CHAPTER 12
Compensating the Flexible Work Force:
Contingent Employees and Flexible Work Schedules
Learning Objectives
12-1. Describe the four groups of contingent workers.
12-2. Discuss pay and benefits issues for contingent workers.
12-3. Summarize the three categories of flexible work schedules.
12-4. Discuss the pay and employee benefits issues for flexible work schedules,
compressed workweeks, and telecommuting arrangements.
12-5. Describe unions’ reactions to contingent work and flexible work schedule
arrangements.
12-6. Identify strategic issues and choices companies have regarding the use of
contingent workers.
Outline
I. The Contingent Workforce
II. Pay and Employee Benefits for Contingent Workers
III. Flexible Work Schedules: Flextime, Compressed Work Weeks, and Telecommuting
IV. Pay and Employee Benefits for Flexible Employees
V. Unions’ Reactions to Contingent and Flexible Workers
VI. Strategic Issues and Choices in Using Contingent and Flexible Workers
VII. Key Terms
VIII. Discussion Questions and Suggested Answers
IX. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses
X. Crunch the Numbers! Questions and Suggested Student Responses
XI. Assisted-graded Questions
XII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions
and Suggested Student Responses
Lecture Outline
I. The Contingent Workforce
A. Overview
1. Many companies employ core and contingent workforces
a. Core employees work full-time and part-time jobs, and generally plan
long-term or indefinite relationships with their employers
b. Contingent workers are those that do not have an implicit or explicit contract
for ongoing employment
i. Some refer to contingent employment at ‘on-demand’ employment
B. Groups of Contingent Workers
1. Four main groups:
a. Part-time employees
b. Temporary and on-call employees
c. Leased employee arrangements
d. Independent contractors, freelancers, and consultants
2. Part-time employees
a. Voluntary part-time employees choose to work fewer than 35 hours per
workweek
i. To supplement full-time employment to meet financial obligations
ii. Lifestyle choice for more free time for family, hobbies, or personal
interests
b. Involuntary part-time employees work fewer than 35 hours per workweek
because they are unable to find full-time employment
i. Often are skilled workers
c. Advantages
i. Cost savings on discretionary benefits
ii. Considerable savings in the areas of paid leave, insurance, and legally
required benefits
iii. Cost savings on overtime expenses
d. Job sharing
i. Two or more part-time employees perform a single full-time job
ii. May meet regularly to coordinate efforts
iii. Represents a compromise between employees’ needs or desire not to work
full-time and employers’ needs to staff jobs on a full-time basis
3. Temporary and on-call employees
a. Reasons for hiring temporary workers
i. To fill in for core employees on approved leave
ii. To have an extra set of hands during busy business activities
iii. Allows employers to determine need for more core employees
iv. Allows employers to evaluate performance of workers for possible
full-time employment, similar to a probationary period
v. Save on discretionary benefits costs
b. Temporary employment agency
i. Most common source of temporary employees
ii. Most agencies placed mainly clerical and administrative workers, now
also auditors, computer systems analysts, and lawyers
iii. Use based on reputation and fees
iv. Are the legal employers of the workers
v. Select, train, and provide compensation for employees
c. Direct hire arrangements
i. Companies hire temporary workers directly
ii. Temporary employees usually work less than a year
d. On-call arrangements
i. Work sporadically throughout year as needed
ii. Skilled trade union workers can be on-call when unable to find full-time
employment
4. Leased employee arrangements
a. Generally for long-term assignments
b. Leasing company bills hiring company for costs including payroll, benefits,
and payroll taxes
c. Their placement fees that are either a percentage of the client’s payroll or a
fixed fee per employee
d. Responsible for all HR functions
e. Differ from temporary agencies in that their placements generally remain in
effect for the duration of the contract with the host company
