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Other Items to Consider
With salary increase budgeting, it is important to also consider the status of your work force. There may be core employees, contingent employees, and there may be opportunities for outsourcing or offshoring of employees. Here are a few definitions that will help you to learn more about these classifications:
Core employees. These are typically regular, full-time, and part-time employees who are retained to perform the core essential responsibilities of the business unless the economic situation becomes dire. Core full-time employees typically have the company's full benefit package (occasionally, core part-time employees are also included). The company often asks core employees to work overtime when more work hours are required. Although the costs of doing this may include paying overtime pay, the benefits expense does not increase.
Contingent employees. Contingent employees are temporary employees, hired by the company itself or hired through an external temporary employment firm. Typically, temporary employees are hired for a specific project or peak period, have a designated end date, and may not have employee benefits. An external temporary employment firm typically is paid by the company, and the temporary firm, in turn, compensates the employee. One advantage of a contingent workforce is that their assignment may end at any time. The costs of contingent labor, with compensation, benefits, and overhead, are typically lower than that of a core employee, especially with the temporary duration of an assignment.
Outsourcing. Companies frequently evaluate the costs of managing departments or functions against outsourcing to an external company with expertise and skills in the specific function. Companies who outsource typically are looking to:
- Lower labor and operational costs
- Focus on their core business expertise
- Access external expertise and resources
- Utilize internal resources more appropriately
- Minimize legal risks
- Implement better management and control
Exercise Question
What category of employees is most likely to be perceived as a fixed cost?