Voluntary Separation and FTE Reduction Incentive Programs Executive Summary of Results

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1 Voluntary Separation and FTE Reduction Incentive Programs Executive Summary of Results June 2014 Program Overview On June 25, 2012, the Board of County Commissioners approved two voluntary programs aimed at helping departments and elected offices meet the identified budget reduction targets for The programs offered incentives for County employees to either 1) voluntarily separate from employment or 2) reduce their FTE (Full Time Equivalent); in other words, permanently reduce their budgeted work hours and thereby reduce County costs. Final Separations occurred under these programs no later than December 31, Part I: Voluntary Separation Incentive Program The Voluntary Separation Incentive Program (VSIP) offered incentives to employees in eligible positions to voluntarily separate from County employment. The positions accepted into this Program (or related position approved by the Appointing Authority) are either permanently eliminated from the budget or refilled at a lower rate to create ongoing savings. Program highlights included three components: Position Eliminated: If an employee applied for the program and their position (or a similar position) was eliminated. Incentive: Lump sum payment equivalent to 6 months salary. Position Filled at a Lower Rate: If an employee applied and his or her position needed to be refilled to meet the department s business needs. Incentive: Lump sum payment equivalent to 9 months salary savings (current base annual rate calculated against the midpoint of the hiring pay range or the actual hire rate, if known). Reorganization of Work: If several employees applied for the program and, due to the nature of their work, the Appointing Authority could use that opportunity to reorganize how work was performed thus allowing for the elimination of a position. Incentive: The cumulative savings of the reorganization was to be divided among the approved employees to determine the 9 months salary savings. Part II: Voluntary FTE* Reduction Program The Voluntary FTE Reduction Program offered an incentive to eligible employees in approved positions to voluntarily and permanently reduce their budgeted work hours, thereby reducing employee costs. The positions accepted into this Program had to have a corresponding permanent reduction in FTE. The incentive for participation was the continuation of County health and dental insurance costs at the level prior to the FTE reduction for the next two calendar years following the employee s FTE reduction. * FTE = Full Time Equivalent. For example, an FTE of 1.0 means that the person is equivalent to a full-time worker, while an FTE of 0.5 signals that the worker is only half-time. Larimer County budgets for positions and benefits by FTE allocation Voluntary Separation and FTE Reduction Program Executive Summary June 2014

2 Program Results The Voluntary Separation and FTE Reduction Incentive Programs provided a combined on-going savings to the County of approximately $2,042,499 in salary and estimated benefits costs ($1,745,726 salary + $296,733 benefits costs). The program incurred a one-time expenditure associated with the participant separations of $1,078,389. It is important to note that there was also an additional $183,326 in normal leave payouts and percentage based benefits that employees are entitled to upon separation not directly related to the offering of this program, but paid out due to the incentivized separations. The one-time expenditures were complete by the first pay period in Finally, there is also an ongoing program cost of continuing benefits for FTE Reduction program participants of $14,031. The net result is an estimated County-wide savings of $780,784 for 2014 with the understanding that ongoing savings will continue as estimated above at $2,042,499 annually. The impact to each of the participating funds is listed on page 4 of this report; the estimated continued General Fund savings is $1,272,984 for both programs (including estimated benefits costs). General Applicant Information The application period for these programs was roughly 12 months running from July 16, 2012 to June 28, Under the program rules, all separations and FTE reductions must have occurred by the end of December A total of 121 completed applications were received for the programs, 10 for the FTE reduction program and 111 for the Voluntary Separation program. Appointing Authorities approved 108 of the total 121 applications that were received, and the Review committee supported the decisions of the Appointing Authorities on all 121 applications. The following table illustrates the applicant information: Approved Denied Grand Total FTE Reduction Voluntary Separation Eliminate FTE Refill at a Lower Rate Reorganization Grand Total Employee Program Acceptance Information Of the 108 approved applications, 89 employees ultimately accepted the program, participation and 19 declined to participate after their application was accepted and approved: Employee Acceptance Accepted Declined Grand Total FTE Reduction Voluntary Separation Eliminate FTE Refill at a Lower Rate Reorganization Grand Total Voluntary Separation and FTE Reduction Program Executive Summary June 2014

