BUS 681 Week 5 Assignment

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12 Compensating the Flexible Workforce Contingent Employees and Flexible Work Schedules

Learning Objectives

When you �inish studying this chapter, you should be able to:

12-1. Describe the four groups of contingent workers. 12-2. Discuss pay and bene�its issues for contingent workers.

12-3. Summarize the three categories of �lexible work schedules. 12-4. Discuss the pay and employee bene�its issues for �lexible work schedules, compressed workweeks,

and telecommuting arrangements.

12-5. Describe unions’ reactions to contingent work and �lexible work schedule arrangements. 12-6. Identify strategic issues and choices companies have regarding the use of contingent workers.

CHAPTER WARM-UP!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Warm-Up! and see what you already know. After reading the chapter, you’ll have a chance to take the Chapter Quiz! and see what you’ve learned.

Changing business conditions and personal preferences for work–life balance have led to an increase in contingent workers and the use of �lexible work schedules in the United States. This chapter looks at compensation issues for contingent workers and demonstrates that compensating contingent workers is a complex proposition. Human resource (HR) and compensation professionals encounter tremendous challenges in managing pay and bene�its for these individuals. Many companies employ both types of individuals, often in the same jobs. To the casual onlooker, including others in the workplace, there are no visible differences; however, HR and compensation professionals must take many factors into consideration. As we will learn in this chapter, compensation professionals should be aware of the differences between core employees and contingent workers and the complexities of compensating contingent workers, particularly, pertaining to the domain of legally required bene�its.

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12.1 THE CONTINGENT WORKFORCE

12-1 Describe the four groups of contingent workers.

The previous chapters addressed compensation issues for core employees. Core employees (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss83) have full-time jobs or part-time jobs, and they generally plan long-term or inde�inite relationships with their employers. In addition, all core employees were assumed to work standard schedules (i.e., �ixed 8-hour work shifts, 5 days per week). Compensation practices differ somewhat for the �lexible workforce. According to the U.S. Bureau of Labor Statistics, contingent workers (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss78) 1

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end1) are those who do not have an implicit or explicit contract for ongoing employment. Persons who do not expect to continue in their jobs for such personal reasons as retirement or returning to school are not considered contingent workers, provided that they would have the option of continuing in the job were it not for these reasons. Alternatively, some refer to contingent employment as ‘on-demand’ employment.2

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end2) This idea relies on job security as the basis for distinguishing between contingent and noncontingent employment. Figure 12-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12�ig01) details questions that determine whether workers expect their employment to continue, that is, whether their work arrangement is considered to be contingent.

Groups of Contingent Workers

There are four distinct groups of contingent workers:

Part-time employees

Temporary and on-call employees

Leased employee arrangements

Independent contractors, freelancers, and consultants

PART-TIME EMPLOYEES

The Bureau of Labor Statistics de�ines a part-time worker as an individual who works fewer than 35 hours per week.3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end3) The Bureau also distinguishes between two kinds of part-time employees: voluntary and involuntary. A voluntary part- time employee (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss469) chooses to work fewer than 35 hours per regularly scheduled workweek. In some cases, individuals supplement full-time employment with part-time employment to meet �inancial obligations.

Some workers, including a small but growing number of professionals, elect to work part-time as a lifestyle choice. These part-timers sacri�ice pay, and possibly career advancement, in exchange for more free time

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to devote to family, hobbies, and personal interests. They often have working partners or spouses whose bene�its, generally including medical and dental insurance, extend coverage to family members.

Involuntary part-time employees (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss228) work fewer than 35 hours per week because they are unable to �ind full-time employment. Involuntary part-time work represents a substantial share of all part-time employment. There is a commonly held but inaccurate stereotype of involuntary part-time workers as being low skilled and uninterested in career advancement. To the contrary, many involuntary part-time workers hold entry-level career-track jobs.4

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end4) Although we have discussed voluntary and involuntary part-time work as part of the contingent workforce, it is important to emphasize that many core workers negotiate part-time schedules with employers.

Table 12-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12tab01) lists the speci�ic reasons for part-time work and the number of individuals who work part-time, de�ined as fewer than 35 hours weekly, for each reason. The table also shows those who usually work on a full-time or part-time basis, for economic reasons, the majority of the workers who were employed on a part-time basis because of slack work or business conditions, or they could only �ind part-time work. We can reasonably say that those individuals are probably working part-time on an involuntary basis. Noneconomic reasons explain approximately 80 percent of those who usually work part-time. Most of those workers indicate that they usually work part-time because they are in school or training, are retirees whose Social Security retirement bene�it requirements place a limit on additional earnings. The average weekly hours worked for individuals who usually work part-time based on economic reasons was 22.6 hours and 19.8 hours for noneconomic reasons.

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 bene�its. In addition, companies realize cost savings for bene�its that are linked to hours worked (e.g., retirement plan contributions). Table 12-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12tab02) shows employers’ costs for providing various discretionary bene�its and legally required bene�its to full-time and part-time employees. Employers save a considerable amount of money in the areas of paid leave, insurance, and legally required bene�its. In Chapter 9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch09#ch09) we discussed that a greater percentage of full-time workers receive employee bene�its than part-time workers.

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FIGURE 12-1 Questions that Determine Whether Workers Expect Their Employment to Continue Source: Polivka, A. E. (1996). Contingent and alternative work arrangements, de�ined. Monthly Labor Review, 119(10), p. 5.

Companies also save on overtime pay expenses. Hiring part-time workers during peak business periods minimizes overtime pay costs. As we discussed in Chapter 2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#ch02) , the Fair Labor Standards Act of 1938 (FLSA) requires that companies pay nonexempt employees at a rate equaling one and one-half times their regular hourly pay rates. Retail businesses save by employing part-time sales associates during the peak holiday shopping season.

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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 �ind part-time work 2,355 — 2,355

Seasonal work 297 152 145

Job started or ended in the middle of week 109 109 —

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 — 844

In school or training 6,385 55 6,331

Retired or Social Security limit on earnings 2,316 — 2,316

Vacation time or personal day 2,836 2,836 —

Holiday, legal, or religious obligation 604 604 —

Weather-related curtailment 1,463 1,463 —

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: http://www.bls.gov/web/empsit/cpseea25.htm (http://www.bls.gov/web/empsit/cpseea25.htm) , accessed March 17, 2015.

TABLE 12-2 Employers’ Hourly Costs for Full- and Part-Time Employee Bene�its, December 2014

Bene�it Full-Time ($) Part-Time ($)

Total hourly bene�its 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

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

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Bene�it Full-Time ($) Part-Time ($)

Legally required bene�its

2.78 1.68 Source: U.S. Bureau of Labor Statistics. (2015). Employer Costs for Employee Compensation, December 2014. USDL: 15- 0386. Available: http://www.bls.gov (http://www.bls.gov) , accessed March 9, 2015.

Job sharing (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss239) 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’ needs to staff jobs on a full-time basis. Both employers and employees bene�it from the use of job sharing. Table 12-3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12tab03) lists some of the bene�its of job sharing to employers and employees.

TABLE 12-3 Bene�its of Job Sharing

Bene�its to Employers

Maintenance of productivity because of higher morale and maintenance of employee skills

Retention of skilled workers

Reduction or elimination of the training costs that result from retraining laid-off employees

Greater �lexibility in deploying workers to keep operations going

Minimization of postrecession costs of hiring and training new workers to replace those who found other jobs during layoff

Strengthening employees’ loyalty to the company

Bene�its to Employees

Continued employee bene�its protection

Continued employment when the likelihood of unemployment is high

Maintenance of family income

Continued participation in quali�ied retirement programs

TEMPORARY AND ON-CALL EMPLOYEES

Companies traditionally hire temporary employees for two reasons. First, temporary workers �ill in for core employees who are on approved leaves of absence, including sick leave, vacation, bereavement leave, jury duty, and military leave. Second, temporary workers offer extra sets of hands when companies’

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business activities peak, during such times as the holiday season for retail businesses or summer for amusement parks. Temporary employees perform jobs on a short-term basis usually measured in days, weeks, or months.

