A Guide to Costing Labor Contracts

GRIEVANCE

A Guide to Costing Labor Contracts

Training and Development Department International Brotherhood of Teamsters

Table of Contents

1. DeterminingAverages.................................................................................................................................... 3 2. What is a "Good" Wage Settlement?............................................................................................................. 3 3. Does The Employer's Offer Keep Up With Cost of Living? .............................................................................. 4 4. Calculating the Weighted Average Base Rate (WABR) ................................................................................... 4 5. Moving Money through the Years ................................................................................................................. 5 6. Costing the Fringe Benefit Packages............................................................................................................... 7

A. Health Care............................................................................................................................................. 7 B. Pension Contributions ............................................................................................................................ 7 C. Holidays.................................................................................................................................................. 8 D. Vacation ................................................................................................................................................. 8 E. Paid Time Off........................................................................................................................................... 8 F. Overtime................................................................................................................................................. 9 7. Costing the Total Baseline Compensation...................................................................................................... 9 8. Costing the Union Proposal.......................................................................................................................... 10 A. Wages .................................................................................................................................................. 10 B. Vacation Leave ..................................................................................................................................... 10 C. Health and Welfare .............................................................................................................................. 10 D. Holidays................................................................................................................................................ 11 E. Paid Time Off (PTO) ............................................................................................................................... 12 F. Pension ................................................................................................................................................. 12 9. Total Cost of the Proposed New Contract...................................................................................................... 13 10. Roll-Up ....................................................................................................................................................... 13 11. Benefits Applying to a Faction of the Membership ...................................................................................... 14 12. WorkersCompensation ............................................................................................................................. 14 13. StateUnemploymentInsurance.................................................................................................................. 15 14. Federal Unemployment Insurance .............................................................................................................. 15 15. Social Security and Medicare Taxes (FICA)................................................................................................... 15 16. Final Thoughts ............................................................................................................................................ 16

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INTRODUCTION

The first thing members do upon opening a new contract is go straight to the wage provisions. Teamster contracts contain many strong provisions, such as Seniority, Union Rights and Grievance Procedure; but it is the economic provisions that always attract the most attention. As each contract is negotiated, all eyes are focused the amount of money put on the table. During bargaining, and even after agreement is reached, both parties will have to know the true cost and value of items proposed - and agreed to - at the table.

The Employer's negotiating team costs items to plan the future of the business (or public sector entity) and to predict the amount of resistance they can exert against the Union's demands. Of course, they will most likely keep such information to themselves and send a few false signals in the early stages of negotiations.

The Union's team needs to know the costs of the demands and the impact they will have on the members, the employer, or in some cases, an entire industry. The Union's objective is to secure the maximum gains possible while keeping the members securely employed. In the early stages of negotiations, the Union negotiators will try to minimize the demands made on the Employer. However, in caucuses, the Union will have to evaluate actual total costs (to the Employer) if they expect to adequately determine the amount of resistance to expect from the Employer.

In order to make the right decision at the table, the Union must know the exact cost of each proposal. The Employer may accept the Union's proposal (for example, a fifteen (15) cent an hour health and welfare increase), if they (the Union) agree to drop another proposal (such as a 1% increase in the night shift differential). Any intelligent counter proposal will require the Union to know how much each of those proposals will actually cost the Employer.

Similarly, when the Employer says that "we have already agreed to a 21% total package and won't give any more", the Union negotiators can counter more effectively if they know whether the package actually does costs 21%.

In the last analysis, reaching agreement means that both parties must make many decisions about adjusting their positions. Careful costing of the package helps the Union to determine what adjustments to make.

Computing the cost of contract settlements helps Union negotiators explain the package to the bargaining committee and members, the latter often not knowing the actual cost of benefits won at the table. It is difficult to determine whether a contract settlement should be ratified without knowing how much that settlement costs in both actual and percentage terms. Knowing the costs allows members to compare their current settlements to previous ones. Costing lets members determine for themselves how much the Employer can afford as well as to what is reasonable and possible to expect in a settlement. Even if the Employer is unwilling to supply cost data or if the data supplied is suspect, Union negotiators can calculate basic employer labor costs.