5. Independent contractors, freelancers, consultants
a. Establish working relationships directly with host companies
b. Typically possess specialized skills that are in short supply in the labor market
c. Independent contractors hired to complete particular projects that generally
last for a year or less
C. Reasons for U.S. Employers’ Increased Reliance on Contingent Workers
1. Main reasons:
a. Economic recessions
b. International competition
c. Shift from a manufacturing to a service economy
2. Economic recessions
a. Reduction in core employees to control costs
b. Contingent workers used to restore staffing until economy stability and need
for more core employees is determined
c. Hiring contingent employees represents a form of risk control
d. Contingent workers are easier to terminate
3. International competition
a. Foreign businesses can manufacture goods more cheaply
b. Forces U.S. businesses to streamline operations by lowering labor costs
4. Shift from a manufacturing to a service economy
a. Six broad divisions of service industries:
i. Transportation
ii. Communication
iii. Public utilities
iv. Wholesale trade
v. Retail trade (finance, insurance, real estate)
vi. Government
b. Manufacturing companies’ employment declined substantially in past several
years
II. Pay and Employee Benefits for Contingent Workers
A. Legalities
1. All parties involved employing contingent workers possess liability under federal
and state laws, including:
a. Overtime and minimum wage guidelines under FLSA
b. State workers’ compensation insurance premiums
c. Nondiscriminatory compensation and employment practices under
i. ERISA
ii. NLRA
iii. Civil Rights Act of 1964
iv. ADEA
d. Patient Protection and Affordable Care Act of 2010 (PPACA)
B. Part-Time Employees
1. Challenges for employers
a. Should companies pay part-time workers on an hourly basis or salary basis?
b. Will equity problems arise between core employees and part-time employees?
c. Should companies offer part-time workers benefits?
2. Pay
a. Part-time workers generally earn less
c. Companies often expect salaried part-time employees to do more than their
fair share
i. An explicit agreement can avoid this problem
ii. Or, the company can pay on an hourly basis
3. Employee benefits
a. Generally different dependent on:
i. The size of the company
ii. Whether the employer is private or public
b. Employers are not required to offer protective insurance, but must offer
COBRA if employee receives health insurance
c. Part-time employees may be eligible to participate in a company’s retirement
plan if:
i. They are age 21 or older
ii. The work at least 1000 hours in 12 months (year of service)
4. Seasonal employees’ special considerations for retirement plan eligibility
a. Generally do not meet annual service pension eligibility criterion
b. Secretary of Labor defines 125 service days as the “year of service”
c. Seasonal employees cannot be excluded from participation if they meet year
of service criterion
C. Temporary Employees
1. Temporary employment agencies are the legal employers and are responsible for
complying with all federal employment legislation, except worker’s compensation
2. Possible compensation challenges
a. Do equity problems arise between core employees and temporary employees?
b. How do FLSA overtime provisions affect temporary employees?
c. Do companies offer temporary workers benefits?
d. Who is responsible for providing workers’ compensation protection: the
temporary agency or the client company?
3. Pay
a. Pay rates vary by occupation and worker qualifications
b. Equity problems may arise where core and temporary employees work
together
c. Differences between temporary and seasonal employees
i. For determining minimum wage and overtime pay eligibility under FLSA
ii. Temporary workers can work any time throughout year, seasonal workers
work during regular periods
iii. Seasonal workers, like life guards and summer camp counselors, are
exempt unless the employer operates over seven months a year
4. Employee benefits
a. Companies generally do not provide discretionary benefits
b. Temporary employees are eligible to participate in qualified pension benefits
if they meet ERISA’s minimum service requirement of 125 days of work.
