Did We Win? Maybe.

According to last month’s report from the Fair Labor Association, one of the biggest problems at Foxconn is the amount of overtime worked by each employee. The average worker can put in as much as 80 hours of overtime a month, or a 60 hour work week. Chinese law states that overtime is limited to 36 hours a month, or 9 hours a week on average. FLA also found that many were not being compensated at the overtime rate of “time and a half” or 150% of hourly salary.

As a result Foxconn has pledged to increase salaries by 16 to 25% by Mid 2013, and to comply with Chinese law and reduce overtime to 9 hours a week. Some Foxconn employees think the reduction in overtime is too drastic, saying they’d be willing to work 60 hours of overtime a month, or 15 hours a week.

Given the numbers flying around I thought it would be helpful to provide some context. Like any good math student I’ve shown my work, and I’ll state my assumptions:

  • I’m defining X to be the average hourly salary of a Foxconn employee.
  • I’m assuming the 16-25% pay increase is to the base salary (i.e. the amount paid for 40 hours of work per week).
  • I have calculated figures for Foxconn previously complying with Chinese overtime (150%) as well as if they did not. It’s important to remember that if Foxconn did not compensate for overtime then that is money they legally owe their employees.
  • I’m showing the figures here for 9 hours overtime pay, I did calculations for 15 hours which you can see here.

If Foxconn did not pay overtime before, then the average worker should experience a 3.4% – 11.5% gain in earnings under a 9 hour overtime policy. However, they would experience a 4.5% – 11.3% loss in earnings if they had been paid what they were owed for the illegal overtime.

If overtime was previously compensated then the average hourly pay for a worker working 60 hours a week would be 1.17X (or 1.17 times base hourly salary). If they were not paid for overtime then their hourly rate would be 1X. Under the new system workers can earn anywhere from 1.27X to 1.36X for 9 hours compensated overtime.

If Foxconn had previously paid overtime, then the cost of their 1.2 million person workforce would be 84 million * X. Otherwise it would be 72 million * X. If Foxconn’s budget for workers remains unchanged they can hire as many as 135.6 thousand new workers if they had previously paid overtime. Otherwise they would need to lay off almost as many or increase their salary budget.

Bottom line is this:

  • If Foxconn had been paying what they owed employees, then employees will earn less than they could before. If, however, they were not compensated, then they will be bringing home more money.
  • Average hourly salaries have increased significantly under the new system, even with reduced overtime.
  • Foxconn will have to raise its budget for employee compensation if they had not previously been paying overtime. Otherwise they can afford to hire the “tens of thousands” of new employees without increasing the budget.
  • If Foxconn did not compensate workers for overtime, then I think punitive damages for unpaid overtime should also be leveled against them.
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