Companies have been hiring temporary workers for three additional reasons. First, temporary employment arrangements provide employers the opportunity to evaluate whether legitimate needs exist for creating new positions. Second, temporary employment arrangements give employers the opportunity to decide whether to retain particular workers on an inde�inite basis. “The temp job is often what one university placement director calls the ‘3-month interview’—and a gateway to a full-time job and perhaps a new career.”5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end5) In effect, the temporary arrangement represents a probationary period, when employers observe whether workers are meeting job performance standards. As a corollary, such temporary arrangements provide workers the chance to decide whether to accept employment on a full-time basis after they have had time to “check things out.” Third, employing temporary workers is often less costly than employing core workers because temporary workers are less likely to receive costly discretionary bene�its (e.g., medical insurance coverage).

Companies hire temporary employees from a variety of sources. The most common source is a temporary employment agency (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss445) . Companies employed approximately 2.9 million temporary workers.6

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end6) Most temporary employment agencies traditionally placed clerical and administrative workers. Since then, many temporary agencies also place workers with specialized skills (e.g., auditors, computer systems analysts, and lawyers). Temporary agencies are becoming more common. Nowadays, there has been an expansion into blue collar work. For example, jobs in transportation and material moving and production account for approximately 42 percent of the temporary employment industry.7

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end7)

Companies generally establish relationships with temporary employment agencies based on several factors. First, companies consider agencies’ reputations as an important factor, judging reputations by how well agencies’ placements work out. Some agencies place a wide range of employees, yet others specialize in one type of placement (e.g., �inancial services professionals). When companies plan to hire a variety of temporary workers, it is often more convenient to work with agencies that do not specialize. Companies should ultimately judge these agencies’ placement records for each type of employee.

Second, companies also should consider agencies’ fees. Cost is a paramount consideration for companies that are pursuing lowest-cost competitive strategies. Temporary agencies base fees as a percentage of their placements’ pay rates. The percentage varies from agency to agency. The competition among temporary agencies fortunately keeps these rates in check.

Although temporary employees work in a variety of companies, their legal employers are the temporary employment agencies. Temporary employment agencies take full responsibility for selecting temporary employee candidates and determine candidates’ quali�ications through interviews and testing. Many temporary agencies train candidates to use such of�ice equipment as fax machines, e-mail, and spreadsheet and word processing software programs, particularly for clerical and administrative jobs. Temporary employees receive compensation directly from the agency.

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Companies may hire temporary employees through other means. For example, some companies hire individuals directly as temporary workers. Under direct hire arrangements (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss107) , temporary employees typically do not work for more than 1 year. In addition, the hiring companies are the temporary workers’ legal employers. Thus, companies take full responsibility for all HR functions that affect temporary employees, including performance evaluation, compensation, and training.

On-call arrangements (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss308) are another method for employing temporary workers. On-call employees work sporadically throughout the year when companies require their services. Companies can schedule workers for several days or weeks in a row. Some unionized skilled trade workers are available as on-call employees when they are unable to secure permanent, full-time employment. These employees’ unions maintain rosters of unemployed members who are available for work. 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 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss246) employ quali�ied individuals and place them in client companies on a long-term basis. Most leasing companies bill the client for the direct costs of employing the workers (e.g., payroll, bene�its, and payroll taxes) and then charge a �ixed fee. Lease companies base these fees on either a �ixed percentage of the client’s payroll or a �ixed fee per employee.

Leasing arrangements are common in the food service industry. ARAMARK is just one example of a leasing company that provides cafeteria services to client companies. ARAMARK staffs these companies’ in-house cafeterias with cooks, food preparers, and checkout clerks. These cafeteria workers are employees of the leasing company, not the client company. Leasing companies also operate in other industries, including security services, building maintenance, and administrative services. Lease companies and temporary employment agencies are similar because both manage all HR activities. Thus, lease companies provide both wages and bene�its to their employees. Lease companies and temporary employment agencies differ in an important respect, however. Lease company placements generally remain in effect for the duration of the lease company’s contract with the host company.

INDEPENDENT CONTRACTORS, FREELANCERS, AND CONSULTANTS

Independent contractors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss216) , freelancers (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss168) , and consultants (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss74) (the term independent contractor will be used in this discussion) establish working relationships with companies on their own rather than through temporary employment agencies or lease companies. Traditionally, independent contractors typically possess specialized skills that are in short supply in the labor market. It is estimated that 34 percent of the U.S. workforce qualify as freelancers.8

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end8) Companies select independent contractors to complete particular projects of short-term duration (i.e., usually a year or less). In recent years, technology has created opportunities for an emerging group of independent contractors who become connected with prospective customers through smartphone apps. For example,

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Uber Technologies has created a smartphone app that allows customers to arrange automobile transportation with the company’s independent contractors. Uber’s independent contractors use their own vehicles to transport customers to destinations of their choice, such as from a hotel to an airport. Cleaning service Handy connects customers with independent contractors who provide household services, facilitated by a smartphone app.

TABLE 12-4 Tests for Determining Whether a Worker is an Employee

Test Description Laws under which test has been applied by courts

Common-law test (used by Internal Revenue Service (IRS))

Employment relationship exists if employer has right to control work process, as determined by evaluating totality of the circumstances and speci�ic factors

Federal Insurance Contributions Act Federal Unemployment Tax Act Income tax withholding Employment Retirement and Income Security Act National Labor Relations Act Immigration Reform and Control Act (IRS test)

Economic realities test

Employment relationship exists if individual is economically dependent on a business for continued employment

Fair Labor Standards Act Title VII Age Discrimination in Employment Act Americans with Disabilities Act Family and Medical Leave Act (likely to apply)

Source: Muhl, C. J. (2002). What is an employee? The answer depends on the Federal law. Monthly Labor Review (January), p. 6.

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Test Description Laws under which test has been applied by courts

Hybrid test Employment relationship is evaluated under both common-law and economic reality test factors, with a focus on who has the right to control the means and manner of a worker’s performance

Title VII Age Discrimination in Employment Act

Americans with Disabilities Act

Source: Muhl, C. J. (2002). What is an employee? The answer depends on the Federal law. Monthly Labor Review (January), p. 6.

Until now, we have been examining compensation issues of employees in this and previous chapters. Independent contractors are not employees of a company. Black’s Law Dictionary de�ines employee as “a person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed.”9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end9) An independent contractor is one who, “in the exercise of an independent employment, contracts to do a piece of work according to his own methods and is subject to his employer’s only as to the end product or �inal result of his work.”10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end10) There are three legal tests to determine a worker’s status: the common-law test, the economic realities test, and a hybrid test that incorporates various elements of both tests. We will review the �irst two tests and their relationships to pay and to bene�its for independent contractors later in this chapter. Table 12-4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12tab04) contains a brief description of each test as well as the federal laws under which the test has been applied by courts of laws to determine a worker’s status.

Reasons for U.S. Employers’ Increased Reliance on Contingent Workers

Structural changes in the U.S. economy have contributed to the rise of contingent employment:

Economic recessions

International competition

Shift from manufacturing to a service economy

ECONOMIC RECESSIONS

Many companies layoff segments of their workforces during economic recessions as a cost-control measure. Following economic recessions, some companies restore staf�ing levels with permanent

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employees. Many companies are increasingly restoring staf�ing levels with contingent workers. Since the early 1970s, the U.S. economy experienced several economic recessions. These repeated recessions have shaken employers’ con�idence about future economic prosperity. Staf�ing segments of workforces with contingent workers represents a form of risk control because employers save on most discretionary bene�its costs. In addition, companies can terminate contingent workers’ services more easily: These employment relationships are explicitly tentative. Both the host employer and the workers understand that these engagements are of limited duration. As a rule, companies rebuild the core employee workforce following the end of economic recessions; however, this has not been the case since the recession that took place for the years 2007–2009. Over the course of 2014, employers added more than 3 million full- time workers, which falls short of full-time staf�ing levels just prior to the recession.11

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end11) Much anecdotal evidence suggests that the noteworthy damaging effect of the recession on business activity has shaken the con�idence of many businesses. Some are hedging against uncertainty by relying on, in part, leaner staf�ing levels of core employees. It is also possible that companies are choosing to employ more part-time workers because of lower compensation costs for this workforce segment.