c. Dual employer common law doctrine establishes temporary workers’ rights to
receive workers’ compensation since they are employees of both the
temporary agency and the hiring company
D. Leased Workers
1. Who the legal employer is – is less clear than it is for temporary or part-time
employees
a. Leasing companies are legal employers regarding wage issues and legally
required benefit
b. Leasing companies and client companies are the legal employers regarding
particular discretionary benefits
2. Pay
a. In February 2005, they earned an average weekly wage of $204 for part-time
and $756 for full-time
b. Other compensation data is very limited
3. Employee benefits
a. Leased employees are generally entitled to participation in the client
companies’ qualified retirement programs
b. Leasing companies become responsible for leased employees’ retirement
benefits when the safe harbor rule requirements are met
c. Under COBRA, the IRC requires employers to provide leased workers
continued coverage of group medical and life insurance
E. Independent Contractors, Freelancers, and Consultants
1. Pay levels not monitored by the Bureau of Labor Statistics
2. Hiring companies not obligated to pay:
a. Federal income tax withholding
b. Overtime and minimum wages required under FLSA, however, employers are
obligated to pay financially dependent workers overtime and minimum wages
c. 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
d. Protection under
i. ERISA
ii. FMLA
iii. NLRA
iv. ADA
v. Title VII of the Civil Rights Act of 1964
e. Common-law test
i. Used to determine whether an individual is an employee or an independent
contractor
ii. Right to control based on IRC criteria looks at possessing the right to
control work activities classifies individuals as employers rather than
independent contractors
f. Economic reality test
i. Used to determine if employees are financially dependent
ii. Concerns FLSA coverage
iii. Recently many protests and lawsuits by a variety of independent
contractors over their status with companies
III. Flexible Work Schedules: Flextime, Compressed Work Weeks, and Telecommuting
A. Flextime schedules
1. Employee can set work hours within parameters specific limits
2. May be required to be on-site during core business hours
a. When business activity is high
b. When important business activity is conducted
3. Some incorporate banking hours feature that enables employees to vary number
of work hours daily as long as they maintain the regular number of work hours on
a weekly basis
6. Possible employer benefits
a. Lower tardiness and absenteeism
b. Higher productivity
c. Extended business hours and better service
7. Possible drawbacks
a. Increased overhead costs
b. Coordination problems
C. Compressed Workweek Schedules
1. Same work hours in fewer days per week like:
a. Four 10-hour days
b. Three 12-hour days
2. Can promote recruitment and retention by
a. Reducing commuting time
b. Providing more family time
D. Telecommuting
1. Employees perform work away from business at home or other location
2. Work time generally split between business and off-site locations
3. Possible employer benefit
a. Increased productivity
b. Lower overhead costs
c. Effective recruiting and retention practices
4. Possible employee benefits
a. More family time
b. Minimize commuting time and expenses
c. Separation from “office politics”
d. Higher job performance
5. Possible disadvantages
a. Fewer direct employee interactions
b. Difficulty conducting accurate performance appraisals
c. May disrupt personal life
E. Flexible Work Schedules: Balancing the Demands of Work Life and Home Life
1. Flextime gives parents the opportunity to schedule work around special events at
their children’s schools
2. Compressed work weeks enable parents on limited incomes to save on daycare
costs by reducing the number of days at the office
3. Compressed work weeks and telecommuting reduce the time spouses have to
spend away from each other
IV. Pay and Employee Benefits for Flexible Employees
A. Pay
a. Influence of FLSA’s overtime pay provision
i. Is based on a five day 40-hour work week
ii. Flexible employees weekly hours may vary, but average out over time
iii. Possible that companies may make inadequate or excessive overtime
payments
b. Walling v. A.H. Belo Corporation
i. Supreme Court ruling concerning employers’ guarantee of fixed weekly
pay for flexible employees when employer typically cannot determine the
number of hours employees will work each week
ii. The work week period fluctuates both above and below 40-hours per week
c. Overtime for compressed work week schedules is difficult because:
i. The Federal government bases regular hours as 40 per week, however
some states use other time basis to determine overtime pay eligibility
B. Employee benefits
a. Flexible work week schedules have the greatest impact on paid time-off
benefits as many companies determine benefits based on numbers of hours
worked each month
b. Paid time-off for holidays another issue
c. Working condition fringe benefits
i. Provide telecommuters the necessary equipment to do work like
computers, telex machines, copier, and sundry office supplies
ii. The IRS treats equipment as taxable income when the use falls outside the
established telecommuting relationship
iii. The IRS treats the equipment as a working condition fringe benefit if it is
within the telecommuting relationship
V. Unions’ Reactions to Contingent and Flexible Workers
A. Most do not support the use of contingent workers and flexible work schedules
1. They believe it might threaten job security and it may lead to unfair, inequitable
