Contract Costing USW Convention Versionimages.usw.org/conv2011/convention2011/cbrb/Contract...

Contract CostingInformation Requests, Labor Costs, and Estimating Cost Items

Corporate Research, Industry Analysis and Pattern Bargaining Department

United Steelworkers 1

• Why Estimate Contract Costs• Right to Information • Union Request for Hourly Labor Costs• Costing Out Various Items

Contents


• Collective bargaining is detailed and time-consuming.• More than enough things to do

– survey and communicate with members– review other union settlements in industry or area– review grievance files and arbitrations decisions– draft contract proposals and counterproposals– investigate specific issues as talks unfold…– set up assistance and strike support committees– and often wait, and wait and wait…

• Estimating the costs of various items proposed by the Union and/or Company is detailed and time-consuming.

You Have Enough to Do in Bargaining…

Why Estimate Contract Costs?


• Insure your proposals are realistic• Prevent inadvertent labor dispute• Prioritize your demands• Respond to employer claims of the item’s excessive cost• Evaluate trade-off versus other items• Insure you receive fair value for items in trade• Verify cost to negotiated package• Poverty pleas and concessionary contract negotiations

… So Why Prepare Cost Estimates?

Why Estimate Contract Costs?


• Request basic information on current hourly labor costs• Data may be supplied in dollars per hour or in aggregate

dollars for entire bargaining unit• Sometimes segmented by department, employee class or

by employee• Data usually most meaningful and easiest to deal with on

the basis of dollars per hour worked.• Compile data at the level you are bargaining

– if you are bargaining for three facilities, combine data– be mindful of costs if one unit is vulnerable or

dissimilar

Where to Start

Union Right to Information


• Employer has an obligation to provide – labor cost and other info as part of the duty to bargain– its estimate of the cost of various items proposed by

the Company or Union, if it has prepared estimates• Refusal to supply the requested information is a violation

of Section 8(a)(5) of the NLRA• Employer is not required to provide

– information about non-mandatory subjects of bargaining or

– financial information, unless the employer’s proposals or comments make them relevant

Right to Information

Union Right to Information


• Breakdown of hourly employment costs, by item• Number of bargaining unit employees• Projected number of employees during term• Total number of hours of worked (OT and shift hours)• Wage rates• Breakdown of bargaining unit by:

– wage grade– job title– length of service– age or sex– department, shift, etc.

• Profit sharing, gainsharing or other variable compensation

Items to Include in Your Info Request

Union Information Request


• Benefit costs are difficult to estimate– complicated funding rules (pension, SUB, UC, workers

compensation)– utilization and experience are not uniform (health care, life

insurance, disability and sickness and accident benefits)• Provisions that do not involve direct compensation (such as

work schedules, seniority, apprenticeship and training programs) are difficult to estimate

• Past experience may not be representative of future results– the size of the workforce (attrition or new hires)– number of hours worked or overtime– productivity gains– profitability

Limitations on Costing

Costing Out Various Items


• Wage Increases• Roll-up costs• Vacations• Holidays• Overtime Premiums• Shift differential• Sickness and Accident benefits• Life Insurance Benefits

Common Labor Cost Items



• Establish baseline total hourly labor costs• Try to use 12 month periods that match employer’s

financial reporting schedule (calendar year or fiscal year)• Be aware that data for partial years (i.e. year-to-date) is

often subject to seasonal variation due to holidays, vacations and overtime levels

• Comparing data for several years helps spot unusual items• Cost data may be presented on an aggregate or per hour

basis• Generate hourly labor costs by dividing aggregate dollar

figures by total number of hours worked

Total Hourly Labor Costs



Total Hourly Labor CostsTotal Per

Item Dollars HourNumber of Employees 700 Total Hours Worked 1,406,000 Straight Time Pay $23,902,000 $17.00Overtime Premium 2,023,000 1.44 Shift Differentials 147,000 0.10 Holiday Allowance 812,000 0.58 Vacation Pay 1,928,000 1.37 Other Payroll Items 141,000 0.10 Total Payroll $28,953,000 $20.59FICA 2,215,000 1.58 Unemployment Insurance 141,000 0.10 Workers' Compensation 1,406,000 1.00 Life Insurance 98,000 0.07 Pension 1,856,000 1.32 Sickness & Accident Benefits 422,000 0.30 Health Plan 7,030,000 5.00 Vision Plan 70,000 0.05 Dental Plan 422,000 0.30 Other 141,000 0.10 Total Benefits $13,800,000 $9.82 Total Employment Costs $42,753,000 $30.41

The employer’s information response may look something like this -- or it may simply provide the aggregate costs and number of hours.

