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Is It Time For Flextime?

Although most politicians in Puerto Rico have steered clear of the hot topic for fear of alienating workers (and voters), Gov. Calderon has put flexible work hours and labor reform on the table again.


March 27, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Flextime can lower the cost of doing business in Puerto Rico: From tourism to banking to manufacturing, local business leaders are clamoring for flexible work hours to increase efficiency and lower costs. They argue the island needs updated labor laws to compete

After an unsuccessful attempt by the Rossello administration in the early ’90s, it seemed that the idea of reforming Puerto Rico’s labor laws (most of which date to the 1940s) to incorporate flextime would be moved permanently to the proverbial back burner.

In 2000, gubernatorial candidate and now Gov. Sila Calderon included flextime in her "Puerto Rican Project for the 21st Century," a set of proposals to enhance the island’s competitiveness in the global market which formed the basis of her campaign platform.

Labor is both a key driver of revenue growth and the largest operating cost for businesses, especially those in the services industry. Competitive pressures have forced businesses to improve efficiency and reduce costs. Over the past decades, flextime, also called flexitime, has proven effective at both for companies on the U.S. mainland and in Canada, the U.K., France, Germany, Holland, and Switzerland. Labor-intensive industries such as tourism, manufacturing, health, retail & commerce, and banking & finance have found it particularly beneficial.

Flextime refers to alternative work schedules that bend the traditional 40-hour, five-day workweek to accommodate the needs of employers and employees. An employee on flextime may have, for example, a compressed workweek of four 10-hour days and may receive compensation for overtime in time off instead of in extra pay. Flextime allows businesses to manage their work forces more efficiently and more cost effectively. Furthermore, it allows employees to arrange their work schedules in ways that are more convenient to them.

"We are identifying initiatives to reduce the cost of doing business in Puerto Rico, and flextime certainly is one option to be considered," said Economic Development & Commerce Secretary Milton Segarra. "We promised we would do it and we will. The key is to have a consensus among all involved before making fundamental changes [to the labor laws]."

The problem is that labor leaders have been opposing flextime for years. They argue that flexible work schedules would cost workers many of their overtime privileges, which are quite handsome under current Puerto Rico labor law. Accordingly, flextime has been a political hot potato.

"It’s difficult for any gubernatorial candidate to make any changes near an election," said Jose Capo Matos, a labor attorney at law firm O’Neill & Borges. "Goodwill is required to make changes and the executive and legislative branches must be rowing in the same direction so conflict doesn’t surface."

In 1994, the Puerto Rico Hotel & Tourism Association (PRHTA)--an avid supporter of flextime--addressed alternative work schedules in seeking labor reform. In 1995, the Rossello administration proposed a bill to compress the workweek to the most popular arrangement of four 10-hour days. Union leaders severely criticized the bill, claiming it lowered the quality of life, reduced family time, hurt workers financially, and benefited only businesses. A number of studies indicate, however, that flextime reduces job absenteeism and seems to improve job satisfaction and morale.

The final bill--Law 83 of July 20, 1995 (part of the 1995 Labor Reform)--was so watered down that most major industries that sought alternative work schedules to increase productivity found it useless.

Today, Law 83 provides for the adoption of a flexible daily work schedule if both the employer and the employee agree to it. If, however, the agreement isn’t mutually convenient, either party may refuse to accept it. The old rules concerning daily overtime pay (the 24-hour rule) continue to apply under Law 83. Daily overtime hours apply when an employee begins earlier than he or she did the previous day and worked at least eight hours that day; when an employee returns from a meal period earlier than he or she did the previous day; and when an employee takes a meal break later than he or she did the previous day--that is, if the shift doesn’t begin later than it did the previous day.

"The opposition to amending the labor laws was driven mostly by government unions even though, ironically, the changes didn’t apply to their members," said Capo, who worked as a consultant to the Puerto Rico government’s executive and legislative branches in 1995. "You didn’t see unions representing private-sector employees criticizing the amendments." Why so much resistance to flextime on an island looking for ways to become more competitive in the labor market? Could it be because of the underlying mistrust between unions and businesses?

Rick Newman, president of the PRHTA, believes unions oppose anything they view as change without really studying the matter. "Unions are comfortable with the status quo," he said. "There is no interest in pursuing modern technological ways to allow employers the efficiency they need without raising costs. Why not pass flextime and allow each employer to work it out with employees?"

In a unionized workplace, management can’t unilaterally change working hours or working conditions without violating collective bargaining agreements. Consultation between the employer and the union is essential.

"The local labor movement opposed flextime because they saw it as employees losing compensation and employers avoiding penalties," said Jorge Antongiorgi, a labor attorney with McConnell Valdes. "They didn’t see it as employees gaining flexibility."

Unions remain unwilling to discuss flextime and gubernatorial candidates shy away from the topic for fear of losing votes.

"Changes were already made to Puerto Rico’s labor laws and flextime wasn’t accepted under the employers’ terms," said Juan Eliza, president of the General Workers Union. "We don’t favor changing legislation any further. The private sector has accomplished extending work hours and splitting workweeks. Puerto Rico’s Closing Law allows commercial establishments to open on Sundays and to close after 9 p.m. under special circumstances. The private sector has the flexibility to hire part-timers and students, so to open negotiations on flextime is unnecessary."

