Management Case About Increasing The Minimum Wage Rate (Case Study Sample)

A Case Study on Increasing the Minimum Wage Rate
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A Case Study on Increasing the Minimum Wage Rate
The organization needs to distribute the additional cost of labor through multiple channels to avoid affecting its operations negatively due to layoffs. If the organization were to absorb the entire cost of the labor increase through layoffs, it would need to fire 46 employees to remain under the current budget. Such action would negatively affect employee motivation and their workload.
Changes in Cost should the Legislation Pass


The changes brought to the organization's cost is $18,200 a week or $72,800 a month. They do not seem large until the annual difference, $946,400, is considered. The assumption used to calculate the cost of labor is that the company has 700 workers each working eight hours a day or 40 hours a week. In addition, they work on Saturdays for eight hours in which they are paid as overtime. Overtime requires at least 50 percent more than the normal working hours, calculated as 1.5 times the normal rate. The increase in the hourly wage rate is 6.9% of the current rate. It creates an indication that keeping 93.1% of the current workforce would result in the cost of labor remaining unchanged. Following this reasoning, it is expected that reducing the number of workers to 652 will result in almost the same level of cost. Calculations indicate that 654 is the closest number that does not exceed the current costs. It results in $202,740 in normal business days and $60,822 in overtime and a total of $263,562, which is less than the current expenditure by $338. If the legislation passes, it will cost $310 to pay a worker the normal 40 hours a week and $93 in overtime, assuming the business closes on Sundays.
The bad news to the CEO is that we need to reduce the current workforce by 46 workers to remain within the current budget. The good news is that we do not need to absorb the entire cost through labor costs. Generally, firms do not consider reducing the size of the workforce as the best option. Research indicates that firms do not significantly reduce the size of their workforce following legislation to increase the minimum wage (Hirsch, Kaufman & Zelenska, 2011; Reich, Jacobs & Bernhardt, 2014). In competitive contexts, businesses try to absorb the additional cost through multiple points, such as increased productivity, reduced employee turnover, employee training, employee benefits, operational efficiency, profits, and job growth (Hirsch et al., 2011).
Legal Issues that Arise when Some Positions are Converted to Those not Covered by the FLSA
There two options in this case. One of the options would have been to hire individuals who are less than 20 years old because they are not covered by the FLSA. The law requires the employer to pay at least $4.25 for the first 90 days of work, after which the minimum wage rate applies (Wage and Hourly Division [WHD] of the US Department of Labor, n.d.). The problem with this alternative is that U.S.C. 206(g)(2) of the Fair Labor Standards Act 1938 (FLSA), as amended, bars employers from displacing other workers to use the provision. It shows the organization can use the provision to a small extent to replace employees who voluntarily resign. It can also be used to replace workers who have been fired because of performance issues. However, it cannot be used as a basis for the mass replacement of workers. It is one of the major weaknesses of using people aged below 20 years. Another weakness is that it is only a short-term measure that lasts three months. Repeated use could attract the attention of the regulator.
The other alternative is to use full-time students. First, the company needs certification to hire students. Students will be paid at least 85% of the minimum wage rate, which would be lower than the current rate paid to workers. The main weakness is that it is also a short-term measure. Secondly, the business needs to be located close to a learning institution to attract a significant number of students. Thirdly, full-time students can only work for 20 hours a week (WHD, n.d.).
HR Strategies that Might Be Used
One of the most commonly used strategies is to demand higher performance or higher productivity from employees. As a service organization, one of the strategies the company can use is to encourage customers to seek service during certain hours to increase productivity. The approach may involve increasing the price of service during certain hours since the company cannot use discounts in the current situation. The reason for the strategy is to concentrate distribution of work when there are a high number of employees while eliminating the need to higher workers during off-peak hours. As Hirsch et al. (2011) puts it, there is a need to "adjust employee work schedules to more tightly match beginning and ending times with customer demand" (p. 27). Other HR practices that can be used include asking employees to accept additional tasks, firing slow or poor performers, and demanding punctuality (Hirsch et al., 2011).
Higher wages may make it easier to attract highly-skilled workers (Reich et al., 2014). The HR department can replace low-performing employees with top performers. HR practices also involve reducing the growth of salaries for those earning above the minimum wage rate. It may include benefits and bonuses to managers. It can also involve putting on hold promotions for a few years (Meer & West, 2016). In most cases, the cost should be absorbed through multiple cost centers.
One of the long-term strategies could be to replace labor with capital (Hirsch et al., 2011). One of the cases is to use assistive technology that can make one worker serve more clients within the same period of time. However, adoption of technology can be slowed down by lack of finance or the slow rate of innovating appropriate technology.
A Vast Majority of Minimum Wage Workers Being Female
It should be a concern to the management if those promoted do not reflect the composition of males and females in the organization. According to Title VII of the C...