AWC Personnel News - October 2008  (Plain Text Version)

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In this issue:
 ADA Amendments Signed Into Law: What ADA Changes Mean for Washington Employers
 Latest CPI Data
 Cost of Living Wage Formulas
 Considering Layoffs - Do You Have a Plan?
 Police/Fire Compensation Survey Available
 State Actuary GASB 45 Online Tool
 Organizational Development Services Available
 Minimum Wage Increase
 Workers’ Compensation Rates May Increase by 3%
 Family Leave Insurance Update
 Upcoming Conferences and Workshops

Cost of Living Wage Formulas

As some employers are painfully aware in today’s economy, a loosely written cost of living formula in your collective bargaining agreement can be costly. Here are some pointers to avoid dangerous cost of living formula language.

As some employers are painfully aware in today’s economy, a loosely written cost of living formula in your collective bargaining agreement can be costly. Here are some pointers to avoid dangerous cost of living formula language.

Example of Bad Cost of Living Formula

Effective January 1, 2009, the Employer agrees to increase wages by 100% of the cost of living, as measured by the CPI for 2008.

What is bad about this formula?
  1. It does not specify which CPI index is used (All Urban Consumers CPI-U or Urban Wage Earners and Clerical Workers CPI-W).
  2. There is no reference to geographical location (Seattle, Portland, All U.S. Cities, etc.).
  3. It does not indicate the release date that will be used (either the month or one of the semi-annual averaged first or second half).

 

Example of Better Cost of Living Formula

The Employer agrees to adjust the wage table contained in Appendix A by an amount equal to the percentage increase in the Seattle-Tacoma-Bremerton CPI-W from June 2007 to June 2008, effective with the first pay period after January 1, 2009. (Optional: with a minimum increase of 2% and a maximum increase of 4%)

What makes this a better formula?
  1. It specifies which index to use.
  2. It specifies which month to use.
  3. The index is published early in the budget cycle and optional minimum and maximum limits volatility.

The Bureau of Labor Statistics recommends use of the All U.S. Cities index because it is less volatile than the more limited geographic indices. However, employee groups in high-cost jurisdictions may argue for an index that more closely reflects their own economic pressures.

It is also wise to consider a CPI formula that is published early in the budget cycle. For example, if the budget is developed and finalized through the fall and early winter of a calendar year, it is usually good to have a CPI formula drawn from the summer preceding the budget development. Remember when referencing a CPI formula the index is actually released for most in the middle of the month following the designated date. For example, the June index referenced above would be released by the Bureau of Labor Statistics on approximately July 16.

Source: Contract Language-The Good, the Bad & the Ugly, Bruce Schroeder, 2007 Labor Relations Institute.