Controlling Labor Costs and Outsourcing
Pharis Jackson III, Becky Miller, Justine Santos, Cassandra Sullivan HRM/324
February 9, 2015
Controlling Labor Costs and Outsourcing
"Managing the number of employees and/or the hours worked is the most obvious and perhaps most common approach to managing labor expenses in the United States" (Milkovich, Newman, & Milkovich, 2008, p. 583). There are many ways that employers can control labor costs. This team paper will detail the different ways of controlling labor costs, how organizations use inherent controls, and what activities in managing the pay system are candidates for outsourcing. Controlling Labor Costs
Controlling labor cost can be tricky. “There are three main factors to control in order to manage labor cost, the number of employees and the hours that they work, average wages and bonuses, and average benefit costs" (Milkovich, Newman, & Milkovich, 2008). When companies have multiple employees doing the same exact job, compensation can become a problem. When this problem arises, scheduling is important. An example of this is when a military hospital employs civilian nurses along with military nurses. To control the amount of compensation each civilian nurse makes, they are only scheduled to work eighty hours a pay period. They are only allowed to work overtime if it is the last resort. Since military nurses are on fixed salaries, they can work overtime without the government paying the extra time and a half for overtime to the civilian nurses. This way of cutting cost may not be well liked by the fixed salary nurses, but it saves the government millions of dollars each year. Examples of Inherent Controls
There are 3 Risks that will be discussed in this topic: Inherent Risk, Control Risk, and Detection Risk. These risks have to have adequate internal controls to prevent and detect fraud or errors within the organization. Inherent Control is a higher degree of judgment and estimations as well as being highly complex. Inherent Risk is the risk posed by a mistake or lapse in a financial statement due to an issue other than a failure of control ("Inherent Risk", 2015). Furthermore, control risk is the risk of a physical misstatement in the financial report arises because of a failure or absence in the operation of important controls of entity (Inherent Controls, 2014). Lastly, detection risk is the risk that an auditor will not find material misstatements involving to a claim in an entity’s financial statements through fundamental tests and analysis (Detection Risk, 2015). An example would be in Aircraft industry; in my previous employment we had an Accountant that would audit our accounts to make sure everything was in place when tax season hits. This reassures that no one can “fudge” our numbers to place us under a different tax bracket or make us look wonderful in the stockholders eyes. If IRS were to come in due to a flag raised at time of tax season, the accountant didn’t verify all accounts and just assumed we were on the up with our numbers, this would be classified as a detection risk because the auditor (Accountant) failed to detect material misstated in the financial statement. In return we would get heavily fined or even shut down for a brief moment to make our numbers match for the books. Activities for Outsourcing
When managing a pay system, there are times when an organization will need to outsource their activities and jobs to outside countries. Outsourcing reduces and controls costs in an organization. It also gives organizations more access to IT resources, improve customer focus, reduce time to market, free up internal resources, accelerate on projects and gain access to management expertise unavailable internally (Job Outsourcing Statistics, 2014). There are many countries where organizations outsource too, but the top three countries include India, Indonesia, and China. The most common jobs that are outsourced...
References: Detection Risk. (2015). Retrieved from http://www.investopedia.com/terms/d/detection-risk.asp
Inherent Risk. (2015). Retrieved from http://www.investopedia.com/terms/i/inherent-risk.asp
Job Outsourcing Statistics. (2014). Retrieved from http://www.statisticbrain.com/outsourcing-
Milkovich, G.T., Newman, J.M., & Milkovich, C. (2008). Compensation (9th ed.). Retrieved from the University of Phoenix eBook Collection database.
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