Assignment

The Fair Labor Standards Act requires employers to pay nonexempt status employees an overtime rate at least equal to 1.5 times the normal hourly wage for each hour worked beyond the 40-hour workweek period. ACME manufacturing has just signed a lucrative contract to produce the casings for flashlights. The contract spans five years. During this time, ACME must increase its total manufacturing output by 10 percent. To meet this added demand, the company's compensation and HR leadership will have to decide whether to require current manufacturing employees work additional hours per week, hire additional work- ers, or both. Making this decision will require an analysis of compensation costs and other HR-related expenses (for example, training).

Overtime Pay Scenario: Let's assume that ACME employees 1,000 manufacturing employees and each of these employees earns $20 per hour. Because manufacturing output will increase by 10 percent, each employee would have to work an additional 4 hours per week (40 hours per week × 10%). For each of these additional 4 hours, employees would earn $30 per hour ($20 per hour × 1.5 hourly overtime pay premium).

Hiring Additional Workers Scenario: To meet this additional demand (10% output), ACME would have to increase their workforce by 10 percent, or 100 employees (1,000 person workforce × 10%). Besides hourly pay, there are costs associated with hiring new employees. These include employee ben- efits ($10,000 annually per new employee), recruitment ($5,000 on a one-time basis per new employee), training ($3,000 on a one-time basis per employee), and termination ($12,000) upon the end of the con- tract period.

Questions:

1. Is it more cost effective to have current manufacturing employees work on an overtime basis during the life of the contract or to hire new employees?

We learned that merit pay increases may create a cost burden to employers because these increases carry over in base pay. Refer to Table 3-9, in which Anne Brown's annual salary is listed at the end of 2015 was $50,000 and John Williams' was $35,000.

2. Under a merit pay system, calculate Anne's salary based on a 7 percent annual increase through the year 2020. For John, apply a 3 percent annual increase rate. What are their adjusted salaries for each year?

3-9. Let's assume that both employees have reached the maximum pay rates for their jobs in 2015. Under a longevity pay system, calculate the annual longevity payments for each employee through the year 2020. Using a 5 percent rate for each, what will the annual increases amount to? What will their base pay rates be at the end of 2020?

3. Under a merit pay system scenario, let's assume the goal is to provide Anne and John with the same annual pay increases as measured in dollars, just for 2016. It's been determined that Anne's annual increase rate will be 5 percent. What should the rate be for John? After applying the in- crease amounts, what will Anne's and John's new salaries be at the end of 2016?