INTERNATIONAL COMPETITION

International competition is another pertinent structural change. American companies no longer compete just against each other. Many foreign businesses have demonstrated the ability to manufacture goods at lower costs than their American competitors. As a result, successful American companies have streamlined operations to control costs. Where possible, U.S. companies’ streamlining aims to lower labor costs, oftentimes by reducing the number of core employees and using contingent workers as an alternative. Greater reliance on contingent workers in U.S. operations can be explained because wages and salaries in many other countries, particularly in Asia, have generally been lower than in the United States.12

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end12) Offshoring growth concentrates in information technology, software development, and innovation services (product design, research and development, and engineering services).13

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end13)

THE SHIFT FROM MANUFACTURING TO A SERVICE ECONOMY

The service sector refers to six broad divisions of industries: transportation, communication, and public utilities; wholesale trade; retail trade; �inance, insurance, and real estate; services; and government. Manufacturing companies’ (e.g., automobile makers and textiles) employment declined substantially during the past several years,14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end14) and economic forecasts predict a loss of jobs in the manufacturing, federal government, agriculture, information, and utilities industry sectors through 2022.15

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end15) During this period, a steady decrease in employment in manufacturing industries is expected to be offset by a substantial rise in employment in the construction industry section and service sectors such as professional and business services as well as health care and social assistance.16

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end16) Service sector employment is expected to add approximately 14 million new jobs to the economy by 2022.17

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end17) In addition, contingent workers typically �ind employment in service businesses, which are more labor intensive than capital intensive (e.g., heavy manufacturing equipment).

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12.2 PAY AND EMPLOYEE BENEFITS FOR CONTINGENT WORKERS

12-2 Discuss pay and bene�its issues for contingent workers.

Compensation practices for contingent workers vary. We will discuss these practices shortly. Nevertheless, all parties involved in employing or hosting contingent workers possess liability under federal and state laws, including:

Overtime and minimum wages required under the FLSA

Paying insurance premiums required under state workers’ compensation laws

Nondiscriminatory compensation and employment practices under the

Employee Retirement Income Security Act of 1974 (ERISA)

National Labor Relations Act (NLRA)

Title VII of the Civil Rights Act of 1964

Americans with Disabilities Act of 1990 (ADA)

Age Discrimination in Employment Act (ADEA)

Patient Protection and Affordable Care Act of 2010 (PPACA)

Temporary employment agencies and leasing companies that place workers in clients’ �irms are liable under these laws. In addition, the client company may also be liable. “The fact that a worker is somebody else’s employee while he or she is on your premises, or performing services for the business, is not necessarily a defense to alleged violations of federal and state labor laws including Title VII of the Civil Rights Act, the Fair Labor Standards Act, and the Americans with Disabilities Act.”18

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end18)

Part-Time Employees

Companies that employ part-time workers are the legal employers, as is the case for core employees. Compensating part-time employees poses the following challenges for employers:

Should companies pay part-time workers on an hourly basis or a salary basis?

Do equity problems arise between core employees and part-time employees?

Do companies offer bene�its to part-time workers?

PAY

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Part-time employees earn less, on average, than core employees. In December 2014, part-time workers in private industry earned an average $12.71 per hour, whereas full-time employees earned $24.91 per hour.19 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end19) Full-time management and professional employees earned $39.31 per hour, whereas their part-time counterparts earned $29.70 per hour. Full-time production workers earned substantially more than their part-time counterparts ($18.82 per hour versus $11.88 per hour). Full-time service employees similarly earned more than part-timers ($12.64 per hour versus $9.39 per hour).20

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end20)

Companies often expect salaried part-time employees to do much more than their fair share of the work because the effective hourly pay rate decreases as the number of hours worked increases. An explicit agreement pertaining to work–hour limits can minimize this problem. An agreement similarly may specify explicit work goals. On the other hand, companies may avoid this problem by paying part-time employees on an hourly basis. Part-time and full-time employees may perceive the situation as inequitable under certain circumstances. For example, equity problems may arise when salaried full-time employees and hourly part-time employees work together. It is possible that highly skilled full-time employees might effectively be underpaid relative to less-skilled part-time employees performing the same work (i.e., full- time employees’ “hourly” pay rate will be lower when they perform more and better work in a shorter period than less-skilled part-time workers).

EMPLOYEE BENEFITS

Companies generally do not provide discretionary bene�its to part-time employees; however, bene�its practices for part-time workers vary widely according to company size as well as between the private and public sectors. In March 2014, approximately 37 percent of part-time employees had access to retirement bene�its compared to 74 percent of full-time employees.21

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end21) As noted earlier, fewer part- time workers had access to medical care bene�its.

Employers are not required to offer protective insurance (e.g., medical, dental, vision, or life insurance) to part-time employees even with the PPACA; however, part-time employees who do receive health insurance coverage under employer-sponsored plans are entitled to protection under the Consolidated Omnibus Budget Reconciliation Act (COBRA). As discussed in Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) , COBRA provides employees the opportunity to continue receiving employer-sponsored health care insurance coverage temporarily following termination or layoff. Employees who qualify for COBRA protection receive insurance coverage that matches the coverage level during employment.

Employers may be required to provide quali�ied retirement programs to part-time employees.22

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end22) Part-time employees who meet the following two criteria are eligible to participate in quali�ied retirement programs:

Minimum age of 21 years

Completion of at least 1,000 hours of work in a 12-month period (i.e., “year of service”)

Special considerations apply to seasonal employees’ eligibilities for quali�ied retirement bene�its because most seasonal employees do not meet the annual service pension eligibility criterion. Maritime industries, such as �ishing, represent seasonal employment, and �ishermen are seasonal employees. The U.S.

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Department of Labor de�ines 125 service days as the “year of service” for maritime workers. Part-time and seasonal employees cannot be excluded from pension plans if they meet the U.S. Department of Labor’s “year of service” criterion.

Temporary Employees

Temporary employment agencies are the legal employers for temporary employees. Temporary employment agencies are therefore responsible for complying with federal employment legislation with one exception (i.e., workers’ compensation), which we will address shortly. Compensating temporary employees poses challenges for companies.

Do equity problems arise between core employees and temporary employees?

How do the FLSA overtime provisions affect temporary employees?

Do companies offer temporary workers bene�its?

Who is responsible for providing workers’ compensation protection: the temporary agency or the client company?

PAY

In 2014, temporary workers earned an average hourly rate of $12.40 while full-time workers earned slightly more than double – $21.72.23

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end23) Pay rates varied widely by occupation and workers’ particular quali�ications. Equity problems may (or may not) arise where core and temporary employees work together. On one hand, temporary employees may work diligently because they know that their assignments in client companies are explicitly of limited duration. In addition, frequent moves from one company to the next may limit workers’ opportunities or desires to build careers with any of these companies. Furthermore, temporary workers may neither take the time nor have the time to scope out pay differences because their engagements are brief (i.e., anywhere from 1 day to a few weeks). These temporary employees are therefore not likely to perceive inequitable pay situations.

On the other hand, some temporary employees may not work diligently because they did not choose temporary employment arrangements. Individuals who lose their jobs 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 perceptions of inequity.

