COMPENSATION MANGMENT

SIR BILAL KHAN

INSTITUTE OF BANKING AND FINANCE

BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN
 COMPENSATION MANAGMENT

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Topic:
Compensating the Flexible Workforce: Contingent Employees and Flexible
Work Schedules

Program:
MBA (Human Resource Management)
Course:
Compensation Management
Session:
2019-2022
Semester:
5th
Submitted to:
SIR BILAL KHAN
Submitted by:

Group Number:
6
Group Member:
1. Shanza Faheem (MBH-19-08)
2. M Humza (MBH-19-12)
3. Hammad Ali (MBH-19-14)

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ACKNOWLEDGEMENT

All praise to Almighty Allah, the most merciful and

compassionate, who give us skills and abilities to complete this report
successfully. We are grateful to our parents who are always been a source of
encouragement for us. We express our greatest gratitude to our kindhearted Sir
Mr. Bilal Khan Who was the Person who made us able to write this report, His
enthusiasm shows the way forward to us to achieve this success and who kept
us in high spirit through his appreciation. He helped us a lot each time when we
asked him for help.

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Contents
The Cognitive Workforce: ............................................................................................................................ 5
Core employees: ....................................................................................................................................... 5
Contingent workers: ................................................................................................................................. 5
Group of contingent workers:...................................................................................................................... 6
Part-time employees: ............................................................................................................................... 6
Voluntary part-time employee: ........................................................................................................... 6
Involuntary part-time employee: ........................................................................................................ 6
Job sharing: ........................................................................................................................................... 6
Temporary and on-Call employees: ......................................................................................................... 7
Leased employee arrangements:............................................................................................................. 8
Independent Contractors, Freelancers, and Consultants: ...................................................................... 8
Freelancers: .......................................................................................................................................... 8
Consultants: .......................................................................................................................................... 8
Reasons for U.S. employers’ increased reliance on Contingent Worker: .................................................. 9
Economic Recessions:............................................................................................................................... 9
International competition:..................................................................................................................... 10
The shift from manufacturing to a service economy: ........................................................................... 10
Pay and Employee benefits For Contingent Workers: .............................................................................. 10
part-time employees: ............................................................................................................................. 10
Temporary employment: ....................................................................................................................... 11
Leased Workers: ..................................................................................................................................... 12
Independent Contractors, Freelancers, and Consultants: .................................................................... 12
Common-law test: .............................................................................................................................. 13
Economic Realities Test:..................................................................................................................... 13
Flexible Work Schedules: Flextime, Compressed Workweeks, and Telecommuting: ......................... 15
Flextime Schedules: ............................................................................................................................ 16
Compressed workweek schedules:.................................................................................................... 16
Telecommuting:.................................................................................................................................. 16
Pay and Employee Benefits for Flexible Employees: ............................................................................ 16
Unions’ Reactions to Contingent Workers and Flexible Work Schedules: ....................................... 16
Strategic Issues and Choices in Using Contingent and Flexible Workers: ............................................ 17

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The Cognitive Workforce:

Core employees:
Core employees have full-time jobs or part-time jobs, and they generally plan long-term or indefinite
relationships with their employers. In addition, all core employees were assumed to work standard
schedules (i.e., fixed 8-hour work shifts, 5 days per week)

Example:
If a pizzeria's night crew forgets to clean the ovens when they leave, the restaurant's morning crew
cannot begin serving food until they do the work. Those who do their work well and complete vital tasks
daily are considered core workers in a business.

Contingent workers:
contingent workers are those who do not have an implicit or explicit contract for ongoing employment.
Contingent workers are individuals hired by a company to do role- or project-based work on its behalf,
but not as traditional employees.

Example:
They could include independent contractors, consultants, freelancers, temps, or other outsourced labor
such as gig workers.

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Group 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:
a part-time worker as an individual who works fewer than 35 hours per week.

two kinds of part-time employees:

• Voluntary part-time employee

• Involuntary part-time employee

Voluntary part-time employee:

A voluntary part-time employee chooses to work fewer than 35 hours per regularly scheduled
workweek.

These part-timers sacrifice pay, and possibly career advancement, in exchange for more free time to
devote to family, hobbies, and personal interests.

Involuntary part-time employee:

Involuntary part-time employees work fewer than 35 hours per week because they are unable to find
full-time employment.

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

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

Example:

For example, one person may work in a certain position Monday and Tuesday, and a second person may
occupy that same position Thursday and Friday.

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Benefits of Job sharing:

benefits 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 flexibility in deploying workers to keep operations going
• Minimization of post-recession costs of hiring and training new workers to replace those who
found other jobs during layoff
• Strengthening employees’ loyalty to the company

benefits to employees:
• Continued employee benefits protection
• Continued employment when the likelihood of unemployment is high
• Maintenance of family income
• Continued participation in qualified retirement programs

Temporary and on-Call employees:

Companies traditionally hire temporary employees for five reasons.

