2. Steps of Basic Contract Costing 1.Wage increases 2.Bonuses 3.Roll-up costs 4.Health insurance

3. Information Needed 1.Total payroll 2.Number of bargaining unit members 3.Total hours paid 4.Payroll-based benefit rates 5.Health insurance enrollment and costs 6.Health insurance premium increases

4. 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

5. Multiple Year Increases Same formula as annual Use new increased average wage for 2 nd & 3 rd 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

6. Use New Increased Payroll As Base For 2 nd & 3 rd Years 1st Year 3.0%= $1,000,000 × 0.03 = $30,000 New payroll= $1,000,000 + $30,000 = $1,030,000 2nd Year 3.0%= $1,030,000 × 0.03 = $30,900 New payroll= $1,030,000 + $30,900 = $1,060,900 3rd Year 3.0%= $1,060,900 × 0.03 = $31,827 New payroll= $1,060,900 + $31,827 = $1,092,727

7. Cost Is Cumulative Cost Over Base Year Year 1Year 2Year 3 1 st Year 3% $30,000 2 nd Year 3% --30,900 3 rd Year 3% -- 31,827 Wage Increase Cost 30,00060,90092,727

8. Timing Counts: Frontloaded Vs. Backloaded Wages FrontloadedBackloaded Base$10.00Base$10.00 1 st Year 4%10.401 st Year 2%10.20 2 nd Year 2%10.612 nd Year 4%10.61

9. 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.

10. 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

11. Roll-Up Components Benefit% of Payroll Social Security6.20% 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% Total 17.15%

12. Calculating Roll-Up Costs Year 1Year 2Year 3 Wage increase cost $30,000$60,900$92,727 Roll-up rate 17.15% Roll-up amount 5,14510,44415,903 Fully loaded wage cost 35,14571,344108,630

13. 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

14. Health Insurance Base Year Cost Coverage OptionFamily Two- PartySingleTotal Enrolled members 2012840 × Annual cost per plan $15,000$10,000$7,500 = Total annual cost 300,000120,00060,000480,000 × Employer % of cost 75%80%90% = Total employer cost 225,00096,00054,000375,000

15. Health Insurance Premium Increases (Totals – All Coverages) Year 1Year 2Year 3 Previous year total cost $480,000$518,400$559,872 × Premium increase 8% = Total increase 38,40041,47244,790 New total cost 518,400559,872604,662 × Employer % increase 100% = Employer increase 38,40041,47244,790 Increase over base year 38,40079,872124,662

17. Putting It All Together: Total Wage & Benefit Costs Cost Over Base Year Year 1Year 2Year 3 Wage increase cost$30,000$60,900$92,727 Roll-up amount5,14510,44415,903 Health insurance cost38,40079,872124,662 Total contract costs73,545151,216233,292

18. Practice

19. 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

20. AFSCMEStaff.org Bargaining Page afscmestaff.org/bargaining.htm AFSCME Research & Collective Bargaining Services Department 202-429-1215 For More Information