treatment
2. Common concerns
a. Employers exploit contingent workers by paying them lower wages and
benefits
b. Employer’s efforts to get cheap labor will lead to a poorly trained and less
skilled workforce that will hamper competitiveness
c. Part-time employees are difficult to organize because their interests are
centered on activities outside the workplace
d. Part-time employment erodes labor standards: often denied fringe benefits, job
security, and promotion opportunities
e. Temporary employees generally have little concern for improving the
productivity of a company
f. The union’s bargaining power becomes weak when companies demonstrate
their ability to perform effectively with temporaries
g. The long days of compressed work weeks for flextime could endanger
workers’ safety and health, even if the workers choose these long days
h. Other issues include concerns about employee isolation, uncompensated
overtime, and company monitoring in the home
3. Some unions are beginning to accept flexible work schedules, believing that doing
so will strengthen their bargaining power
VI. Strategic Issues and Choices in Using Contingent and Flexible Workers
A. Cost control objectives
1. Contingent employment allows for lower discretionary benefit costs and provides
less generous amounts of such benefits
2. Well-trained contingent workers can reduce training costs
3. Company-specific training
a. Represents a significant cost to companies
b. Training short-term contingent workers undermines strategy because of:
i. The cost of training materials and instructors’ fees
ii. “Downtime” pay for training time
iii. Inefficiencies that may result until employees master new skills
4. Training may increase long-term employees’ productivity and flexibility,
outweighing the short-term costs
5. Overall, contingent workers demonstrate less absenteeism
B. Product and service innovation objectives
1. Requires employees that are creative, open-minded, and risk-taking
2. Requires companies to take a longer-term focus to attain their pre-established
objectives
3. Contingent employment could:
a. Bring in an influx of new employees with new ideas
b. Minimize groupthink, where employees agree on mistaken solutions because
they share the same mindset and view issues through the lens of conformity
C. Differentiation strategies
1. Flexible work schedules may:
a. Enable employees to work when they are at their peak physical and mental
best
b. Allow employees to work with fewer distractions and worries about personal
matters
End of Chapter
VII. Key Terms
Core employees: Have full-time jobs or part-time jobs, and they generally plan long-term or
indefinite relationships with their employers
Contingent workers: Those who do not have an implicit or explicit contract for ongoing
employment
Voluntary part-time employees: Someone who chooses to work fewer than 35 hours per
regularly scheduled workweek
Involuntary part-time employees: Work fewer than 35 hours per week because they are unable
to find full-time employment
Job sharing: A special kind of part-time employment agreement. Two or more part-time
employees perform a single full-time job
Temporary employment agency: Source of temporary workers
Direct hire arrangements: When companies directly hire temporary employees who
typically do not work for more than 1 year
On-call arrangements: Employees work sporadically throughout the year when companies
require their service
Lease companies: Employ qualified individuals and place them in client companies on a
long-term basis
Independent contractors: Establish working relationships with companies on their own
rather than through temporary employment agencies or lease companies
Freelancers: Establish working relationships with companies on their own rather than
through temporary employment agencies or lease companies
Consultants: Establish working relationships with companies on their own rather than
through temporary employment agencies or lease companies
Dual employer common law doctrine: Establishes temporary workers’ rights to receive
workers’ compensation
Safe harbor rule: Rules that require companies to provide retirement benefits to leased
employees
Common law: Is developed by judges through court proceedings that decide individual
cases
Right to control: Test that helps companies determine whether their workers are employees
or independent contractors
Economic realities: Test that focuses on the determination of whether employees are
financially dependent on the company
Flextime schedules: Allow employees to modify their work schedules within specified limits
set by the employer
Core hours: Period when all workers must be present when business activity is regularly
high
Banking hours: 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
Compressed workweek schedules: Enable employees to perform their work in fewer days
than a regular 5-day workweek
Telecommuting: Represents an alternative work arrangement in which employees work at
home or at some other location besides the office
Walling v. A. H. Belo Corp.: A Supreme Court ruling that requires employers to guarantee
fixed weekly pay for employees whose work hours vary from week to week
Working condition fringe benefits: When employers provide telecommuters with the
necessary equipment to perform their jobs effectively while off-site: computers, modems,
printers, photocopy machines, sundry office supplies, and Telex machines
Groupthink: Occurs when all group members agree on mistaken solutions because they share
the same mind-set and view issues through the lens of conformity