1. temporary workers fill in for core employees who are on approved leaves of absence, including
sick leave, vacation, bereavement leave, jury duty, and military leave.
2. temporary workers offer extra sets of hands when companies’ business activities peak, during
such times as the holiday season for retail businesses or summer for amusement parks.
3. temporary employment arrangements provide employers the opportunity to evaluate whether
legitimate needs exist for creating new positions.
4. temporary employment arrangements give employers the opportunity to decide whether to
retain workers on an indefinite basis.
5. employing temporary workers is often less costly than employing core workers because
temporary workers are less likely to receive costly discretionary benefits (e.g., medical insurance
coverage).

Companies hire temporary employees from a variety of sources. The most common source is a
temporary employment agency. Companies employed approximately 2.9 million temporary
workers.

Companies may hire temporary employees through other means. Under direct hire arrangements,
temporary employees typically do not work for more than 1 year.

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

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Leased employee arrangements:
Lease companies employ qualified individuals and place them in client companies on a long-term basis.

Employee leasing is an arrangement between a business and a staffing firm, who supplies workers on a
project-specific or temporary basis. These employees work for the client business, but the leasing
agency pays their salaries and handles all the HR administration associated with their employment.

Leased employees:
Leased employees are employees hired by client firms from employee leasing agencies for their own
works.

Example:
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.

Independent Contractors, Freelancers, and Consultants:

Independent Contractors:

An independent contractor is a self-employed person or entity contracted to perform work for—or

provide services to—another entity as a nonemployee.

Freelancers:
In legal terms, a freelancer is a self-employed person who is classified as an independent contractor.
Freelancers can also be considered independent consultants.

Consultants:
A consultant is a professional who provides advice and further purposeful activities in an area of
specialization.

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Tests for Determining Whether a Worker is an employee

Test Description laws under which test has been

Common-law test (used by
Internal Revenue Service (IRS))
Economic realities test
Hybrid test
Employment relationship exists
if employer has right to control
work process, as determined by
evaluating totality of the
circumstances and specific
factors
Employment relationship exists
if individual is economically
dependent on a business for
continued employment
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
applied by courts
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)
Fair Labor Standards Act Title
VII Age Discrimination in
Employment Act Americans
with Disabilities Act Family and
Medical Leave Act (likely to
apply)
Title VII Age Discrimination in
Employment Act Americans
with Disabilities Act

Reasons for U.S. employers’ increased reliance on Contingent Worker:

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 staffing levels with permanent
employees. Many companies are increasingly restoring staffing levels with contingent workers.

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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.

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; finance, insurance, and real estate; services; and government.
Service sector employment is expected to add approximately 14 million new jobs to the economy by
2022.

Pay and Employee benefits 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)

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 benefits to part-time workers?

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Pay:
Part-time employees earn less, on average, than core employees.

Example:
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 benefits to part time employees; however, benefits
practices for part-time workers vary widely according to company size as well as between the private
and public sectors.

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

1. Minimum age of 21 years

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

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

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

Employee Benefits:

Anecdotal evidence indicates that companies typically do not provide discretionary benefits to
temporary employees. This information should not be surprising.

The dual employer common law doctrine establishes temporary workers’ rights to receive workers’
compensation.25 According to this doctrine, temporary workers are employees of both temporary
employment agencies and the client companies. The written contract between the employment agency

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and the client company specifies 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
benefits; however, leasing companies and client companies are the legal employers regarding
discretionary benefits. Compensating leased employees is therefore complex.

• Do leased employees receive discretionary benefits?

• Who is responsible for providing discretionary benefits: the leasing company or the client
company?

Pay:
full-time, leased employees would earn about $916 per week and part-time, leased employees would
earn about $247 per week.

Employee Benefits:
Both pension eligibility and discretionary benefits are key issues. Leased employees are generally
entitled to participation in the client companies’ qualified retirement programs; however, the leasing
company becomes responsible for leased employees’ retirement benefits when the safe harbor rule27
requirements are met.

Independent Contractors, Freelancers, and Consultants:

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 financially 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.

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).

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Common-law test:
Common law is developed by judges through court proceedings that decide individual cases. At issue is
whether the employer has the right to control based on IRC criteria. According to the Internal Revenue
Service (IRS), evidence of the degree of control and independence fall into three categories:

• Behavioral
• Financial
• Type of Relationship

These questions are based on 10 factors used to determine whether a worker is an employee. Table
1 lists the 10 specific criteria of this common-law test. Companies must consider all these factors
when deciding 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 test is most significantly applied in the context of the Fair Labor Standards Act.
Table 2 lists the criteria to determine whether workers are financially dependent on the employer.