It is important to distinguish between temporary employees and seasonal employees for determining eligibility under the FLSA minimum wage and overtime pay provisions. Companies hire temporary employees to �ill in as needed. This means that companies may hire temporary employees at any time throughout a calendar year; however, seasonal employees work during set regular periods every year. Lifeguards on New England beaches are seasonal employees because they work only during the summer months when people visit beaches to swim. Summer camp counselors are also seasonal employees.

The FLSA extends coverage to temporary employees. Temporary employment agencies must therefore pay temporary workers at least the federal minimum wage rate. In addition, the FLSA requires employers to provide overtime pay at one and one-half times the normal hourly rate for each hour worked beyond 40 hours per week. Host companies are responsible for FLSA compliance if temporary employment agencies are not involved, as in the case of direct hire or on-call arrangements.

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Some seasonal employees are exempt from the FLSA’s minimum wage and overtime pay provisions.24

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end24) The FLSA itself as drafted does not explicitly address minimum wage and overtime pay practices for seasonal employees; however, professional legal opinions were added as needed to resolve ambiguities and guide practice. The opinions pertain to speci�ic employers’ questions about the act’s scope of coverage (e.g., the applicability of FLSA overtime and minimum wage provisions to seasonal amusement park workers). Professional opinions do not automatically generalize to all seasonal employees. For example, all amusement or recreational establishment employees are covered by the FLSA’s minimum wage and overtime pay provisions when the establishments operate at least 7 months per year; however, youth counselors employed at summer camps are generally exempt from the FLSA minimum wage and overtime pay provisions.

EMPLOYEE BENEFITS

Anecdotal evidence indicates that companies typically do not provide discretionary bene�its to temporary employees. This information should not be surprising. As we discussed earlier, many companies employ temporary workers to minimize discretionary bene�its costs; however, temporary employees (and seasonal workers) are eligible for quali�ied pension bene�its if they meet ERISA’s minimum service requirements for seasonal and part-time employees, as discussed earlier.

The dual employer common law doctrine (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss117) establishes temporary workers’ rights to receive workers’ compensation.25

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end25) According to this doctrine, temporary workers are employees of both temporary employment agencies and the client companies. The written contract between the employment agency and the client company speci�ies which organization’s workers’ compensation policy applies in the event of injuries.

Leased Workers

Designating leased employees’ legal employers is less clear than it is for part-time and temporary employees. Leasing companies are the legal employers regarding wage issues and legally required bene�its; however, leasing companies and client companies are the legal employers regarding particular discretionary bene�its. Compensating leased employees is therefore complex.

Do leased employees receive discretionary bene�its?

Who is responsible for providing discretionary bene�its: the leasing company or the client company?

PAY

In February 2005, leased employees who worked on a full-time basis typically earned $756 per week; part-time leased workers earned $204.26

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end26) These data are the most recent available at the time of publication. However, it is possible to adjust these rates for in�lation between 2005 and 2014 using the U.S. Bureau of Labor Statistics’ CPI In�lation Calculator (http://data.bls.gov/cgi- bin/cpicalc.pl (http://data.bls.gov/cgi-bin/cpicalc.pl) ). Accordingly, full-time, leased employees would earn about $916 per week and part-time, leased employees would earn about $247 per week. Factors other than in�lation may have an in�luence on these estimates, among them, the changing skill composition of the

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leased workforce, economic recession, and so forth. Therefore, the in�lation-adjusted estimates may be biased because making adjustments on these other factors is not straightforward.

EMPLOYEE BENEFITS

Both pension eligibility and discretionary bene�its are key issues. Leased employees are generally entitled to participation in the client companies’ quali�ied retirement programs; however, the leasing company becomes responsible for leased employees’ retirement bene�its when the safe harbor rule27

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end27) requirements are met. Table 12-5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#ch12tab05) lists the safe harbor rule requirements.

TABLE 12-5 Safe Harbor Rule Requirements

The leased employee must be covered by the leasing company’s pension plan, which must (1) be a money purchase plan with a nonintegrated employer contribution rate for each participant of at least 10 percent of compensation, (2) provide for full and immediate vesting, and (3) allow each employee of the leasing organization to immediately participate in such a plan; and

Leased employees cannot constitute more than 20 percent of the recipient’s “nonhighly compensated workforce.” Nonhighly compensated workforce means the total number of (1) nonhighly compensated individuals who are employees of the recipient and who have performed services for the recipient for at least 1 year, or (2) individuals who are leased employees of the recipient (determined without regard to the leasing rules).

Source: I.R.C. §414(n)(5).

Another section of the Internal Revenue Code (IRC) in�luences companies’ discretionary bene�its policies (excluding retirement bene�its) for leased employees.28

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end28) Under this rule, client companies are responsible for providing leased employees with group medical insurance, group life insurance, educational assistance programs, and continuation coverage requirements for group health plans under COBRA.

Independent Contractors, Freelancers, and Consultants

The Bureau of Labor Statistics does not monitor pay levels for independent contractors. Companies are neither obligated to pay the following on behalf of independent contractors, freelancers, and consultants:

Federal income tax withholding;

Overtime and minimum wages required under the FLSA; however, employers are obligated to pay �inancially dependent workers overtime and minimum wages;

Insurance premiums required under state workers’ compensation laws, except where states explicitly require that companies maintain workers’ compensation coverage for all workers regardless of whether they are independent contractors;

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nor are companies required to provide protection under the following laws, which we addressed in previous chapters:

Protection under the Employee Retirement Income Security Act of 1974 (ERISA),

Family and Medical Leave Act,

National Labor Relations Act (NLRA),

Title VII of the Civil Rights Act of 1964,

Americans with Disabilities Act (ADA).

Following Table 12-4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12tab04) , the courts rely on three tests to determine whether a worker quali�ies as an employee. We will focus on the common- law test and the economic realities test.

COMMON-LAW TEST

Common law (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss53) is developed by judges through court proceedings that decide individual cases. At issue is whether the employer has the right to control (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss381) based on IRC criteria. According to the Internal Revenue Service (IRS), evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker’s job controlled by the payer? (These include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type bene�its (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?29

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end29)

TABLE 12-6 Factors Used to Determine a Worker’s Status Under the Common-Law Test

Factor Worker is an employee if— Worker is an independent contractor if—

Right to control

Employer controls details of the work Worker controls details of the work

Type of business

Worker is not engaged in business or occupation distinct from employer’s

Worker operates in business that is distinct from employer’s business

Supervision Employer supervises worker Work is done without supervision

Source: Muhl, C. J. (2002). What is an employee? The answer depends on the Federal law. Monthly Labor Review (January), p. 7.

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Factor Worker is an employee if— Worker is an independent contractor if—

Skill level Skill level need not be high or unique Skill level is specialized, is unique, or requires substantial training

Tools and materials

Employer provides instrumentalities, tools, and location of workplace

Worker provides instrumentalities and tools of workplace and works at a site other than the employer’s

Continuing relationship

Worker is employed for extended, continuous period

Worker is employed for speci�ic project or for limited time

Method of payment

Worker is paid by the hour, or other computation based on time worked is used to determine pay

Worker is paid by the project

Integration Work is part of employer’s regular business

Work is not part of employer’s regular business

Intent Employer and worker intend to create an employer-employee relationship

Employer and worker do not intend to create an employer-employee relationship

Employment by more than one �irm

Worker provides services only to one employer

Worker provides services to more than one business

Source: Muhl, C. J. (2002). What is an employee? The answer depends on the Federal law. Monthly Labor Review (January), p. 7.

These questions are based on 10 factors used to determine whether a worker is an employee. Table 12-6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#ch12tab06) lists the 10 speci�ic criteria of this common-law test. Companies must consider all of these factors when making a determination about a worker’s status. There is not an absolute criterion to determine whether workers meet the criteria under this test.