For example, an employee who regularly works from 8 a.m. to 5 p.m. may switch to 6 a.m. to 3 p.m., but a safeguard prohibits breaking up the workday for any span longer than the hour allotted for lunch. Furthermore, employers can fraction the workday (divide it into two or more segments) or modify the staff’s daily start time from one workday to the next, but they can’t do both.

Law 83 contains a series of requirements for establishing a valid daily flextime schedule. First, there must be the aforementioned voluntary agreement between the employer and the employee. Reprisals against an employee for refusing to accept a flextime agreement are prohibited. Secondly, the employee must have a rest period of not less than 12 consecutive hours from the moment the work shift ends one day and the time the next one begins.

Once the work shift begins, it must be completed consecutively, without a split shift. These consecutive hours may be interrupted only for the mealtime period agreed upon, pursuant to the applicable provisions of law. Any hours worked in excess of eight a day or 40 a week will be paid as overtime.

The rigidity of Puerto Rico’s labor laws relating to work hours, work shifts, and work breaks increases costs for most industries. For one, overtime pay kicks in not only after each eight-hour shift in a day but also if an employee doesn’t take his or her lunch break between the third and fifth hours of a shift. That means businesses often must choose between not having ample staffing during prime hours or being penalized.

"We have to be able to accommodate employee shifts to serve the needs of the customer without being penalized," said Arturo Carrion, president of the Puerto Rico Bankers Association. "Right now, the law requires businesses to give employees their lunch break at peak hours. For us, certain days such as payday and the end of the month are prime times for business and sometimes we are left with just three bank tellers to attend to the masses."

According to Capo, the only local restriction to applying compressed workweeks and flextime is Law 379, or the Overtime Law, which mandates that extra daily hours be paid in an extraordinary manner, whether in time-and-a-half pay or in double-time pay (depending on the industry). This obligation occurs when an employee has worked in excess of eight hours a day. As a result of a 1956 law, the more traditional industries such as retail & wholesale, health, and tourism (those established before that year) have the heavier burden of paying employees double time. Industries such as pharmaceuticals and banks are required to pay time and a half.

"It should be made clear that no legal impediment exists for an employer to establish a regular daily work schedule in excess of eight hours," Capo said. "However, the law does require that any work hours over the traditional eight in a workday be paid at a higher rate." The Labor Reform of 1995 did give employers the flexibility to pay employees by check or by electronic transfer (direct deposit).

"Our legislative focus tends to be incorrect because it doesn’t concentrate on how to increase competitiveness and doesn’t compare Puerto Rico’s costs with those of its competitors," Capo added.

Newman said he’s concerned the local labor movement will seek additional concessions as the 2004 general elections near. "There are a couple of pending labor projects that would raise the cost for and increase the burden on employers," he said. For instance, there is a proposal in the Legislature to give parents a day off so they can attend their children’s school field days. "If the proposal is approved," said Newman, "it will have a tremendous cost. If an employee needs to take the day, he should take it as a vacation day. But to give an additional day off is just another day of lost productivity. We already have enough holidays, sick days, and vacation days under the local laws, much more than the States have."

Tourism backs flextime

Tourism is one industry in Puerto Rico that must be able to bend the traditional 40-hour, five-day workweek to compete, especially with stateside destinations.

The average full-service hotel spends between 32% and 36% of its revenue on direct labor. Accordingly, improving labor efficiency represents a tremendous opportunity to improve profits.

"We must stop looking at increasing expenses and costs that are making us less competitive and we must start looking at maximizing efficiency and proficiency given the cost burdens we already have," said Newman, who is leading the effort to amend local legislation to incorporate flextime for the hotel industry. "One way to accomplish that is to implement flextime and compressed workweeks. On slow days [typically Mondays, Tuesdays, and Wednesdays for hotels] you may need fewer employees and on other days you may need people to work a couple more hours so you don’t have to bring on a second shift."

Rebecca Morales, president of the Gastronomic Union of Puerto Rico, Local 610, generally doesn’t encourage flextime in tourism. "It would depend on the type of flextime," she said. "If it’s to give an employer the right to change an employee’s schedule when he or she feels like it, then we are against it. If there’s an earlier shift available, our collective bargaining agreements obligate the employer to offer it to the employee with the most seniority."

There are two basic ways to control labor costs in hotels. The first is to adjust the staffing. The second is to adjust the pay. Unfortunately for the hotel industry, external forces constrain managers in determining staffing and wages, especially in comparison with other industries. Any adjustments made to staffing levels have a commensurate effect on the quality of guest service.

Such dependence on labor also prevents the hotel industry from experiencing the degree of productivity enhancements that some other industries have achieved. While technology has certainly improved the productivity of several back-of-the-house functions, automating front-of-the-house procedures can have an adverse impact on guest service.

