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CONTRACT COSTING TERMINOLOGY AND CONCEPTS
A B C
D E F
G H I J K L M
N O P Q R S T
U V W X Y Z
A
ACROSS-THE-BOARD INCREASES - A
negotiated raise in which all members of a bargaining unit, regardless
of classification, receive the same wage increase (either in percentage
or dollar amount).
ANNUALIZING WAGE INCREASES - Annualizing
is a way of converting changes over different time periods into
a standard yearly increase. For instance, a 6% wage increase that
is applied at the start of a full 12 month year (January 1)will
be worth a 6% wage increase to the employee and will cost the employer
6% for the year for that employee. But a 6% wage increase that is
applied half-way through the year (July 1), for a six month period
is only worth 3% to the employee and will cost the employer 3%.
The annualized figure is arrived at as follows using this example:
the 6% is divided by 12 into equal monthly amounts, equaling .5%.
That number is then multiplied by the 6 months it is in effect,
which equals 3%.
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B
BACK LOADING - Back loading occurs
when the majority of a raise is distributed at the end of a contract
cycle (e.g. Year 1- 2% increase, Year 2- 4% increase, Year 3- 6%
increase) in a multi-year agreement.
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C
CALL PAY - An hourly amount of
pay given a worker for being in an on-call status.
CASH BONUS - A cash bonus is just
as it sounds- an amount of money that is negotiated into a contract
that usually is given to each employee. It is often seen by management
as an attractive way of gaining employee support for a contract
while saving the employer money in the long run. The main problem
is that such cash bonuses do not increase the base wage rate, so
that there are no roll-up effects on overtime, vacation pay, holiday
pay, etc. and the base wage rate remains the same going into the
next cycle of negotiations.
COMPS - In preparation for bargaining
economic contract items, the parties will research what other comparable
employers are paying or giving for various benefit categories. These
are often referred to as comps. Comps are not necessarily as objective
as might be expected since either side can be selective in what
they deem to be “comparable”. Is a company located in
the same geographic area, but in a different industry and of a different
size a legitimate “comp” or alternately, is a similarly
sized company in the same industry but in a different part of the
country (and therefore different economic environment) a better
“comp”?
CPI (CONSUMER PRICE INDEX) - The
CPI is a figure published by the U. S. Department of Labor that
is supposed to show changes in the cost of living by measuring changes
in prices for housing, food, transportation, clothing and other
items. National and regional figure are available from the Bureau
of Labor Statistics available on its web site bls.gov.
COLA (COST OF LIVING ADJUSTMENT) -
COLA is an escalator clause in contracts that provides automatic
wage increases to cover the rising cost of living due to inflation,
usually pegged to the Consumer Price index and calibrated to kick
in only if the inflation rate rises beyond a certain percentage.
COLAs were common in the high inflation years of the 1970s but have
eroded over recent years, with various explanations offered (reduced
inflationary uncertainty, lower union power, and structural shifts
in the economy, etc). But regardless, they are seldom seen in contracts
today.
CONTRACTUAL RAISE - This is simply
the negotiated wage increase that is applied to the wage scale at
the beginning of a new contract year or period on a specific date.
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D
DIFFERENTIAL PAY - Additional pay
for time or duties beyond those normally required. The most common
forms are those for working on a shift other than the day shift,
and for weekend work. Differentials also may be paid for other specific
circumstances, such as: hazardous duty; certification or accreditation;
and, education.
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F
FRINGE BENEFITS - Negotiated contract
provisions exclusive of wages and hours, such as health insurance,
pensions, maternity/parental leave, paid vacations, leaves of absence,
mileage allowance, travel pay, etc. are termed fringe benefits.
FRONT LOADING - Front loading occurs
when the majority of a raise is distributed at the beginning of
a contract cycle (e.g. Year 1- 6% increase, Year 2- 4% increase,
Year 3- 2% increase) in a multi-year agreement.
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I
INCENTIVE PAY - Also referred to
as “pay for performance” or “merit pay”.
It is a system of pay that is a throw-back to piece work bonuses
in which workers are paid more than others for more or better work
or for supposedly higher performance on the job. Generally opposed
by unions because they are often tied to annual evaluations and
are highly susceptible to favoritism and subjective decisions made
by supervisors, and also because they destroy the unity and solidarity
of the union.
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L
LONGEVITY PAY - Contracts often
have a provision for longevity pay which is a cash amount given
to senior employees who have reached the top of the scale and have
no more steps to advance to.
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M
MEAN - The mean of a set of numbers
is the sum of all the members of the set divided by the total number
of items in the set. The mean is what is usually called the “average”.
MEDIAN - The median is the number
in the middle of a list with the same number of units above it equal
to the number of units below it.
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P
PAID TIME VS. WORK TIME - This
is an important concept to keep in mind when considering how a particular
benefit is calculated. Paid time includes all paid time off (all
days or time that and employee is paid, but not working). Work time
only applies to that time in which a worker is actually on the job,
excluding vacation time, sick days, personal or professional days,
bereavement leave, etc. Example: Vacation accrual rates that are
calculated on work time (instead of paid time), would have the effect
that all the time that an employee takes for vacation, holiday time,
sick time, etc. (non-work time) will lower the vacation accrual
rate thereby reducing total vacation amounts.
PAY IN LIEU OF BENEFITS- Some contracts
include the option for the employee to take a higher rate of pay
(pay in lieu of benefits) in exchange for not taking any benefits
at all, including health insurance, paid time off, etc. This can
often undermine the unity of the union as competing pressures and
divisions emerge on bargaining strategy.
