Western Region Contract Campaigns Training August 2014 Handout Steps of Basic Contract Costing Wage increases Bonuses Rollup costs Health insurance Information Needed Total payroll Number of bargaining unit members ID: 748297
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Costing 101
Mark Murphy
Research and Collective Bargaining Services
Western Region
Contract Campaigns Training
August 2014
Handout
__Slide2
Steps of Basic Contract Costing
Wage increases
BonusesRoll-up costsHealth insuranceSlide3
Information Needed
Total payrollNumber of bargaining unit members
Total hours paidPayroll-based benefit ratesHealth insurance enrollment and costsHealth insurance premium increasesSlide4
Costing Wage Increases
Cents-Per-Hour Increase:Increase amount × Total hours
Example: $0.30 × 100,000 = $30,000Percentage Increase:Percentage amount × Total payrollExample: 3% × $1,000,000 = $30,000Slide5
Multiple Year Increases
Same formula as annualUse new increased average wage for 2nd
& 3rd yearsCost 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 Slide6
Use New Increased Payroll As Base For 2nd & 3rd Years
1st Year
3.0% = $1,000,000 × 0.03 = $30,000New payroll = $1,000,000 + $30,000 = $1,030,0002nd Year 3.0% = $1,030,000 × 0.03 = $30,900New payroll = $1,030,000 + $30,900 = $1,060,900
3rd Year 3.0% = $1,060,900 × 0.03 = $31,827New payroll = $1,060,900 + $31,827 = $1,092,727Slide7
Cost Is CumulativeCost Over Base Year
Year 1Year 2Year 31st Year 3%
$30,000$30,000$30,0002nd Year 3%--30,90030,900
3rd Year 3%----31,827Wage Increase Cost30,00060,900
92,727Slide8
Timing Counts: Frontloaded Vs. Backloaded Wages
Frontloaded
BackloadedBase$10.00Base
$10.001st Year 4%10.401st Year 2%10.20
2nd Year 2%10.612nd Year 4%
10.61Slide9
Costing Bonuses
Flat Dollar Bonus:Bonus amount × Number of workers
Example: $750 × 40 = $30,000Percentage Bonus:Percentage amount × Total payrollExample: 3% × $1,000,000 = $30,000 Bonuses are not cumulative.Slide10
Roll-Up Costs
What is roll-up?Rates vary by jurisdiction and bargaining unit
Apply roll-up to:Wage increasesBonusesShift differential increasesIncreases in overtimeSlide11
Roll-Up Components
Benefit% of PayrollSocial Security
6.20%Medicare1.45%Pension (base only)6.00%
Unemployment Insurance (base only)1.50%Workers’ comp (base only)1.50%Life insurance (base only)
0.50%Total17.15%Slide12
Calculating Roll-Up CostsYear 1
Year 2Year 3Wage increase cost
$30,000$60,900$92,727Roll-up rate17.15%17.15%17.15%Roll-up amount
5,14510,44415,903Fully loaded wage cost35,14571,344108,630Slide13
Costing Health Insurance
Base year cost:Enrollees × per-plan annual cost = total cost
Total cost × employer share = employer costPremium increases:If maintaining same employer-employee premium shares: Employer cost × percentage increaseIf employer covers a set % of increase: Total cost × percentage increase × employer % of increaseSlide14
Health InsuranceBase Year CostCoverage Option
FamilyTwo-PartySingleTotal
Enrolled members2012840× Annual cost per plan$15,000$10,000$7,500= Total annual cost300,000120,000
60,000480,000× Employer % of cost75%80%90%= Total employer cost225,000
96,00054,000375,000Slide15
Health InsurancePremium Increases(Totals – All
Coverages)Year 1Year 2Year 3
Previous year total cost$480,000$518,400 $559,872× Premium increase8%8%8%= Total increase
38,40041,47244,790New total cost518,400559,872604,662
× Employer % increase100%100%100%= Employer increase38,40041,47244,790
Increase over base year38,40079,872124,662Slide16Slide17
Putting It All Together: Total Wage & Benefit CostsCost Over Base Year
Year 1Year 2Year 3Wage increase cost
$30,000$60,900$92,727Roll-up amount5,14510,44415,903Health insurance cost 38,400
79,872124,662Total contract costs73,545151,216233,292Slide18
PracticeSlide19
What’s Missing?Time off for sick, vacation, personal days, added holidaysNo cost unless employer replaces the worker for time offReplaced hours costed at replacement pay rate (may be overtime)Steps in the pay scaleCosting assumes level staffing, seniority profileSenior workers are replaced by junior ones
Lapse rate saves moneySlide20
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afscmestaff.org/bargaining.htmAFSCME Research & Collective Bargaining Services Department202-429-1215
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