Question
The Bushrod Industrial Complex (BIC) employs about 60,000 salaried employees and another 4,000 as contractual staff. The salaried employees are paid once a month while
The Bushrod Industrial Complex (BIC) employs about 60,000 salaried employees and another 4,000 as contractual staff. The salaried employees are paid once a month while the contract employees are paid bi-weekly. Total monthly wage bill amounts to $30 Million including $3 million for the non-salaried employees. The payroll is prepared by the 14th pf the month and disbursed directly into employees' account by the 25th of the month. Daily workers are paid every two weeks based on agreed payrates. In the past, there has been times when the salaries were delayed due to poor performance in the cash flow from revenues. As a result, the BIC has had to delay salary and wage payment for as long as three (3) months.
In 2023 the Board of Directors convened a meeting to review the possibility of harmonizing the payment of the two groups by bringing the salary payment in line with the contractual payments. In other words, the proposal sought to pay salaried employees twice a month (once every two weeks) instead of the once a month. These payments would be made in the form of salary advances payable within thirty (30) days after receipt of proceeds. The Satiah Banking Corporation, one of the largest financial institutions was chosen through single sourcing to provide the lending facility.
In November 2023, the shareholders approved the Board's recommendation for the payment of the salaries to be made in two equal installments every two weeks. In other words, employees will be paid every two weeks instead of once a month as in the past. However, the payments will be made as an advance repayable within thirty (30) days from the receipt of these advances. The company will provide full security in terms of pledged salaries to the banking institution participation in this scheme. The advances are to bear an interest rate of three (3) percent for the thirty (30) days..
A study by the research department of BIC shows that at least forty (40) percent of the staff would take advantage of this facility.
The Atlantic International Group (AIG), a consulting firm specializing corporate finance and general management consulting, has been hired by BIC to provide appropriate advice on this matter. Consider yourself a staff of the Atlantic International Group, evaluate this proposal as a financial professional in terms of its economic and financial feasibility and potential impact on the monetary policy management, and advise management of AIG, which would then advise the Bushrod Industrial Complex.
Specifically, examine the economic/financial implication and potential impact on the banking system, economic growth, employment, inflation, interest rates, and monetary management. The average industry rates currently stand at fifteen (15) percent per annual.
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