specifies which organization’s workers’ compensation policy applies in the event of injuries.

Leased Workers’ Pay

Leasing company is legal employer regarding wage issues and legally required benefits

In 2005, average weekly wage was $204 for part-time and $756 for full-time workers

Adjusted with the Consumer Price Index, in 2014, the weekly wage amounts were estimated to be $916 and $247, respectively

Leased Workers’ Benefits

Leasing company is legal employer

Leasing and hiring companies responsible for discretionary benefits

Independent Contractors

The Bureau of Labor statistics does not monitor pay levels for independent contractors.

Companies are not obligated to pay the following on behalf of independent contractors, freelancers \, and consultants:

Federal income tax.

Overtime and minimum wages required under the FLSA.

Insurance premiums required under state workers’ compensation laws. Etc…

Flexible Work Schedules

Many companies now offer employees flexible work schedules to help them balance work and family demands.

Flexible and compressed workweek schedules are the most prominent flexible work schedules used in companies.

Flexible work schedule practices apply to both core employees and contingent employees,

Flexible Work Schedules

Flextime

Compressed workweeks

Telecommuting

Flextime

Allow employees to modify their work schedules within a specified limit set by the employers. Employees adjust when they will start and when they will leave. Flextime does not lead to reduced work hours.

Set weekly not daily hours.

All workers must be present during certain workdays hours when business activity is regularly high. This period is known as core hours

Flextime

Possible employer benefits

Lower tardiness and absenteeism

Higher productivity

Extended business hours

Possible employer drawbacks

Increased overhead costs

Coordination problems

Compressed Workweeks

Compressed workweek schedules enable employees to perform their work in fewer days than a regular 5-day workweek

Example: 40 hours in 3 to 4 days

Possible benefits

Promotes recruitment and retention

Reduces commuting time

Allows more family time

Telecommuting

Employees work at home or off-site (excluding the office)

Appropriate where constant direct contact with other employees is not necessary

Possible benefits

Lower tardiness and absenteeism

Higher productivity

Extended business hours

Possible disadvantages

Less direct employee interactions

Makes performance appraisals difficult

Telecommuting Arrangements

Satellite work centers

Neighborhood work centers

Nomadic executive office

Work off-site and/or on-site

Temporary or permanently

Telecommuting represents an alternative work arrangement in which employees work at home or at some other location besides the office.

Telecommuting Arrangements

Potential benefits:

Increased productivity

Lower overhead costs for office space and supplies.

Effective recruiting and retention practice for employees who strongly desire to perform their jobs away from the office.

Employer may also increase the retention of valued employees who choose not to move when their companies relocate.

Employees find telecommunication beneficial.

Enable parents to be near their infants

Minimize commuting time and expense

Telecommuting Arrangements/disadvantages

Telecommuting programs may also lead to disadvantages for employers and employees. Some employers are concerned about not having direct contact with employees, which makes conducting performance appraisals more difficult.

Employees sometimes feel like that work-at-home arrangements are disruptive to their personal lives.

Some employees feel isolated

Pay and Employee Benefits for Flexible Employees

The key pay issue for flexible work schedule is overtime pay.

The main employee benefits issues are paid time off benefits and working condition benefits.

Pay for Flexible Employees

In many cases flexible employees work more than 40 hours during some weeks and fewer hours during other weeks .

Unpredictable schedule make overtime pay calculations difficult.

A Supreme Court ruling requires employers to guarantee fixed weekly pay for employees whose work hours vary from week to week.

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: Companies must provide alternative time off when employees work during holidays

Union Concerns (1 of 3)

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

An employee benefits issue known as working condition fringe benefits applies to telecommuters. Employers are likely to provide telecommuters with necessary equipments to perform their jobs.

Union Concerns (2 of 3)

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

Union Concerns (3 of 3)

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

Strategic Issues and Choices in Using Contingent and Flexible Workers (1 of 2)

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

Strategic Issues and Choices in Using Contingent and Flexible Workers (2 of 2)

Product and service innovation objectives

Contingent employment could bring in an influx of new employees with new ideas and minimize group think