Regardless, breakout the information in as much detail as possible and separate into payroll and benefit items.



Workforce Distributionby Length of Service

Years of Years of Years ofService # Service # Service #

0 10 12 0 24 56 1 22 13 0 25 3 2 35 14 0 26 45 3 25 15 0 27 04 15 16 0 28 05 5 17 7 29 20 6 12 18 10 30 15 7 31 19 13 31 21 8 26 20 38 32 12 9 33 21 42 33 5

10 100 22 65 34 011 22 23 12 35 0

700


A breakdown of the bargaining unit by service is used to calculate the cost of many payroll and benefit items, such as vacations and pension.


Workforce Distributionby Wage Grade

Labor Wage Number ofGrade Rate Employees Total

1 $12.00 30 $3602 $13.00 30 $3903 $14.00 60 $8404 $15.00 80 $1,2005 $16.00 85 $1,3606 $17.00 90 $1,5307 $18.00 125 $2,2508 $19.00 80 $1,5209 $20.00 70 $1,40010 $21.00 50 $1,050

Total 700 $11,900Weighted Avg: $11,900 / 700 = $17.00

The weighted average hourly wage rate is used to calculate the cost of many payroll items: overtime, vacations, holidays, etc.



“Across the Board” (ATB) or “General” Wage Increase• each step on the scale receives same amount of cents per hour• yields smaller percentage increases at the bottom than the top• Over time general wage increases will “compress the wage scale

Increase in “Increment”• Increment between wage grades is increased by same amount and applied

to each subsequent wage grade• used to “decompress” scale (increase spread between top and bottom

wage rates• no increase for the starting wage rate

Percentage Increase• each step on the scale receives same percentage increase• maintains the % spread between top and bottom wage rates

Combination• often General and Increment increases are combined• gives starting wage rate an increase

Application of Wage Increases



Wage Increasesby Application

Option 1 Option 2 Option 3 Option 4+0.25 ATB

Labor Wage +$0.50 + + +$0.05 inGrade # Rate ATB 2.94% $0.10 Increment

1 30 $12.00 $12.50 $12.35 $12.00 $12.252 30 $13.00 $13.50 $13.38 $13.10 $13.303 60 $14.00 $14.50 $14.41 $14.20 $14.354 80 $15.00 $15.50 $15.44 $15.30 $15.405 85 $16.00 $16.50 $16.47 $16.40 $16.456 90 $17.00 $17.50 $17.50 $17.50 $17.507 125 $18.00 $18.50 $18.53 $18.60 $18.558 80 $19.00 $19.50 $19.56 $19.70 $19.609 70 $20.00 $20.50 $20.59 $20.80 $20.65

10 50 $21.00 $21.50 $21.62 $21.90 $21.70TOTAL 700 $17.00 $17.50 $17.50 $17.50 $17.50


Each of these proposed wage scales has the same $0.50 per hour cost, but yield varying increases depending on the labor grade.


• Roll Up or Compounding Costs are the indirect cost of wage-related items, such as overtime, vacations, holidays, jury pay, bereavement pay, reporting pay and other paid non-work time

• When you account for these items, a $1.00 wage increase costs more than $1.00

• Determine all labor cost items that vary with wages• Ignore non-wage related items such as COLA, fixed shift

premiums, meal allowances, safety shoes allowances, profit sharing and flat dollar bonus payments

– these items are subject to 7.65% FICA payroll tax– but they don’t increase when wages increase– handle them separately

• Express as a percentage of the average hourly wage rate

Roll-Up CostsIndirect Wage Costs



Roll-Up CostsIndirect Wage Costs

Item 2006 % CommentAverage Hourly Wage Rate (AHWR) $17.00 7.65% FICA Tax of 7.65%Items Subject to Roll-Up

Overtime Premium $1.44 8.5% Overtime divided by AHWRVacation Pay 1.37 8.1% Vacation divided by AHWRHoliday Allowance 0.58 3.4% Holiday divided by AHWRBereavement Pay 0.03 0.2% Bereavement divided by AHWRMilitary Encampment 0.01 0.0% Military Leave divided by AHWRJury Duty 0.03 0.2% Jury Duty divided by AHWR Total $3.45 20.3% Total of all wage-related items