ECONOMIC REALITIES TEST

The economic realities (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss120) test is most signi�icantly applied in the context of the Fair Labor Standards Act.30

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end30) Its focus is on the determination of whether employees are �inancially dependent. Table 12-7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#ch12tab07) lists the criteria to determine whether workers are �inancially dependent on the employer. For example, are topless nightclub dancers entitled to minimum wage under FLSA? A nightclub’s owners claimed that the dancers were not eligible because they were independent contractors:

The dancers could perform whenever and wherever they wanted.

The club had no control over the manner of performance.

The dancers must furnish their own costumes.

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A federal district court ruled that the nightclub’s topless dancers were entitled to minimum wage because they were economically dependent on the nightclub.31

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end31) The dancers were economically dependent on the nightclub for the following reasons:

The club owners set hours in which the dancers could perform.

The club owners issued guidelines on dancers’ behavior at the club.

The club owners deducted 20 percent from the credit card tips of each dancer to cover administrative costs.

TABLE 12-7 Factors used to Determine a Worker’s Status Under the Economic Realities Test

Factor Worker is an employee if— Worker is an independent contractor if—

Integration Worker provides services that are a part of the employers regular business

Worker provides services outside the regular business of the employer

Investment in facilities

Worker has no investment in the work facilities and equipment

Worker has a substantial investment in the work facilities and equipment

Right to control

Management retains a certain type and degree of control over the work

Management has no right to control the work process of the worker

Risk Worker does not have the opportunity to make a pro�it or incur a loss

Worker has the opportunity to make a pro�it or incur a loss from the job

Skill Work does not require any special or unique skills or judgment

Work requires a special skill, judgment, or initiative

Continuing relationship

Worker has a permanent or extended relationship with the business

Work relationship is for one project or a limited duration

Source: Muhl, C. J. (2002). What is an employee? The answer depends on the Federal law. Monthly Labor Review (January), p. 8.

The economic realities test and common-law test are similar.32

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end32) The common-law test focuses on whether the economic reality, as informed by various factors, is that a worker depends on someone else’s business for continued employment. If there is such dependence, then the worker is classi�ied as an employee; otherwise, the worker is classi�ied as an independent contractor.

In recent years, there has been a spate of protests and lawsuits by a variety of independent contractors over their status with the companies for which they provide services. Many claim that companies misclassify them as independent contractors when, in fact, they maintain that they are employees. For example, FedEx was found to have misclassi�ied several delivery-truck drivers as independent contractors. A court ruled that the drivers were employees, not independent contractors, because FedEx required them to wear company uniforms, drive company trucks, and maintain an appearance speci�ied in company policy.

Technology driven companies such as Handy and Uber appear to have created negative sentiments among many of their independent contractors. For example, individuals who had performed cleaning services �iled a class action suit against Handy. The plaintiffs argued that they were entitled to minimum wage and

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other legal protections because they did not possess control over their work. One of the lead plaintiffs expressed the following sentiment: “We are not robots; we are not a remote control; we are individuals.”33

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end33)

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12.3 FLEXIBLE WORK SCHEDULES: FLEXTIME, COMPRESSED WORKWEEKS, AND TELECOMMUTING

12-3 Summarize the three categories of �lexible work schedules.

Many companies now offer employees �lexible work schedules to help them balance work and family demands. Flextime and compressed workweek schedules are the most prominent �lexible work schedules used in companies. Flexible work schedule practices apply to both core employees and contingent employees. Telecommuting arrangements have become increasingly popular and commonplace. Research shows that employees highly value �lexibility as a workplace policy, as do many progressive employers. For example, Patagonia is a designer of outdoor clothing and gear for a variety of sports. The following Watch It! video showcases Patagonia’s �lexible work policies and the company’s culture that strongly favors work–life balance. Employees may take time off with pay to take care of a sick child as needed. The only requirement is that employees are expected to complete their work assignments.

WATCH IT!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the video exercise titled Patagonia: Human Resource Management.

Flextime Schedules

Flextime schedules (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss164) allow employees to modify their work schedules within speci�ied limits set by the employer. Employees adjust when they will start work and when they will leave. Flextime, however, generally does not lead to reduced work hours. For instance, an employee may choose to work between 10 A.M. and 6 P.M., 9 A.M. and 5 P.M., or 8 A.M. and 4 P.M.

All workers must be present during certain workday hours when business activity is regularly high. This period is known as core hours (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss84) . The number of core hours may vary from company to company, by departments within companies, or by season. Although employees are relatively free to choose start and completion times that fall outside core hours, management must carefully coordinate these times to avoid understaf�ing. Some �lextime programs incorporate a banking hours (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss20) feature that enables employees to vary the number of work hours daily as long as they maintain the regular number of work hours on a weekly basis.

Employers can expect three possible bene�its from using �lextime schedules. First, �lextime schedules lead to less tardiness and absenteeism. Flexibly de�ining the workweek better enables employees to schedule medical and other appointments outside work hours. As a result, workers are less likely to be late or miss work altogether.

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Second, �lexible work schedules should lead to higher work productivity. Employees have more choice about when to work during the day. Individuals who work best during the morning hours may schedule morning hours, and individuals who work best during the afternoons or evenings can choose these times. In addition, possessing the �lexibility to attend to personal matters outside work should help employees focus on doing better jobs.

Third, �lexible work schedules bene�it employers by creating longer business hours and better service. Staggering employees’ schedules should enable businesses to stay open longer hours without incurring overtime pay expenses. In addition, customers should perceive better service because of expanded business hours. Companies that conduct business by telephone on national and international bases are more likely to be open during customers’ normal operating hours in other time zones.

Two possible limitations of �lexible work schedules are increased overhead costs and coordination problems. Maintaining extended operations leads to higher overhead costs, including support staff and utilities. In addition, �lexible work schedules may lead to work coordination problems when some employees are not present at the same time.

Compressed Workweek Schedules

Compressed workweek schedules (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss71) enable employees to perform their work in fewer days than a regular 5-day workweek. As a result, employees may work four 10-hour days or three 12-hour days. These schedules can promote companies’ recruitment and retention successes by:

Reducing the number of times employees must commute between home and work

Providing more time together for dual-career couples who live apart

TABLE 12-8 Alternative Telecommuting Arrangements

Satellite work center. Employees work from a remote extension of the employer’s of�ice that includes a clerical staff and a full-time manager.

Neighborhood work center. Employees work from a satellite of�ice shared by several employers.

Nomadic executive of�ice. Executives who travel extensively maintain control over projects through use of telephone, fax, and e-mail.

Employees sometimes work entirely outside the of�ice. Others might work off-site only once a month or 2–3 days a week.

Telecommuters can be full- or part-time employees.

Telecommuting arrangements can be temporary or permanent. A temporarily disabled employee may work at home until fully recovered. A permanently disabled employee may work at home exclusively.

Source: Adapted from Bureau of National Affairs, Telecommuting. (2005). Compensation & Bene�its. Available: www.bna.com (http://www.bna.com) , accessed March 7, 2005.

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Telecommuting

Telecommuting (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss444) represents an alternative work arrangement in which employees work at home or at some other location besides the of�ice. Telecommuters generally spend part of their time working in the of�ice and the other part working at home. This alternative work arrangement is appropriate for work that does not require regular direct interpersonal interactions with other workers (e.g., accounting, systems analysis, and telephone sales). Telecommuters stay in touch with coworkers and superiors through e-mail, telephone, and faxes. Table 12-8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#ch12tab08) summarizes the variety of possible telecommuting arrangements.

Potential bene�its for employers include increased productivity and lower overhead costs for of�ice space and supplies. Telecommuting also serves as an effective recruiting and retention practice for employees who strongly desire to perform their jobs away from the of�ice. Employers may also increase the retention of valued employees who choose not to move when their companies relocate.

