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Understanding the Total Employer Cost of Worker Compensation
Understanding the Total Employer Cost of Worker Compensation

Few questions are as politically charged in the U.S. today as the issue of whether the public receives its money’s worth for government services. Asking these same agencies to answer the question is also problematic, because of real or perceived conflicts of interest.

For nearly two decades, Portland State University’s Center for Public Service (CPS) has tried to fill this gap as an honest broker, enhancing ‘the legitimacy and effectiveness of public service institutions and democratic governance’ by connecting the research, consulting and educational capabilities of the Hatfield School of Government to jurisdictions throughout Oregon and Southwest Washington.

In 2012, CPS conducted a study of the cost of government personnel services in and around Oregoni,  which up until that point had been too little understood by most budget officials, managers, employees and tax payers. The resulting Public Sector Total Employer Cost of Compensation (TECC) study provided information detailing the actual costs of employing public service workers to participating partners—including the state of Oregon, 11 cities and ten counties throughout Oregon and Southwest Washington and the public. The final figures combined worker base pay with other expenditures such as non-base pay, vacation, holiday and sick leave, overtime, insurance (health, unemployment and workers’ compensation), and post-employment (retirement and medical costs)ii.  When the study was complete, CPS produced a first of its kind, cross-jurisdictional comparative analysis of the total expenses associated with employing personnel to fulfill essential roles within government. Across the board, the findings indicated that the sum of the aforementioned benefits were roughly comparable to employees’ base pay (Center for Public Service, 2012).

While the report enabled the 23 participating jurisdictions to make more informed decisions when budgeting for personnel services so they might better manage their limited financial resources, it also had its limitations. The data was largely from 2010, and only applied to several dozen government entities. A number of local governments approached CPS, and its Director—former Oregon Secretary of State Phil Keisling—to express interest in creating a TECC-like tool and database containing aggregate data, that was updated each year, for the benefit of all cities and counties in Oregon, and in other states around the country.

“For any government, its employees are far and away its greatest asset, and also its greatest expense,” Keisling said. “The 2012 report was an eye-opener for a lot of folks. No one had pulled all these costs together in this way before. No one knew how the price tag for total compensation varied year to year and from jurisdiction to jurisdiction. For a lot of people, this was really useful information they had never looked at before.”

Average Total Employer Cost of Compensation by Component for All Participating Jurisdictions and Job Titles Grouped by State of Oregon and City and County (Center for Public Services, 2012)

According to Keisling, responses to the report from study participants indicated a need for a standardized platform on which governments could easily enter detailed data pertaining to compensation rates, other pay, leave, and the cost of taxes and insurance for specific job titles. Ideally, this platform would then track that information over time and drive ‘apples-to-apples’ comparisons with similar positions in other jurisdictions throughout the state. Not only could such information improve how cities and counties manage their budgets, it also had the potential to change the framework of how elected officials, resource managers, employees and the public think of government personnel costs, which may promote a more open, sophisticated dialogue between all parties involved about how best to compensate and reward public service workers.

To create the TECC-type calculator cities and counties needed, Keisling began working with PSU’s Innovation & Intellectual Property office, which provided financial assistance through the University Venture Development fund to get the software development going and tactical support in managing licensing agreements with users when the platform went online. The Total Employer Cost of Compensation tool is now in beta testing with 15 partner jurisdictions and hopes to have at least 50 jurisdictions enrolled in the subscription-based service by the summer of 2015.

            Phil Keisling

 Phil KeislingKeisling likens the user experience to that of Quicken or Intuit financial management software systems. Once a record is entered, the program can break the cost data for a position into yearly, monthly and even hourly ratesiii.  When a jurisdiction’s entries are completed, the TECC calculator reports on individual and overall costs, and the TECC team can then prepare customized reports that compare TECC costs to those of other cities and counties in Oregon, taking into account factors including how long an employee has been in service, differences in non-base pay, insurance and so on.

“We learned so much from the work we did on TECC 2.0,” Keisling said. “Because of that experience, we were able to develop a common methodology and tool kit to gather all the disparate costs public employers incur and turn that into a product line that has real value for cities, counties, the state and tax payers. We looked around the country to see if there was any other tool like this out there. We couldn’t find anything comparableiv. That has made us a real ‘go-to’ player for other communities and organizations in Oregon. And it’s a great example of how the knowledge that we build at PSU and our capacity to enter into partnerships can lead to great innovations, provide new ways of looking at government, and improve the ways we manage its resources.”

i “Personnel services,” or the costs associated with compensating employees, are consistently one of the greatest expenditures cities, counties and state governments incur. For example, examinations of Multnomah County’s, the City of Beaverton’s and the City of Albany’s adopted budgets for fiscal year 14-15 reveal budgeted personnel services expenditures of 31 percent, 70 percent and 28 percent respectively. Personnel services represented 25.8 percent of the state’s total expenditures in the 2013-2015 budget.

ii CPS examined the cost of pay and benefits for 11 common job titles (refer to the report for a list of positions).

iii The TECC platform has expanded from the original 11 job titles analyzed in the 2012 report to 70 today. Users inputting data narrow the range of titles by answering questions related to workers’ specific duties. The expansion provides a more comprehensive evaluation of how highly specialized positions are compensated for in jurisdictions throughout the state. 

iv The Bureau of Labor Statistics regularly publishes a report on the “Employer Costs for Employee Compensation” that includes public and private sector data. The numbers provided by the government, however, represent national averages and divide workers into three categories: management, professional, and related workers. While the data is useful for gaining a sense of the median total costs of employee compensation nationwide, at the local level it provides resources managers little useful information.