ATFC discusses ‘true cost’ of employment

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Lexington Human Resources Director Denise Casey spoke about the true cost of employment during one of the several workshops held at the Association of Town Finance Committees Annual Meeting on Oct. 15 in Devens.
Base salary is the number most people think of when considering the cost of an employee, Casey said, but it is only one component of the total. A number of “indirect” costs must be taken into consideration. These include health and dental benefits, unpaid leave, non-cash recognition and flexible benefit programs, training and professional development costs, workers’ compensation, unemployment insurance, pensions and “other post-employment benefits” (OPEB), which is mainly health insurance for retirees. There are even more costs associated with public safety employees.
“There are many other ways that employees receive compensation beyond what is in the weekly check,” Casey said. “One thing I encourage finance committee members to do is to get copies of the contracts, because they’re going to have … all of these listed out for you.”
Once contracts are signed and executed, they are considered a public record.
Health insurance, and insurance in general, is a huge part of the total cost of employment in municipalities, which typically pay a larger portion of the premiums than employers do in the private sector, Casey said. Most communities cover anywhere from 50 percent to 90 percent of insurance premiums for active employees and retirees. Any change to the ratio requires negotiation.
The rising costs of employment can have an impact on what a community can afford for cost-of-living adjustments (COLAs) for employees. Casey said she expects that municipalities will have to shift more of the insurance costs over to employees in the future. Communities can save money on insurance by moving employees 65 and older to Medicare plans.
OPEB is a large cause for concern for cities and towns, particularly with retirees living longer. In Lexington, Casey said, 52 percent of health insurance subscribers are retirees. One of the difficult issues in funding the municipal OPEB obligation is that the public – and town meetings – are often more focused on visible investments, such as schools and public safety buildings. Casey called OPEB an “invisible liability.”
Finance committees should be looking at the OPEB liability and seeking ways to fund it. Some towns are taking revenue from specific taxes and putting it directly toward OPEB, or, like Lexington, moving a certain amount from free cash at the end of each year into the OPEB fund. Finance committee members should get an annual assessment of pension and OPEB liabilities from the finance office or treasurer.
Casey said cities and towns should look at demographic trends, such as births and deaths, to help them prepare for changes in their workforce.
It is also important to present data during town meeting. Lexington has a shared expenses budget for benefits, with costs broken out for school employees, town employees and retirees, so the community can see where the money is going.
Casey said it’s important to form relationships with surrounding communities to share and compare information about the various elements of employee costs. It is helpful to find your place in the market – whether you lag, match or lead among comparable communities. It can help to look at salary data in these towns to see if you are competitive.
It can be difficult to compare health insurance costs among communities, so Casey said she will often compare the costs of the most-subscribed plan in similar communities.
To look at the data appropriately, Casey suggested creating “composite employees” for various positions using average years of service, level of education, and other factors for that group. The composite example can then be used for comparison.