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1. Factors used to Determine a Worker’s status under the Common-law test
Factor Worker is an employee if—
Right to control Employer controls details of the
work
Type of business Worker is not engaged in
business or occupation distinct
from employer’s
Supervision Employer supervises worker
Skill level Skill level need not be high or
unique
Tools and materials Employer provides
instrumentalities, tools, and
location of workplace
Continuing relationship Worker is employed for
extended, continuous period
Method of payment Worker is paid by the hour, or
other computation based on
time worked is used to
determine pay
Integration Work is part of employer’s
regular business
Intent Employer and worker intend to
create an employer-employee
relationship
Employment by more than one Worker provides services only
firm to one employer
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Worker is an independent
contractor if—
Worker controls details of the
work
Worker operates in business
that is distinct from employer’s
business
Work is done without
supervision
Skill level is specialized, is
unique, or requires substantial
training
Worker provides
instrumentalities and tools of
workplace and works at a site
other than the employer’s
Worker is employed for specific
project or for limited time
Worker is paid by the project
Work is not part of employer’s
regular business
Employer and worker do not
intend to create an employer-
employee relationship
Worker provides services to
more than one business
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2. Factors used to Determine a Worker’s status under the economic realities

test

Factor Worker is an employee if— Worker is an independent

Integration Worker provides services that
are a part of the employer’s
regular business
Investment in facilities Worker has no investment in
the work facilities and
equipment
Right to control Management retains a certain
type and degree of control over
the work
Risk Worker does not have the
opportunity to make a profit or
incur a loss
Skill Work does not require any
special or unique skills or
judgment
Continuing relationship Worker has a permanent or
extended relationship with the
business
contractor if—
Worker provides services
outside the regular business of
the employer
Worker has a substantial
investment in the work facilities
and equipment
Management has no right to
control the work process of the
worker
Worker can make a profit or
incur a loss from the job
Work requires a special skill,
judgment, or initiative
Work relationship is for one
project or a limited duration

The economic realities test and common-law test are similar.32 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 classified as
an employee; otherwise, the worker is classified as an independent contractor.

Flexible Work Schedules: Flextime, Compressed Workweeks, and Telecommuting:

Many companies now offer employees flexible work schedules to help them balance work and family
demands. Flextime and compressed workweek schedules are the most prominent flexible work
schedules used in companies. Flexible work schedule practices apply to both core employees and
contingent employees. Telecommuting arrangements have become increasingly popular and
commonplace

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Flextime Schedules:
Flextime schedules allow employees to modify their work schedules within specified limits set by the
employer. All workers must present during certain workday hours when business activity is regularly
high. This period is known as core hours. Some flextime programs incorporate a banking hour feature
that enables employees to vary the number of work hours daily if they maintain the regular number of
work hours on a weekly basis.

Compressed workweek schedules:

Compressed workweek schedules 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.

Telecommuting:
Telecommuting represents an alternative work arrangement in which employees work at home or at
some other location besides the office. Telecommuters generally spend part of their time working in the
office and the other part working at home.

Pay and Employee Benefits for Flexible Employees:

Pay:
A Supreme Court ruling (Walling v. A. H. Belo Corp.) 34 requires employers to guarantee fixed 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 fluctuates both
greater and less than 40 hours per week. This pays provision guarantees employees fixed weekly pay
regardless of how many hours they work, and it enables employers to control weekly labor cost
expenditures.

Employee benefits:
An employee benefits issue known as working condition fringe benefits 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 office 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.

Unions’ Reactions to Contingent Workers and Flexible Work Schedules:

Unions generally do not support companies’ use of contingent workers and flexible 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 benefits 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 difficult to organize because their interests are centered on activities
outside the workplace. Part-time workers are therefore probably not good union members.

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• Part-time employment erodes labor standards: Part-time workers are often denied employee
benefits, 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 flextime 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.

Strategic Issues and Choices in Using Contingent and Flexible Workers:

A cost control objective requires firms to reduce output costs per employee. Contingent employment
saves companies considerable amounts of money because they do not give these workers most
discretionary benefits or provide less generous amounts of such benefits. Employer’s’ use of well-
trained contingent workers also contributes through reduced training costs.

Flexible work schedules should also promote differentiation strategies for two reasons. First, flexible
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, flexible work schedules allow employees to
work with fewer distractions and worries about personal matters. The inherent flexibility of these
schedules allows employees to attend to personal matters as needed.

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Thank You so much SIR BILAL KHAN for giving us this

Opportunity to work on this report.

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