FICA on Items Subject to Roll-Up $0.26 1.6% (7.65% x $3.45) divided by $17.00Compounding Percentage 29.5% Total of all items



Holiday CostsProposed Additional Holiday

Average Hourly Wage Rate: $17.00Multiplied by the Additional Number of Holidays Per Employee Per Year: x 1 Multiplied by Hours Paid Per Holiday: x 8 Equals Cost Per Employee: $136Divided by Average Number of Hours Worked Per Employee Per Year: / 2,000 Equals Hourly Cost Per Additional Holiday: $0.068



Vacation CostsCurrent Vacation Schedule

Number ofCurrent Average Employees x

Weeks of Current Hourly Hours of Number Vacation Vacation Rate for Vacation x

of Per Hours Per Vacation Average HourlyEmployees Employee Employee Pay Vacation Rate

1 to 2 years: 67 1 40 $17.00 $45,5603 to 7 years: 88 2 80 $17.00 $119,680

8 to 19 years: 211 3 120 $17.00 $430,44020 to 24 years: 213 4 160 $17.00 $579,360

25 Years and Over: 121 5 200 $17.00 $411,400700 $1,586,440

Vacation Cost Per Hour = $1,586,440/ 1,406,000 hours worked = $1.13



Vacation CostsProposed Vacation Schedule

Weeks of Current Hourly Hours of Number Vacation Vacation Rate for Vacation x

of Per Hours Per Vacation Average HourlyEmployees Employee Employee Pay Vacation Rate

1 to 2 years: 67 1 40 $17.00 $45,5603 to 4 years: 40 2 80 $17.00 $54,4005 to 9 years: 107 3 120 $17.00 $218,280

10 to 14 years: 122 4 160 $17.00 $331,84015 to 24 years: 243 5 200 $17.00 $826,200

25 Years and Over: 121 6 240 $17.00 $493,680700 $1,969,960

Vacation Cost Per Hour = $1,969,960/ 1,406,000 hours worked = $1.40(1.13)

Cost of Proposed Increase in Vacation Schedule: $0.27



• The conventional costing method calculates the straight-time pay for the time off and spreads that over the average number ofhours worked.

• The critical question is how the employer staffs those holidays or additional vacation hours:

• Does it shutdown for holidays or vacation period?– if so, the additional labor cost is indeed just the pay for time off– but shutting down for holidays costs the employer production,

revenues and profit

• Or does it continue operations?– employees get 2 ½ holiday or 1 ½ overtime premium, but not time

off– employer hires more employees during vacations periods

Vacation and Holidays CostAssumptions on Replacement



Overtime Premiums

Average OvertimeHourly Premium

Overtime Overtime Wage Cost Per HourHours Premium Rate Per Year Worked

Regular Overtime 160,000 50.0% $17.00 $1,360,000 $0.976th Day Premium 45,000 50.0% $17.00 $382,500 $0.277th Day Premium 30,000 50.0% $17.00 $255,000 $0.18

235,000 $1,997,500 $1.42

Number of Hours Worked Per Per Year: 1,406,000



Shift Premiums

A B C D E FAverage (A x C) (B x D) (E/1.4M)

Hours Employees PremiumScheduled Worked Per x Hours x Hours PerEmployees Shift Employee Worked Per Worked Hour

Per Shift Premium Per Year Employee Per Shift Worked First Shift 400 $0.00 2,000 800,000 $0 $0.00 Second Shift 150 $0.30 2,000 300,000 $90,000 $0.06 Third Shift 150 $0.45 2,000 300,000 $135,000 $0.10

700 1,400,000 $225,000 $0.16

Current Shift Premium



Sickness and Accidentand Life Insurance Costs

Sickness and Accident CostCurrent Hourly Cost: $0.30Proposed Increase: $25Average Weekly Benefit: $300Proposed Percentage Benefit Increase: 8.3%

Current Cost x Percentage Increase: $0.03

Life InsuranceCurrent Hourly Cost: $0.07Proposed Increase: $5,000Current Life Insurance Benefit: $30,000Proposed Percentage Benefit Increase: 16.7%

Current Cost x Percentage Increase: $0.01


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