Employees �ind telecommuting bene�icial. Telecommuting enables parents to be near their infants or preschool-age children and to be home when older children �inish their school days. In addition, telecommuting arrangements minimize commuting time and expense, which are exceptional in such congested metropolitan areas as Boston, Los Angeles, and New York City. Travel time may increase threefold during peak “rush hour” traf�ic periods. Parking and toll costs can be hefty. Monthly parking rates alone often exceed thousands of dollars per car. Finally, employees’ involvement in of�ice politics will be reduced, which should promote higher job performance.

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 dif�icult. Employees sometimes feel that work-at-home arrangements are disruptive to their personal lives. In addition, some employees feel isolated because they do not personally interact as often with coworkers and superiors.

Flexible Work Schedules: Balancing the Demands of Work Life and Home Life

Some U.S. companies use �lexible work schedules to help employees balance the demands of work and home. Flextime, compressed workweeks, and telecommuting should provide single parents or dual-career parents the opportunity to spend more time with their children. Flextime gives parents the opportunity to schedule work around special events at their children’s schools. Compressed workweeks enable parents on limited incomes to save on day care costs by reducing the number of days at the of�ice. Parents can bene�it from telecommuting in a similar fashion. Likewise, dual-career couples living apart also bene�it from �lexible work schedules. Compressed workweeks and telecommuting reduce the time partners or spouses have to spend away from each other.

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12.4 PAY AND EMPLOYEE BENEFITS FOR FLEXIBLE EMPLOYEES

12-4 Discuss the pay and employee bene�its issues for �lexible work schedules, compressed workweeks, and telecommuting arrangements.

The key pay issue for �lexible work schedules is overtime pay. The main employee bene�its issues are paid time-off bene�its and working condition fringe bene�its.

Pay

In many cases, “�lexible” employees work more than 40 hours during some weeks and fewer hours during other weeks. The FLSA requires that companies compensate nonexempt employees at an overtime rate equal to one and one-half times the normal hourly rate for each hour worked in excess of 40 hours per week. The overtime provisions are based on employees working set hours during �ixed work periods. How do FLSA overtime provisions apply to �lexible work schedules?

Let’s assume the following �lexible work schedule: An employee works 40 hours during the �irst week, 30 hours during the second week, and 50 hours during the third week. Although this employee worked 40 hours per week, on average, for the 3-week period ([40 + 30 + 50 hours]/3 weeks), is that employee entitled to overtime pay for the additional 10 hours worked during the third week?

Some employees’ weekly �lexible schedules may �luctuate frequently and unpredictably according to such nonwork demands as chronically ill family members. Unpredictable �lexible schedules make overtime pay calculations dif�icult. It is possible that companies may make inadequate or excessive overtime payments. A Supreme Court ruling (Walling v. A. H. Belo Corp. (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss473) )34

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end34) requires employers to guarantee �ixed weekly pay for employees whose work hours vary from week to week:

The employer typically cannot determine the number of hours employees will work each week.

The workweek period �luctuates both greater and less than 40 hours per week.

This pay provision guarantees employees �ixed weekly pay regardless of how many hours they work, and it enables employers to control weekly labor cost expenditures. The use of compressed workweek schedules may lead to differences in overtime practices in some states. Whereas the federal government bases overtime pay on a weekly basis, some states use other time bases to determine overtime pay eligibility. Table 12-9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec4#ch12tab09) lists maximum hour provisions for select states. As you can see, there is wide variation in daily overtime practices.

Employee Bene�its

Flexible workweek schedules have the greatest impact on paid time off bene�its. Many companies determine employees’ sick leave bene�its and vacation days based on the number of hours they work each

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month. The determination of paid vacation and sick leave for employees on standard work schedules is relatively straightforward; however, �lexible employees work fewer hours some months and more hours during other months. This variability complicates companies’ calculations of paid time-off bene�its.

Another issue is the treatment of paid time-off for holidays. Under standard work schedules, the vast majority of employees work �ive 8-hour days from Monday through Friday. For example, all employees take Thanksgiving Day off (a Thursday) with pay. Under �lexible schedules, some employees may not be scheduled to work on Thursdays. As a result, standard-schedule employees receive 1 day off with pay during Thanksgiving week, and some �lexible employees work their regular schedules, missing a paid day off from work. Companies must establish policies that provide �lexible workers with comparable paid time off bene�its or alternative holidays. Such policies are necessary to maintain equity among employees; however, scheduling alternative holidays may lead to coordination problems for small companies: Companies with small staffs may not have enough employees to cover for �lexible workers during their alternative holiday time off work.

TABLE 12-9 Maximum Hours before Overtime for Selected States

Alaska Under a voluntary �lexible work hour plan approved by the Alaska Department of Labor, a 10-hour day, 40-hour workweek may be instituted with premium pay after 10 hours a day instead of after 8 hours. California Any work in excess of 8 hours in one workday and any work in excess of 40 hours in one workweek and the �irst 8 hours worked on the seventh day of work in any one workweek shall be at the rate of one and one-half times the regular rate of pay. Any work in excess of 12 hours in one day and any work in excess of 8 hours on any seventh day of a workweek shall be paid no less than twice the regular rate of pay. California Labor Code Section 510. Exceptions apply to an employee working pursuant to an alternative workweek adopted pursuant to applicable Labor Code sections and for time spent commuting. Oregon Premium pay required after 10 hours a day in nonfarm canneries, driers, or packing plants and in mills, factories, or manufacturing establishments (excluding sawmills, planning mills, shingle mills, and logging camps). Rhode Island Time and a 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. Washington Premium pay is not applicable to employees who request compensating time off in lieu of premium pay. Source: U.S. Department of Labor. (2015). Minimum Wage Laws in the States. Available: http://www.dol.gov/whd/minwage/america.htm#footnote (http://www.dol.gov/whd/minwage/america.htm#footnote) , accessed March 17, 2015.

An employee bene�its issue known as working condition fringe bene�its (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss486) applies to telecommuters. Employers are likely to provide telecommuters with the necessary equipment to perform their jobs effectively while off-site: computers, modems, printers, photocopy machines, sundry of�ice supplies, and Telex machines. In addition, some employers provide similar equipment to employees who wish to work additional hours outside their regular work schedules during the evenings or weekends. This arrangement does not qualify as telecommuting.

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The IRS treats the home use of of�ice equipment and supplies as employees’ taxable income when the use falls outside established telecommuting relationships; however, employees are not taxed when the home use of employer-provided equipment falls within established telecommuting relationships. Under this condition, the IRS treats the home use of employer-provided equipment as a working condition fringe bene�it.

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12.5 UNIONS’ REACTIONS TO CONTINGENT WORKERS AND FLEXIBLE WORK SCHEDULES

12-5 Describe unions’ reactions to contingent work and �lexible work schedule arrangements.

Unions generally do not support companies’ use of contingent workers and �lexible work schedules. Most union leaders believe that alternative work arrangements threaten members’ job security and are prone to unfair and inequitable treatment. The most common concerns include:

Employers exploit contingent workers by paying them lower wages and bene�its than core employees.

Employers’ efforts to get cheap labor will lead to a poorly trained and less skilled workforce that will hamper competitiveness.

Part-time employees are dif�icult to organize because their interests are centered on activities outside the workplace. Part-time workers are therefore probably not good union members.

Part-time employment erodes labor standards: Part-time workers are often denied employee bene�its, job security, and promotion opportunities. Increasing part-time employment would promote inequitable treatment.

Temporary employees generally have little concern about improving the productivity of a company for which they will work for only a brief period.

Unions’ bargaining power becomes weak when companies demonstrate their ability to perform effectively with temporaries.

The long days of compressed workweeks or �lextime could endanger workers’ safety and health, even if the workers choose these long days themselves.

Concerns about employee isolation, uncompensated overtime, and company monitoring in the home are among the reasons unions have been reluctant to permit telecommuting by their members.

