Steps of Basic Contract Costing 1. 2. 3. 4. Wage increases Bonuses Roll-up costs Health insurance Information Needed 1. 2. 3. 4. 5. 6. Total payroll Number of bargaining unit members Total hours paid Payroll-based benefit rates Health insurance enrollment and costs Health insurance premium increases Costing Wage Increases Cents-Per-Hour Increase: Increase amount × Total hours Example: $0.30 × 100,000 = $30,000 Percentage Increase: Percentage amount × Total payroll Example: 3% × $1,000,000 = $30,000 Multiple Year Increases • Same formula as annual • Use new increased average wage for 2nd & 3rd years • Cost is cumulative. For a 3 year contract: - 1st year cost increases occur in 1st, 2nd and 3rd years - 2nd year cost increases occur in 2nd and 3rd years - 3rd year cost increases occur only in 3rd year Use New Increased Payroll As Base For 2nd & 3rd Years 1st Year 3.0% New payroll = $1,000,000 × 0.03 = $30,000 = $1,000,000 + $30,000 = $1,030,000 2nd Year 3.0% New payroll = $1,030,000 × 0.03 = $30,900 = $1,030,000 + $30,900 = $1,060,900 3rd Year 3.0% New payroll = $1,060,900 × 0.03 = $31,827 = $1,060,900 + $31,827 = $1,092,727 Cost Is Cumulative Cost Over Base Year Year 1 Year 2 Year 3 1st Year 3% $30,000 $30,000 $30,000 2nd Year 3% -- 30,900 30,900 3rd Year 3% --- 31,827 Wage Increase Cost 30,000 60,900 92,727 Timing Counts: Frontloaded Vs. Backloaded Wages Frontloaded Base Backloaded $10.00 Base $10.00 1st Year 4% 10.40 1st Year 2% 10.20 2nd Year 2% 10.61 2nd Year 4% 10.61 Costing Bonuses Flat Dollar Bonus: Bonus amount × Number of workers Example: $750 × 40 = $30,000 Percentage Bonus: Percentage amount × Total payroll Example: 3% × $1,000,000 = $30,000 Bonuses are not cumulative. Roll-Up Costs • What is roll-up? • Rates vary by jurisdiction and bargaining unit • Apply roll-up to: • • • • Wage increases Bonuses Shift differential increases Increases in overtime Roll-Up Components Benefit Social Security Medicare Pension (base only) Unemployment Insurance (base only) Workers’ comp (base only) Life insurance (base only) Total % of Payroll 6.20% 1.45% 6.00% 1.50% 1.50% 0.50% 17.15% Calculating Roll-Up Costs Year 1 Wage increase cost Roll-up rate Year 2 Year 3 $30,000 $60,900 $92,727 17.15% 17.15% 17.15% Roll-up amount 5,145 10,444 15,903 Fully loaded wage cost 35,145 71,344 108,630 Costing Health Insurance Base year cost: Enrollees × per-plan annual cost = total cost Total cost × employer share = employer cost Premium increases: 1) If maintaining same employer-employee premium shares: Employer cost × percentage increase 2) If employer covers a set % of increase: Total cost × percentage increase × employer % of increase Health Insurance Base Year Cost Coverage Option Enrolled members × Annual cost per plan = Total annual cost × Employer % of cost = Total employer cost TwoFamily Party Single 20 12 8 $15,000 $10,000 $7,500 Total 40 300,000 120,000 75% 80% 60,000 90% 480,000 225,000 54,000 375,000 96,000 Health Insurance Premium Increases (Totals – All Coverages) Year 1 Previous year total cost $480,000 × Premium increase 8% = Total increase 38,400 New total cost 518,400 × Employer % increase 100% = Employer increase 38,400 Increase over base year 38,400 Year 2 Year 3 $518,400 8% 41,472 $559,872 8% 44,790 559,872 100% 41,472 79,872 604,662 100% 44,790 124,662 Putting It All Together: Total Wage & Benefit Costs Cost Over Base Year Wage increase cost Roll-up amount Health insurance cost Total contract costs Year 1 Year 2 $30,000 $60,900 5,145 10,444 38,400 79,872 73,545 151,216 Year 3 $92,727 15,903 124,662 233,292 Practice What’s Missing? • Time off for sick, vacation, personal days, added holidays – No cost unless employer replaces the worker for time off – Replaced hours costed at replacement pay rate (may be overtime) • Steps in the pay scale – Costing assumes level staffing, seniority profile – Senior workers are replaced by junior ones – Lapse rate saves money For More Information AFSCMEStaff.org Bargaining Page afscmestaff.org/bargaining.htm AFSCME Research & Collective Bargaining Services Department 202-429-1215