"Hotels must have the ability to slide the employee shift according to the movement of the guests," Newman said. "For instance, if a large checkout occurs at 7 a.m. and our front-desk staff normally comes in at 8 a.m., we need to be able to shift the staff to 7 a.m. without incurring a mealtime penalty and an overlapping penalty, both at double the employees’ wage. That is what happens now in trying to serve guests. The choices are either to pay the penalties, which increases the cost of operations, or to sacrifice the level of service to guests."

How do the hotels recover that money? By charging higher room rates, which makes Puerto Rico less competitive as a destination.

"Operational costs for hotels in Puerto Rico are higher than on the U.S. mainland and they can’t even compare with destinations like the Dominican Republic, Cancun, and Cuba," said Jose Suarez, executive director of the Puerto Rico Tourism Co. "Puerto Rico is more expensive because of the fringe benefits given to employees. The local labor laws were designed for the manufacturing industry, not for the service industry."

For local hotels to be more competitive, Suarez suggests some type of middle ground should be found. "It’s not an easy issue to resolve because employees do have rights and they should be protected, but we should all be willing to work to improve it," he said.

In short, creating a flexible workplace may be one way businesses can gain an advantage over or at least get on an equal footing with competitors in both domestic and international markets.

Manufacturers support flextime

Manufacturers also seek alternative work schedules to increase productivity. Many of the cuts in factory jobs have been in response to the sharp rise in global competition. Unable to raise prices, and often forced to lower them, companies must find any way they can to reduce costs and hang on to profits. Often, they move their manufacturing operations to markets with lower labor costs.

Puerto Rico has lost 13,700 jobs in the past two years alone from the closings of Star-Kist, Pan Am Shoe, and others. In April, Sara Lee will begin cutting 1,200 jobs at three plants that produce Playtex women’s undergarments--in Dorado, Humacao, and Vega Baja.

"The continuing pressures of a weak economy and an intensely competitive atmosphere leave us no other option but to make this difficult decision," said Rafael Rodriguez, vice president of operations for Sara Lee Intimate Apparel in the Caribbean. In 2001, Chicago-based Sara Lee eliminated about 3,900 jobs in Puerto Rico.

There is no question that over the past two decades, tens of thousands of jobs have been lost in Puerto Rico as factories have closed or reduced their work forces in favor of markets with lower labor costs such as China, Costa Rica, the Dominican Republic, Mexico, and Singapore. The same has happened on the U.S. mainland, leaving hundreds of thousands unemployed.

Flextime has proved to reduce operating costs, improving businesses’ bottom lines and perhaps saving jobs. Manufacturers can implement flextime to extend their hours of service and limit overtime, requiring fewer plant start-ups and shutdowns. Flextime and compressed workweeks enable hospitals, power plants, and police and fire departments to provide round-the-clock service. Employees, meanwhile, enjoy longer periods of personal time and spend less time commuting.

Many large corporations have also acknowledged the value of flextime in boosting employee morale and reducing tardiness and absenteeism. Hewlett-Packard, for example, has implemented flextime, job-and-work sharing, and flexible time-off programs combining vacation and sick-leave benefits.

"If Puerto Rico wants to continue being competitive in certain sectors, it too must give employees the flexibility to complete their 40-hour workweek in other ways," said Puerto Rico Industrial Development Co. Executive Director William Riefkohl. "There are employees, for instance, who, if offered the option to work four 10-hour days so they can get an extra day off, would be dancing in the streets. Flextime benefits both the employer and employee, and we understand Puerto Rico can’t continue to lag behind with antiquated labor laws."

Common forms of compressed workweeks

  • Three days of 12 hours;
  • Four days of 10 hours;
  • 9/80s: In week one, an employee works five days of nine hours, then gets two days off. In week two, the employee works three days of nine hours and one day of eight hours, to complete the 80 hours in the period, then enjoys three days off. Federal employees have used this method, which provides for 26 additional days off per calendar year.

Employee benefits of alternative work arrangements

  • Eliminate number of commutes to and from work each week and help to avoid rush-hour traffic.
  • Allow for better balance of work and family responsibilities.
  • Provide shorter workweeks and longer blocks of time off.
  • Improve morale and motivation derived from increased personal and family time.
  • Provide time off for appointments and other personal commitments.
  • Improve communication with supervisor.

Employer benefits of alternative work arrangements

  • Extend hours of service to customers beyond normal business hours and allow better service to those in other time zones.
  • Increase productivity by enabling employees to schedule personal appointments on nonwork time.
  • Reduce access to equipment at peak work hours.
  • Allow for more efficient use of company equipment.
  • Provide extended coverage for employer without the expense of overtime.
  • Enhance the company’s recruitment and retention efforts.
  • Reduce absenteeism and tardiness.
  • Help alleviate traffic congestion and air pollution.

Cons of flexible work arrangements

  • A long-term schedule of 10- or nine-hour days, while the norm for some professionals, can be physically and mentally draining.
  • Not only is the workweek squeezed into a shorter time frame, but all the after-work activities must be wedged into the remaining hours of each workday.
  • Chronic fatigue caused by work/family time pressures may or may not be offset by the regular day off.
  • Childcare coverage to match the compressed work schedule may be a challenge.
  • There may be a lack of supervision during some work hours.

This Caribbean Business article appears courtesy of Casiano Communications.
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