9609 · 2.1.5

Morale and welfare — practice questions

Practice and worked examples for 9609 Morale and welfare. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A tech firm with 200 employees has a labour turnover rate of 30%. The average cost to replace an employee is $4,000. The firm is considering a new welfare package (EAP and subsidised gym) costing $600 per employee per year, which is expected to reduce turnover to 20%. Evaluate if this investment is financially sound.

Show solution outline

Step 1: Calculate the current annual cost of labour turnover.

Number of employees leaving = 30% of 200 = 0.30 * 200 = 60 employees. Current annual cost = 60 employees * $4,000/employee = $240,000.

Step 2: Calculate the total annual cost of the proposed welfare package.

Total cost = 200 employees * $600/employee = $120,000.

Step 3: Calculate the projected annual cost of labour turnover with the new package.

New number of employees leaving = 20% of 200 = 0.20 * 200 = 40 employees. New annual cost of turnover = 40 employees * $4,000/employee = $160,000.

Step 4: Calculate the total annual cost with the welfare package implemented.

Total new cost = New turnover cost + Welfare package cost Total new cost = $160,000 + $120,000 = $280,000.

Step 5: Evaluate the financial viability.

Compare the total cost before and after:

Cost before = $240,000
Cost after = $280,000

The new total annual cost ($280,000) is higher than the current cost ($240,000). Based purely on these figures, the investment is not financially sound, as it results in a net increase in costs of $40,000 per year.

Evaluation: However, this calculation ignores other potential benefits of improved morale, such as higher productivity, lower absenteeism, and enhanced brand reputation, which could attract better talent. If these non-quantified benefits are significant, the investment might still be justifiable in the long run.

Worked example 2

A factory with 50 production workers has an absenteeism rate of 8%. Workers are scheduled for 250 days a year. The contribution per unit produced is $6, and each worker is expected to produce 100 units per day. A new safety initiative costs $35,000 in its first year and is expected to reduce absenteeism to 5%. Calculate if the initiative is financially worthwhile in its first year.

Show solution outline

Step 1: Calculate total potential working days and days lost to absenteeism.

Total potential days = 50 workers * 250 days/worker = 12,500 worker-days. Current days lost = 8% of 12,500 = 0.08 * 12,500 = 1,000 worker-days.

Step 2: Calculate the current annual loss of contribution.

Lost production = 1,000 days * 100 units/day = 100,000 units. Current lost contribution = 100,000 units * $6/unit = $600,000.

Step 3: Calculate the projected days lost and loss of contribution after the initiative.

Projected days lost = 5% of 12,500 = 0.05 * 12,500 = 625 worker-days. Projected lost contribution = 625 days * 100 units/day * $6/unit = $375,000.

Step 4: Calculate the financial gain from the initiative.

Annual saving in lost contribution = Current loss - Projected loss Saving = $600,000 - $375,000 = $225,000.

Step 5: Evaluate the financial viability in the first year.

Compare the financial gain to the cost of the initiative:

Financial gain (saving) = $225,000
First-year cost = $35,000

Net gain in first year = $225,000 - $35,000 = $190,000.

Conclusion: The safety initiative is highly financially worthwhile. It generates a net gain of $190,000 in its first year alone, in addition to non-financial benefits like improved employee morale, a safer working environment, and compliance with legal duties. The investment is strongly recommended.

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