Critical Thinking Problem 11.2 (Algo) Comparing Employees and Independent Contractors. The Valley Voice is a local newspaper that is published Monday through Friday. It sells 99,500 copies daily. The paper is currently in a profit squeeze, and the publisher, Tom Turkey, is looking for ways to reduce expenses. A review of current distribution procedures reveals that the Valley Voice employs 109 truck drivers to drop off bundles of newspapers to 1,345 teenagers who deliver papers to individual homes. The drivers are paid an hourly wage while the teenagers receive 4 cents for each paper they deliver. Turkey is considering an alternative method of distributing the papers, which he says has worked in other cities the size of Flower Mound (where the Valley Voice is published). Under the new system, the newspaper would retain 22 truck drivers to transport papers to five distribution centers around the city. The distribution centers are operated by independent contractors who would be responsible for making their own arrangements to deliver papers to subscribers' homes. The 22 drivers retained by the Valley Voice would receive the same hourly rate as they currently earn, and the independent contractors would receive 20 cents for each paper delivered. 2. Assume the following information: a. The average driver earns $46,500 per year. b. Average employee income tax withholding is 15 percent. c. The social security tax is 6.2 percent of the first $132,900 of earnings. d. The Medicare tax is 1.45 percent of all earnings. e. The state unemployment tax is 5 percent, and the federal unemployment tax is 0.6 percent, of the first $7,000 of earnings. f. Workers' compensation insurance is 70 cents per $100 of wages. g. The paper pays $415 per month for health insurance for each driver and contributes $320 per month to each driver's pension plan. h. The paper has liability insurance coverage for all teenage carriers that costs $109,500 per year. Prepare a schedule showing the costs of distributing the newspapers under the current system and the proposed new system. Current System Proposed System Analysis Prepare a schedule showing the costs of distributing the newspapers under the current system. (Round your final answers to nearest whole dollars.) Yearly Cost - Current System Truck Drivers Total Payroll Costs Teenage Carriers: Total Cost
Current System Proposed System Analysis Prepare a schedule showing the costs of distributing the newspapers under the proposed new system. (Round your final answers to nearest whole dollars.) Yearly Cost - Proposed System Truck Drivers: Total Payroll Costs Total Cost Current System Proposed System Analysis Based on your analysis, which system would you recommend to Turkey? System would you recommend to Turkey