PERCENT INCREASES VS. DOLLAR INCREASES
- Percent increases applied to a wage scale have the effect of increasing
the gap between the bottom of the wage scale and the top. This occurs
because a % increase on a lower wage rate is less actual dollars
than the same % increase on a higher wage rate. While a dollar increase
(or any portion of a dollar amount) has a different effect. A fixed
dollar amount is worth the same in actual dollars to the worker
at the bottom of the scale as to the one at the top, but that amount
represents a greater % increase to the lower wage earner.
PYRAMIDING - Often contracts include
a stipulation that there is “no pyramiding” of overtime
pay. This usually refers to a ban on getting paid twice for the
same hours worked. An example would be as follows: an employee works
4 hours over her 8 hour shift and therefore will get paid 8 hours
at her straight hourly rate of pay, plus 4 hours at the overtime
rate (1 ½ time pay) or 6 hours additional pay for a total
of 14 hours pay for that day. Assuming she works a 40 hour work
week for that week, she would receive a total of 46 hours pay. “No
pyramiding” means that the 4 hours overtime worked on one
day cannot also be counted as being 4 hours over the 40 hours per
week rate. It cannot be counted twice. Employers sometimes incorrectly
try to claim that “no pyramiding” also prohibits an
employee from getting a shift differential, in addition to a weekend
differential, or overtime.
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R
RED CIRCLE RATE - On rare occasions,
when a worker is placed on a wage scale, he/she might be red-circled
because their rate of pay does not fit anywhere on the scale. This
means that they are held in place (either not advancing up the scale
or not receiving a contractual increase) until their rate of pay
and the scale come together, or alternatively the employee may be
red-circled in recognition of being outside or above the wage scale.
ROLL-UP COSTS - These are the additional
costs (other terms used include: add-on; loading; creep; impact;
multiplying fringes) caused automatically by a change in wages or
salaries. As the hourly wage rate increases there are impacts on
other contractual items such as- overtime, holiday pay, vacations,
sick pay, call-in pay, bereavement leave, plus other potential items
as pensions, Social Security payments. The roll-up factor is obtained
by adding up the average hourly cost of all benefits subject to
the roll-up effect and dividing by the total cost of straight-time
wages. Example: Benefits subject to roll-up and their average hourly
costs: Overtime- $.90, Holidays- $1.00, Vacations- $1.30, Differentials-
$.05, Call-in pay- $.12, Sick Pay- $.23 for a total of $3.60. Divided
by the Straight time wage of $12.00 per hour equals a 30% roll-up
factor.
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S
SEVERANCE PAY - Compensation paid
to an employee upon layoff or closure of a facility.
SIMPLE HOURLY AVERAGE - The simple
hourly average is an average rate of pay based on totaling all of
the rates of pay and dividing that number by the total number of
all of the employees.
SPLITS - Some wage increases may
be spread over the contract year, or split. A split might look like
this: a 3% increase effective on Jan. 1 (the first day of the contract)
with another 3% increase effective on July 1 of that same year.
The impact in this example is that the worker’s rate of pay
(or base rate) will increase by 6% during the course of that year,
but the actual in-pocket money received for that year will be 4.5%
(figure arrived at by annualizing the split plus the initial increase)
of total wages.
STEP INCREASE - This is the increase
that an employee receives as a result of moving up the wage scale
from one step to another. The step increases are most often set
as yearly increases given on each individual employee’s anniversary
of date of hire. Therefore, the step increases for any bargaining
unit are spread throughout the year.
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T
TWO-TIERED WAGE SYSTEMS - An employer’s
practice of paying higher wages to current employees while creating
a lower level of pay (another tier) for all new hires after a date
specific. Such systems usually lead to divisions and tensions in
the workforce between senior employees and newer employees since
the workforce becomes divided by pay for performing the same job,
simply based on an arbitrary date. Increasingly these have been
exposed as only another union busting measure rather than one designed
to sustain a struggling company. Such two-tiered systems also have
been used for creating different tiered benefit levels (vacation
accrual rates, holidays, personal days, etc).
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W
WAGE SCALES - Wage scales are a
central element to any labor agreement. The wage scales list all
of the job classifications in various pay grades (usually vertically)
and the steps (usually horizontally) representing amounts of time
spent in a pay grade. Employees normally move up the step scale
automatically based on years in that pay grade. Wage scales may
have a very limited number of Steps (2-3) or they may have multiple
steps (22 plus) depending on what the parties have negotiated.
WEIGHTED HOURLY AVERAGE - The weighted
hourly average is the figure that is arrived at by multiplying the
number of employees in each specific wage rate, adding that number,
and then dividing it by the total number of employees. This number
is a more accurate measure than a simple average of per hour cost
because it takes into account the distribution of employees within
each pay category. At the bargaining table, the employer may try
to use the “average” rate because it is a higher rate,
therefore indicating higher costs per hour that are not valid.
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Other key figures:
2080 hours is the number of hours in a year based
on a 40 hour work week
173.3 hours is the number of hours in a month based
on a 40 hour work week
1950 hours is the number of hours in a year based
on a 37.5 hour work week
1820 hours is the number of hours in a year based
on a 35 hour work week
260 days are the number of days in a work year excluding
Saturday and Sunday
4.33 weeks is the average number of weeks in a month
" There are three kinds of lies: lies, damned
lies and statistics."
- Mark Twain
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