Contract/Agreement Costing Problem
The Company and the union have negotiated a new three (3) year agreement that begins on August 1, 2007 and runs through July 31, 2010. The agreement has been ratified by the union membership.
Following is the information that relates to the previous contract expiring on 7/31/07. The wages and benefits stated below are those that were being enjoyed by the employees under the previous contract:
Employees in unit:1,200
Hourly wage breakdown:300 employees @ $18.00
(Pre contract)400 employees @ $14.00
300 employees @ $12.00
200 employees @ $10.00
Holidays:10
Paid sick days:10
Personal days: 3
Vacation:1 week after 1 year of service
2 weeks after 2 years of service
3 weeks after 5 years of service
4 weeks after 10 years of service
Employee length of service:(needed to calculate vacation costs)
100 employees = 20+ years
200 employees = 15 – 20 years
300 employees = 10 – 15 years
300 employees = 5 – 10 years
200 employees = 2 – 5 years
100 employees = less than 2 years
Life Insurance:Premium: $10 per month per $1,000 of coverage
Premium fully paid by the Company for coverage that is equal to each employee’s annual earnings not including overtime and premium pay
(example: employee earning $14.00 per hour earns $29,120 per year.)
Medical Insurance: Company pays 100% of individual coverage = $100 per month
Company pays 80% of premium for employees electing family coverage
Family coverage costs $600 per month so Company pays $480 per month.
(300 employees elect individual coverage)
(700 employees elect family coverage)
(200 employees DO NOT take coverage from Company, but are covered through a spouse’s plan)
State Disability Insurance: Company pays 3% of straight time payroll into State Disability Insurance Fund
State Unemployment Insurance Fund: Company pays 3.5% of straight time payroll into State Unemployment Insurance Fund
Changes negotiated in the new Collective Bargaining Agreement
Wages:Effective 8/1/07: 4.5% across the board increase in the straight time rate
Effective 8/1/08: 3.5% across the board increase in the straight time rate
Effective 8/1/09: 2% increase for employees earning above $15.10/hr
3% increase for employees earning between $12.95 & $15.10
4% increase for employees earning between $10.80 & $12.95
Holidays:Add one (1) additional holiday
Sick Days:Add two (2) sick days
Personal Days: No change
Vacation:Effective 8/1/08 add three (3) days vacation to employees with over 15 but less than 20 years of service
Effective 8/1/08 add one (1) week of vacation to employees with over 20 years of service.
Medical Insurance:
Individual coverage: Company contribution reduced from 100% to 80%
Employee will now pay 20% of the monthly premium
Family Coverage: Company contribution reduced from 80% to 75%
Employee will pay 25% of the monthly premium
Buy back for employees who do not elect coverage from the Company
Employees who are not covered by the Company medical insurance save the Company money. There are 200 employees who have decided to decline Company insurance coverage. In December of each year the Company will pay each such employee 50% of the premium it would have contributed.
No other economic changes and no change in percentage paid by company to state disability or unemployment funds.
Remember to take into account the impact of wage increases on FICA contributions.