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The following provides examples of simple costing procedures, which can be translated into an average hourly rate, including the hourly value of benefits.

1. Determining Averages

No evidence is more misused as statistics, with the most prevalent misuse centering on the word average, which is often used three separate and distinct ways. Many people talk about the "average" yet never seem to specify what it means.

We can clarify the separate usages of "average" with an example. Suppose the Production Department employs 16 people, including management. In response to the Union's information request, the Employer produced the following table of last year's earnings. There were no overtime earnings.

Management

Classification

Salary

Director

$ 55,000

Assistant Director $ 42,000

Production Manager $ 42,000

Superintendent $ 41,000

Supervisor

$ 30,000

Classification A-1 A-2 A-3 B-1 B-2

Production Number of EE's

3 2 1 1 4

Salary $ 21,507 $ 20,509 $ 19,510 $ 18,990 $ 17,992

With negotiations taking place, the Employer announces that the average annual wage for the Production Department is $26,625.44. Therefore, no further wage increase can be justified. The Employer arrived at this figure by totaling all wages and dividing by the total number of employees. This is called a mean.

The Union replies by stating that the average annual wage for the hourly workers is $19,510.00, a figure based on the fact that half of all hourly employees earn more and half earn less than $19,510.00. This is the median.

Yet, there is a third method of reporting the "average" wage. The mode is the wage that occurs most frequently; in this case, the wage is $17,992.00.

Even if the Employer figures these averages correctly, a smart Union negotiator will nevertheless check the calculations. A careful analysis allows the Union to document the justification of the Employer position.

2. What is a "Good" Wage Settlement?

To determine whether to recommend accepting a contract offer, Union negotiators must weigh many factors: wages, benefits, contract language, etc. For the sake of illustration, we will look at wages in isolation from other factors.

Consider the wage structure from the previous section: the Union has proposed a wage

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increase of $1.20 over three years. The Employer, who has not given a wage increase for two years, first offered a wage increase of $.60 over three years; then over the course of several negotiation sessions, they have increased the offer to $.75 over three years.

The Union's Bargaining Committee has two rank and file members. The first member is at the bottom of the wage scale and thinks this is a good offer and suggests that the committee recommend it to the membership. The second member sits atop the wage scale and considers this offer too low. So, what will the Union recommend?

3. Does The Employer's Offer Keep Up With Cost of Living?

The cost of living is an important factor to consider when costing out a contract. A Labor Union should strive to beat the cost of living in their contracts. Fortunately, today's Union negotiator has access to a variety of resources and information on the Internet. One invaluable source can be found through the Bureau of Labor Statistics, website at , which provides statistics, such as wage earnings, benefits and cost of living averages for the entire United States as well as for each major metropolitan area.

Since 2000, inflation has averaged around 2.18% annually; with some years as high as 3.85% or as in 2009 an actual decrease of -0.34%. Using the average rate, this indicates a decrease in the buying power of those workers who receive no wage increases. In the above scenario, will the Employer's $0.75 increase allow the workers to keep up with the cost of living at 2.18% inflation? The offer to increase wages by $0.75 over three years is an average wage increase of $0.25 per year. When negotiating a successor agreement, it is recommended to look back at past increases to see how if they beat the cost of inflation. Note: The above inflation rates should be used only as examples; the actual rate of inflation will differ from year to year.

4. Calculating the Weighted Average Base Rate (WABR)

Most workplaces will have a number of different job classifications earning different rates, and within these different job classifications there will be different wage rates for the employees. Instead of calculating out proposals based on each classification and wage rate, it is often helpful to calculate the Weighted Average Base Rate (WABR). Consider the table below showing the different classifications and wage rates for the employees of XYZ, Inc.:

Classification A-I A-II A-III B-I Totals

Weighted Average Wage Rates

Members Rate

Wage Per Hour

25

$ 15.25

$

381.25

30

$ 16.50

$

495.00

15

$ 17.25

$

258.75

50

$ 17.50

$

875.00

120

$ 2,010.00

WABR

$

16.75

In this example, XYZ, Inc. employs 120 employees in four separate wage classifications with

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