Unions’ positions against contingent employment are unlikely to change because this practice undermines efforts to secure high wages and job security for members; however, some unions, particularly in the public sector, have begun to accept the use of �lexible work schedules. The bene�its of these arrangements (e.g., increased productivity, lower absence rates, and tardiness) strengthen unions’ bargaining power.

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12.6 STRATEGIC ISSUES AND CHOICES IN USING CONTINGENT AND FLEXIBLE WORKERS

12-6 Identify strategic issues and choices companies have regarding the use of contingent workers.

What role do contingent workers and �lexible work schedules play in promoting competitive advantage? These work arrangements, when properly applied, can ultimately contribute to meeting the goals of cost control and product or service innovation; however, the rationale for the appropriateness of contingent employment and �lexible work schedules differs according to these objectives.

A cost control objective requires �irms to reduce output costs per employee. Contingent employment saves companies considerable amounts of money because they do not give these workers most discretionary bene�its or provide less generous amounts of such bene�its.

Employers’ use of well-trained contingent workers also contributes through reduced training costs; however, not all contingent workers know company-speci�ic work practices and procedures. Company- speci�ic training represents a signi�icant cost to companies. Companies that do not employ contingent workers long enough to realize the productivity bene�its from training undermine cost control objectives. Company-sponsored training may seem to contradict the lowest-cost imperative in the short term.

The following factors can increase short-term costs:

Costs of training materials and instructors’ professional fees

Downtime while employees are participating in training

Inef�iciencies that may result until employees master new skills

A longer-term perspective, however, may lead to the conclusion that contingent work arrangements support the lowest-cost imperatives. Over time, productivity enhancements and increased �lexibility should far outweigh the short-run costs if companies establish track records of high productivity, quality, and exemplary customer service. Flexible schedules should also contribute to lowest-cost imperatives. Strong evidence indicates that employees on �lexible work schedules exhibit higher productivity and lower absenteeism than employees with �ixed work schedules.35

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end35) Flexible work schedules had greater effects on boosting productivity and reducing absenteeism.

A product and service innovation objective requires creative, open-minded, risk-taking employees. Compared with cost control objectives, companies that pursue differentiation strategies must take a longer-term focus to attain their preestablished objectives. Both arrangements should contribute to innovation; however, systematic studies that demonstrate these relationships are lacking. Contingent employment probably is appropriate because companies will bene�it from the in�lux of “new” employees from time to time who bring fresh ideas with them. Over the long run, contingent employment should minimize problems of groupthink (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss185) , which occurs when all group members agree on mistaken solutions because they share the same mind-set and view

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issues through the lens of conformity.36

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end36) In recent years, companies have joined or established contractor exchanges to boost innovative capacity. Consumer Products company Procter & Gamble (P&G) created Connect + Develop—a network of external scienti�ic and marketing talent from which the company draws to promote innovation. The company maintains that more than 35 percent of its new products originated from outside P&G, and 45 percent of the initiatives in product development portfolio have external origins.37

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec11#ch12end37) Also, P&G reports that since the Connect + Develop initiative, the company increased research and development productivity by nearly 60 percent.

Flexible work schedules should also promote differentiation strategies for two reasons. First, �lexible work schedules enable employees to work when they are at their physical or mental best. Some individuals are most alert during morning hours, whereas others are most alert during afternoon or evening hours because of differences in biorhythms. Second, �lexible work schedules allow employees to work with fewer distractions and worries about personal matters. The inherent �lexibility of these schedules allows employees to attend to personal matters as needed.

COMPENSATION IN ACTION

Both companies and people adopt strategies to achieve the professional outcomes they desire. As those desired outcomes shift, so too do the strategies. The use of a �lexible workforce (in the form of temporary workers or contractors) is one method for companies to deal with the changing needs of the company. At the individual level, changes in family demands and career priorities may prompt employees to seek �lexible work arrangements that allow them to balance various demands. You will likely have the challenge of managing both of these scenarios as a line manager or HR professional. There will be factors that must be assessed to ensure the company continues to operate at a high level, while at the same time providing a work arrangement that meets the needs of the people who are critical to the company’s success. By understanding the needs of the employer and the employee, you will be prepared to manage the situation in a way that allows both parties to meet their goals.

Action checklist for line managers and HR—leveraging �lexibility to address changing needs

HR takes the lead

Identify various options (e.g., part-time employees, temporary workers, and contractors) that may be employed to meet the pressing business factors.

Pulse current employees to gain insight on the value placed on �lexible work arrangements. Assess whether these types of desired arrangements might support the needs of the business and what associated costs and cost savings would be with the offering of the arrangement.

Ensure that compensation and bene�its being offered to �lexible workers are in accordance with provisions outlined by FLSA and other legally mandated standards.

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Line managers take the lead

Identify business factors that may make the use of �lexible workers a necessity (e.g., predictable season of increased customer demand, layoffs to cut headcount, and desire to employ lowest-cost strategy).

Recognize which jobs may be carried out by some type of �lexible work arrangement (e.g., telecommuter and temporary worker) and work with HR to identify which arrangement works best for those jobs.

After plan is in place and successful arrangements have been realized, work with HR to create a communication plan outlining these successes in order to further promote the feasibility and validity of these types of arrangements. Produce online testimonial videos that speak to the value these arrangements offer to the business and its people.

END OF CHAPTER REVIEW

MyManagementLab Go to mymanagementlab.com (http://mymanagementlab.com) to complete the problems marked with this icon .

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Summary

Learning Objective 1: Contingent workers are those who do not have an implicit or explicit contract for ongoing employment. The four categories of contingent workers are (a) part-time employees, (b) temporary workers, (c) leased employees, and (d) independent contractors, freelancers, and consultants.

Learning Objective 2: There are a variety of issues that distinguish contingent workers’ pay and bene�its from core workers’ pay and bene�its. There are substantial differences in these practices among the categories of these workers and with whom the responsibility falls for providing pay and bene�its.

Learning Objective 3: The three categories of �lexible work schedules are (a) �lextime schedules, (b) compressed workweek schedules, and (c) telecommuting.

Learning Objective 4: In general, there are not likely to be substantial differences in pay and bene�its between workers with �lexible schedules and �ixed work schedules. FLSA overtime pay requirements apply to nonexempt workers assigned to �lexible work schedules, but overtime pay determination is more challenging for the �lexible workforce. Every state possesses standards for ensuring compliance with the overtime pay provision for the �lexible workforce. Depending on the arrangement, there stand to be challenges calculating vacation accrual and how to address paid holidays when a worker’s schedule would not coincide with a holiday. For telecommuting, companies must be familiar with rules pertaining to working condition fringe bene�its.

Learning Objective 5: Unions generally do not favor contingent or �lexible work arrangements. For example, they believe that employers may exploit contingent workers by paying them lower wages and bene�its than core employees. Also, they express concerns that workers in telecommuting arrangements may not be fully compensated for all of the extra hours they may contribute to work activities.

Learning Objective 6: Contingent work arrangements, when properly applied, can ultimately contribute to meeting the goals of cost control and product or service innovation; however, the rationale for the appropriateness of contingent employment and �lexible work schedules differs according these objectives. A cost control objective requires �irms to reduce output costs per employee. Contingent employment saves companies considerable amounts of money because they do not give these workers most discretionary bene�its or provide less generous amounts of such bene�its. A product and service innovation objective requires creative, open-minded, risk-taking employees. Compared with cost control objectives, companies that pursue differentiation strategies must take a longer-term focus to attain their preestablished objectives. From time to time, contingent employment is appropriate because companies will bene�it from the in�lux of “new” employees who bring fresh ideas with them.

