World Measurement is the global leader in product testing for safety. The recent
ID: 2474617 • Letter: W
Question
World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7% decline in sales and 12% in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3%), but he wants the total compensation package to cost 3% less. The current costs are shown in Exhibit 1 (attached). Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (see Exhibit 2 attached). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (see Exhibit 3 attached). Please analyze and answer each of the questions below. It is not necessary for you to type the question itself. Your assignment should be 3-4 pages long, double-spaced, using 12-point font, excluding cover page, attachments, etc. 1. Cost out these packages given the data in Exhibit 1 and the information obtained from various insurance carriers and other information sources (see Exhibit 4 attached). 2. Which package should you recommend to Jacobs? Why? 3. Which of these strategies do you think will require less input from employees in terms of their reactions? Why?
Exhibit 1: Current Compensation Costs
Average yearly wage $27,290.00
Average hourly wage 13.12
Dollar value of yearly benefits, per employee 16,904.00
Total compensation (wages plus benefits) $44,194.00
Benefits (by Category) Dollar Cost/Employee/Year
1. Legally required payments (employer’s share):
a. FICA taxes $2,088.00
b. Unemployment compensation 434.00
c. Workers’ compensation 546.00
2. Pension, insurance, etc. (employer’s share):
a. Pension plan premiums/pension payments 1,460.00
b. Life insurance and health insurance 427.00
c. Health insurance 4,000.00
c. Short-term disability 83.00
d. Salary continuation/long-term disability 57.00
e. Dental insurance 350.00
f. Discounts on goods/services purchased from
company by employees 27.00
g. Miscellaneous payments (separation or termination pay
moving expenses, etc.) 124.00
3. Paid rest periods, lunch periods, wash-up time, clothes-
change time, get ready time, etc. (60 minutes/day) 3410.00
4. Payments for time not worked:
a. Paid vacations/payments in lieu of vacation
(16 days per year average) 1,680.00
b. Payments for holidays not worked (9 days) 945.00
c. Paid sick leave (10 days maximum) 1050.00
d. Payments for state or national guard duty,
jury duty, bereavement pay, voting pay allowance 66.00
5. Other items:
a. Profit sharing payments 0.00
b. Contributions to employee thrift plans 71.00
c. Christmas or other special bonuses, service awards,
suggestion awards, etc. 0.00
d. Employee education expenditures (tuition reimbursement, etc.) 40.00
e. Special wage payments ordered by courts, payments
to union stewards, etc. 46.00
Total $16,904.00
Exhibit 2: Benefit Preferences
Benefit Type/Method of Administration Importance to Workers
Pensions 87
Health insurance 86
Life insurance 79
Paid vacation 82
Holidays 82
Long-term disability 72
Paid sick leave 70
Short-term disability 69
Paid rest periods, lunch periods, etc. 55
Dental insurance 51
Christmas bonuses 31
Profit sharing 21
Education expenditures 15
Contributions to thrift plans 15
Discount on goods 5
Fair treatment in administration 100
Note: 0 = unimportant; 100 = extremely important
Exhibit 3: Two Possible Packages for Cutting Benefit Costs
Option 1:
Implement copay for benefits:
Pension plan ($25.00 per month)
Life insurance premium ($10.00 per month)
Health insurance premiums ($50.00 per month)
Dental insurance ($10.00 per month)
Short-term and long-term disability insurance ($7.50 per month)
Reduction of Benefits
Eliminate 10-minute paid break (workers leave work 10 minutes earlier)
Eliminate one paid holiday per year
Eliminate two sick days per year
Option 2:
Improved claims processing:
Unemployment compensation
Workers’ compensation
Short- and long-term disability insurance
Increase deductible from $500 to $1,000 on health insurance
Implement probationary periods:
6 months’ probationary period on health insurance
1 year probationary period on dental insurance
Implement probationary period of 1 year on dental insurance
Implement copay for benefits:
Health insurance - $50.00 per month
Dental insurance - $10.00 per month
Life insurance - $10.00 per month
Short- and long-term disability insurance - $5.00 per month
Reduction of benefits:
Eliminate payments to thrift plan
Eliminate two paid holidays per year
Eliminate tuition reimbursement
Exhibit 4: Analysis of Cost Implications
Cost Saving Strategy:
Copay
Dollar-for-dollar savings equal to amount of copay
Deductible:
Health insurance – 15% savings of benefit cost
Required probationary periods:
Health insurance – 5% savings of benefit cost
Dental insurance – 10% savings of benefit cost
Improved claims processing:
Unemployment compensation – 8% of benefit cost
Workers’ compensation – 3% of benefit cost
Short-term and long-term disability – 1% of benefit cost
Explanation / Answer
1)
FICA consist of 6.2 % social security tax and 1.45 % of Medicare tax for per employee these rate could not change by the employer.
Unemployment Insurance Taxes should be calculated by multiplying 6% on employee taxable wages or salary.
Work men Compensation Insurance per employee by employer contribution between $641 and $1,100.
Employer's share to Pension Fund is limited to 8.33% of employee salary or wages.
Health insurance contribution by the employer 7.7 percent of employer cost.
Dental Insurance premium cost between $20 and $50 per person made by employer. Employer have right to give lower cost for dental insurance, employee can taken or not the cost of premium, but the employer made arrangement that the employee itself paying full cost of her/his premiums.
Short term disability it can avail within six months employer contribution $37 to $70 per employee per month.
Long term diability avail the premium untill retirement.
3. Paid rest periods, lunch periods, wash-up time, clothes- 3410.00
It can reduce upo $2,000
4. Payments for time not worked:
a. Paid vacations/payments in lieu of vacation (16 days per year average) = 1,680.00
=$1,680/16 days=$105 per day
Reduce upto 13 days as well as reduce per day amount$95 *13=$1235
b. Payments for holidays not worked (9 days) = 945.00
_______________________________________________________________________________
2)Many HR departments recruiting more knowledgeable person for higher salary or wages to decrease the worker turnover. Employee benefits each component holding a key role in employee’s benefits pattern. Retirement plans having tax advantages but employer couldn’t select the 401(k) plan which makes the employer loss their cost due to tax problem. At the same time after retirement old age people needs funds to survive as per moral duty of employer should contribute employee retirement, same like Workmen compensation and unemployment contribution is holding significant role because one can’t assure tomorrow what will happen if employee leave their current job and to find a new job up to that they have to spend some amount of money to live so unemployment contribution is needed.
Another crucial component of this benefit is Insurance premium, health premium and disability amount should be provided for employees at same level, maintain uniformity because all are employees are same but there is some variation on their jobs, soul is same for all employees.
Package should I recommend to Jacobs is Option 2 is seemed to better cost saving,
Features of this Option 2 are
Implement probationary periods:
6 months’ probationary period on health insurance
1 year probationary period on dental insurance
This will decrease the temporary employee cost on insurance for the employer.
Reduction benefits are seems to be good.
________________________________________________________________________________
3) Required probationary periods for availing the benefits of
Health insurance – 5% savings of benefit cost and Dental insurance – 10% savings of benefit cost
is considered to be a best strategy implementation, now a day's dental and medical cost is increasing rapidly if employer required probationary periods to avail these benefits certainly employees show their dislikes but there is good benefit for employer that employees stay in current employment for a long time to get dental and health benefits.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.