The Unemployment Bill Raises the Cost of Business

First Published: 2000-08-04

The wage and benefits portions of the proposed Minimum Wages Act and the Employment Act represent a de facto National Labour Contract. The Government has been negotiating this contract in separate meetings with business and labour. The issues are complex and the potential results are costly… they will produce significant business adjustments.

Each element sounds simple but becomes complex when applied to the wide variety of work and compensation systems that have developed over time in the market for labour services.

Paid lunches and hours of base pay.

The paid lunch and hours of work before the payment of overtime clearly show the cost impact. Some employers provide a 30-minute lunch break with a free meal while others do not pay for the meal. Still others provide for a 60-minute break.

The payment of overtime also varies. Employees paid on a commission (a percent of sales) or piece rate (a fixed amount for a specific task) get no overtime. In the labour market today overtime can begin after 40, 44 or 48 hours depending on the “market practice”. These relationships have evolved naturally over time to provide rewards and incentives.

A good illustration is the mandated reduction in the base workweek from 48-hours to 44 and to 40 and the paid 30-minute lunch period. The following are two examples of labour contracts in two actual companies:

Construction.

This construction industry presently uses an 8-hour workday and a 6-day workweek in most but not all of its contracts. A worker is paid only for the hours actually worked and he receives no pay for 30-minute lunch periods.

The following shows the two-stage impact of the proposed legislation on a single employer and his employee as the company moves from the present 48-hour week to a 44-hour and then to a 40-hour week with paid 30-minute lunch breaks.

The example assumes an hourly pay rate of $10.00 and overtime pay at $20.00. The Employment Bill tabled in Parliament calls for Double Time as Overtime Pay. It is believed that the Government has agreed to Time and One Half, but this change is not in the presently available “red-lined” version of the Bill.


 FormulaWeekly Cost% Change
Present Hours at-
Base Rate48 hours @ $10/hr$480.00 
Overtime0 hours$0.00 
Cost of Lunches6 lunches$0.00 
Total Compensation$480.000.0%
 
Year 2000 44-hour mandate: Hours at-
Base Rate44 hours @ $10/hr$440.00 
Overtime4 hours @ $20.00 /hr$80.00 
Cost of Lunches6 lunches @ $20/hr$60.00 
Total Compensation$580.00+20.8%
 
Year 2001 40-hour mandate: Hours at-
Base Rate40 hours @ $10/hr$400.00 
Overtime8 hours @ $20.00/hr$160.00 
Cost of Lunches6 lunches @ $20/hr$60.00 
Total Compensation$620.00+29.2%

Now if Overtime is set at “Time and One Half” in place of “Double Time”, then the increase in “Total Compensation” would be lower… +13.5% instead of +20.8% for the 44-Hour Mandate and +17.5% instead of +29.2% for the 40-Hour Mandate.

Retail.

This is a company with several stores that has tailored different compensation “packages” for different classes of employees. The following are the calculations for one category of employee.

This group works an 8-hour day and 5-1/2-day week without paid lunch periods. A typical hourly wage is $6.00 per hour for a sales person with limited experience after 6-months of employment. A table like that on the opposite page would show that-

  • Immediately after the bill is passed, Year 2000, the “Cost of Lunches” would raise the “Total Compensation” by +11.4%.

  • In the second year, Year 2001, the half-day of Saturday work would be at $12.00 rather than $6.00. The “Total Compensation” now would be up +20.5%.

As in the Construction Industry example these increases would be lower if the Overtime Pay is at Time and One-Half. In this case the increases would be +8.5% and +13.1% respectively.

Conclusions.

These are just two typical employment contracts. But… the indications are that the increased costs are substantial no matter which overtime provision ends up in the Bill.

It will trigger changes in the workers employed and the services provided to the customer. The only situation where there will be no effect on employment and company profits is where the company has a market monopoly. Here the higher costs can be passed on to the customer in higher prices. An example of this is Bahamas Electricity Corporation. Where there is competition the results will be a combination of reduced employment, changed product/services offerings, higher prices and reduced sales.

This analysis does not describe either the piece rate or sales commission systems. Nor does it consider the impact of other features of the National Labour Contract. Those include longer sick and maternity leaves and increased vacations, redundancy and separation payments. Once again only those companies with a market monopoly will escape the employment and profit consequences of this legislation.

Note:

Please refer to Analyzing the Proposed Standard Hours of Work for a more detailed and accurate determination of these costs. This reference includes easy-to-use Excel spreadsheets.

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