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Key Terms core employees 280 (ch12.xhtml#page_280) contingent workers 281

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_281) voluntary part-time employees 281

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_281) involuntary part-time employees 281

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_281) job sharing 283

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_283) temporary employment agency 284

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_284) direct hire arrangements 285

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_285) on-call arrangements 285

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_285) lease companies 285

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_285) independent contractors 285

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_285) freelancers 285

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_285) consultants 285

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#page_285) dual employer common law doctrine 290

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#page_290) safe harbor rule 290

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#page_290) common law 291

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#page_291) right to control 291

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#page_291) economic realities 292

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec2#page_292) �lextime schedules 294

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#page_294) core hours 294

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#page_294) banking hours 294

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#page_294) compressed workweek schedules 294

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#page_294) telecommuting 295

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#page_295)

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Walling v. A. H. Belo Corp. 296 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec3#page_296)

working condition fringe bene�its 297 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec4#page_297)

groupthink 299 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec6#page_299)

MyManagementLab CHAPTER QUIZ! If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) complete to the Chapter Quiz! and see what you’ve learned.

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Discussion Questions 12-1. Discuss some of the problems that companies are likely to face when both contingent workers

and core employees work in the same location. Does it matter whether contingent workers and core employees are performing the same jobs? Explain your answer.

12-2. Companies generally pay temporary employees lower wages and offer fewer bene�its than they extend to their core counterparts. Nevertheless, what are some of the possible drawbacks for companies that employ temporary workers? Do you believe that these drawbacks outweigh the cost savings? Explain your reasoning.

12-3. What arguments can be made in favor of using compressed workweek schedules for companies that pursue lowest-cost strategies? What are the arguments against using compressed workweek schedules in such situations?

12-4. What impact will �lexible work schedules have on employees’ commitment to their employers? On employee productivity? On company effectiveness?

12-5. Discuss whether you believe that telecommuting arrangements should apply to certain job groups rather than all job groups in a company. Provide rationale.

CASE Telecommuting at MedEx

An additional Supplemental Case can be found on MyManagementLab.

Harry Davis just �inished interviewing a candidate to �ill another medical billing specialist opening. As the human resources manager for MedEx, a medical billing company, Harry is concerned about the high turnover rate for the specialists. Turnover is very costly for the company, and Harry is trying to identify ways to lower the turnover rate. The candidate he just interviewed asked Harry if any of the specialists worked from home. Harry informed him that they do not right now, but telecommuting may be an option in the near future.

MedEx employs more than medical billing specialists in its of�ice located in a busy downtown metropolitan area. Each specialist works on a group of speci�ic accounts, coding medical records and entering them into the computer system. The specialist position requires an intense 3-week training program to learn the coding system, but once they are pro�icient at their work, the specialists work independently on their assigned accounts.

In an attempt to identify the cause of the high turnover rate, Harry asked the specialists to complete an employee survey that asked about their satisfaction with their pay, bene�its, and working conditions. In general, the employees indicated satisfaction with pay levels and bene�its, but were not satis�ied in some other areas. In the “comments” section of the survey, several employees noted challenges in getting to work each day. Some mentioned heavy traf�ic that caused long commutes, while others noted the high cost of parking downtown. Further, many employees noted high stress levels due to trying to balance their work and personal responsibilities.

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When asked for speci�ic ideas on how to improve the work environment, more than half of the specialists noted the option to telecommute as a desirable bene�it. Because the specialists work independently, telecommuting is a feasible option. The specialists would need to work in the of�ice at least 1 or 2 days per week in order to get updates on their accounts, but it would be possible for the employees to work from home the other days. Harry now must carefully consider whether to recommend offering the telecommuting option.

Questions:

12-6. Would offering telecommuting as an option bene�it MedEx? How? 12-7. Are there any disadvantages or challenges in offering telecommuting? 12-8. What do you recommend MedEx do? Why?

Crunch the Numbers! Calculating the Costs of Full-Time and Part-Time Employment

An additional Crunch the Numbers! exercise can be found on mymanagementlab.com (http://mymanagementlab.com) .

In your role as a compensation analyst, you have been assigned to calculate and compare the estimated costs of hiring full-time and part-time employees in anticipation of staf�ing a project. It will take 100,000 work hours to complete the project, and the project must be completed within a 5-workweek period. The workweek runs Monday through Friday, within the daily hours of 8 am to 4 pm. Full-time workers provide 40 hours of weekly service. Part-time workers provide 20 hours of weekly service. Assume that the hourly wage rate for full-time workers is $20, and the rate is $12 for part-time workers. Both categories of workers perform the same sets of tasks. Also, assume that costs of bene�its equal the amounts displayed in Table 12-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12lev1sec1#ch12tab02) .

Questions:

12-9. Based exclusively on employing full-time workers, (a) How many are needed to complete the project? (b) What is the estimated total cost of wages and bene�its?

12-10. Based exclusively on employing part-time workers, (a) How many are needed to complete the project? (b) What is the estimated total cost of wages and bene�its?

12-11. Assume that your company has asked you to calculate the cost of staf�ing the project with a combination of full- and part-time workers. You’ve already hired 15 full-time workers. (a) How many part-time workers should you hire? (b) What is the total cost of wages and bene�its based on employing this mix of full- and part-time workers?

MyManagementLab Go to mymanagementlab.com (http://mymanagementlab.com) for Auto-graded writing questions as well as the following Assisted-graded writing questions:

12-12. Explain leased employee arrangements. Discuss employee bene�its for leased workers.

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12-13. Provide your reactions to the following statement: Contingent workers should be compensated on a pay-for-knowledge system.

12-14. MyManagementLab Only—comprehensive writing assignment for this chapter.

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Endnotes 1. U.S. Bureau of Labor Statistics. (2005). Contingent and Alternative Employment Arrangements, February 2005. USDL: 05-1433. Available: www.bls.gov/ (http://www.bls.gov/) , accessed August 12, 2015.

2. Polivka, A. E, & Nardone, T. (1989). On the de�inition of “contingent work,” Monthly Labor Review (December): pp. 9–14.

3. U.S. Bureau of Labor Statistics (2015). Glossary. Available: http://www.bls.gov (http://www.bls.gov) , accessed January 15, 2015.

4. Fallick, B. B. (1999). Part-time work and industry growth. Monthly Labor Review, 122, pp. 22–29. 5. Burgess, P. M. (1994). Making It in America’s New Economy. Commencement address, University of Toledo, June 11.

6. Greenhouse, S. (2014). The changing face of temporary employment. Available: http://www.nytimes.com (http://www.nytimes.com) (August 31), accessed March 3, 2015.

7. Smith, R., & McKenna, C. Temped Out: How the Domestic Outsourcing of Blue-Collar Jobs Harms American Workers. New York: National Employment Law Project.

8. Weber, L. (2014). One in three U.S. workers is a freelancer. The Wall Street Journal (September 4). Available: http://www.wsj.com (http://www.wsj.com) , accessed January 25, 2015.

9. Black, H. C. (1991). Black’s Law Dictionary. St. Paul, MN: West Publishing Company: 363. 10. Ibid: 530. 11. Timiraos, N. (2014). Elevated level of part-time employment: Post-recession norm? The Wall Street

Journal (November 14). Available: http://www.wsj.com (http://www.wsj.com) , accessed February 11, 2015.

12. Special Report; Outsourcing and Offshoring, Here, there, and everywhere,” The Economist (January 19, 2013). Available: http://www.economist.com (http://www.economist.com) , accessed January 24, 2015.

13. Pace, A. (2011). Searching for innovation overseas,” T+D 65 (April): 24. 14. U.S. Bureau of Labor Statistics. (2013). Employment Projections: 2012–2022. USDL: 13-2393. Available:

http://www.bls.gov (http://www.bls.gov) , accessed January 15, 2015. 15. Ibid. 16. Ibid. 17. Ibid. 18. Cooper, S. F. (1995). The expanding use of contingent workers in the American economy: New

opportunities and dangers for employers. Employee Relations Law Review, 20, pp. 525–539. 19. U.S. Bureau of Labor Statistics. (2015). Employer Costs for Employee Compensation, December 2014.

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