### Costing 101 - AFSCMEStaff.org

```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
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
Base
\$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
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
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
(Totals – All Coverages)
Year 1
Previous year total cost \$480,000
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