Michael A.

Lapetina Gavilán 29 de octubre de 2021

HURM-730 Prof. Karen Rivera Diaz

Compensations and Benefits

EJERCICIO PRACTICO 2

WHETHER TO WORK OVERTIME OR HIRE ADDITIONAL EMPLOYEES

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 benefits ($10,000 annually per
new employee), recruitment ($5,000 on a one-time basis per new employee), training ($3,000 on
a one-time basis per employee), and termination ($12,000) upon the end of the contract period.

2-9. 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?

 Complete annual expense if existing staff are asked to work more hours:
(1000 x 40 x 20 x 52 + 1000workers x 4 hours/ week x $30 per hour x 52 weeks)
=$47,840,000
 1000 employees are paying 20 dollars per hour for 52 weeks + 1000 workers are paid an
additional 30 dollars per hour for 4 hours per week for 52 weeks
 Complete annual expense if 100 new employees are hired: (1000 x 40 x 20 x 52) +(100 x
40 x 20 x 52) + (30000 x 100) = $48,760,000
 1000 employees are paid at the usual rate of $20 per hour for 52 weeks + 100 workers are
paid an additional $20 per hour for 40 hours per week for 52 weeks + a one-time annual
expense of 100 new contract workers

In conclusion, having existing workers work overtime is more cost effective. After making the
necessary calculations, hiring additional employees results in an additional expense of $920,000.

2-10. Let’s assume that the unemployment rate in the area is low, which is making it difficult to
attract new manufacturing employees. ACME is finding that it is able to overcome this problem
by paying new employees at a higher hourly rate of $25 per hour. Under this scenario, is it more
cost effective to have current manufacturing employees work on an overtime basis or to hire new
employees?

 Base salaries for additional jobs: $25 per hour x 2,080 = $52,000 x 10 employees =
$5,200,000 x 5 years = $26,000,000
  $26,000,000 + $5,000,000 (benefits) + $2,000,000 (one-time cost) = $33,000,000 in gross
compensation.

 Instead of spending $33,000,000 on new hires, it would be more cost effective to pay the
workers overtime at $31,200,000.

2-11. Would it be more cost effective to hire 50 new employees as well as having half of
current manufacturing employees work overtime?

 Part of the overtime pay (from $31,200,000) is $15,600,000.

 The expense of recruiting half a million employees is $13,900,000 (down from

$27,800,000).

 The total amount will be $29,500,000.

 It would be preferable to paying all 1,000 industrial employee’s overtimes. The best
choice would be to employ 100 staff, which would save ACME money.