3 Estimated Ongoing Salary and Benefit Cost Savings Based on the 89 employees who accepted their Voluntary Separation or FTE reduction offers, the County will see an estimated $1,745,726 reduction in salary costs for 2014, with an additional estimated benefits costs savings of $296,773 (assuming a 17% for percentage based benefits, as the majority of salary savings are associated with refilling at a lower rate and not a FTE elimination). A total estimated salary and benefits savings of $2,042,499. Estimated Annual Salary Savings by Year of Separation and Program Separation or Reduction in 2012 Separation or Reduction in 2013 Estimated Ongoing Salary Savings FTE Reduction (6) $ 85,734 $ 85,734 Voluntary Separation (83) $ 522,626 $ 1,137,366 $ 1,659,992 Eliminate FTE (14) $ 298,012 $ 443,621 $ 741,633 Refill at a Lower Rate (67) $ 224,614 $ 601,424 $ 826,038 Reorganization (2) $ 92,321 $ 92,321 Ongoing Salary Savings $ 552,626 $ 1,223,100 $ 1,745,726 Grand Total Salary and Estimated Benefits (Benefits estimated at 17%) $ 2,042,499 Estimated One-Time Incentive Costs Based on the 83 employees who accepted their Voluntary Separation offers the estimated one-time salary payout costs are $1,078,389. It is important to note that there are also additional costs associated with normal leave payouts and percentage based benefits that employees are entitled to upon separation not directly related to the offering of this program, but paid out due to the incentivized separations. Those are estimated at $183,326 for a total estimated payout cost of $1,261,715. Estimated Program Costs by Year of Separation and Program Separation in 2012 Separation in 2013 Estimated One- Time Incentive Costs Voluntary Separation $ 331,889 $ 746,500 $ 1,078,389 Eliminate FTE $ 159,167 $ 221,811 $ 380,978 Refill at a Lower Rate $ 172,722 $ 455,449 $ 628,171 Reorganization $ 69,241 $ 69,241 Total Estimated One-Time Salary Costs $ 335,405 $ 764,080 $ 1,078,389 Total Costs including estimated benefits (17%) $ 1,261,715 Other Costs: The FTE reduction program had incentive costs associated with maintaining the current benefit level employer contribution tier for the six employees who accepted their Voluntary FTE Reduction offer is $14,031 Spread over two years from the date of the FTE Reduction. All of these employees currently have the Wellness incentive reduced premium, and one employee, who had accepted this program, has since transferred to a full time position in another department and is no longer receiving the incentive Voluntary Separation and FTE Reduction Program Executive Summary June 2014

4 Summary of program results by fund The bulk of the savings can be attributed to the General Fund with an estimated continued General Fund savings is $1,272,984 for both programs (including estimated benefits costs). All funds with participating employees are listed below: Fund Summary Employee Count Estimated Employer Annual Savings (Salary Only) Estimated Payout FTE Reduction 6 $ 85,734 N/A General Fund 3 $ 55,296 N/A Workforce Center 2 $ 19,844 N/A Facilities and Info Tech 1 $ 10,594 N/A Voluntary Separation 83 $ 1,659,992 $ 1,078, General Fund 43 $ 1,032,724 $ 634, Criminal Justice 1 $ 8,791 $ 6, Community Development 2 $ 27,016 $ 20, Health 1 $ 20,254 $ 15, Natural Resources 2 $ 50,776 $ 38, Road & Bridge 5 $ 25,052 $ 19, Human Services 23 $ 271,151 $ 203, Facilities and Info Tech 5 $ 209,984 $ 130, Fleet 1 $ 14,244 $ 10,683 Grand Total 89 $ 1,745,726 $ 1,078,389 Grand Total Salary and Estimated Benefits (Benefits estimated at 17%) $ 2,042,499 Summary of Department/Elected Office Participation Employees participated from the following departments and elected offices: FTE Reduction Voluntary Separation ALL Programs Sum of Estimated Number of Number of Sum of Estimated Sum of Number of Employer Annual Estimated Total Estimated Total Accepted Accepted Employer Annual Estimated Accepted Savings (Salary Annual Savings Payout Application Application Savings (Salary Only) Payout Application Department Only) Finance 1 $ 3, $ 2, $ 3, $ 2, Clerk & Recorder 1 $ 8, $ 6, $ 8, $ 6, Community Corrections 1 $ 8, $ 6, $ 8, $ 6, Fleet Services 1 $ 14, $ 10, $ 14, $ 10, Workforce Center 2 $ 19, $ 19, $ - Health and Environment 1 $ 20, $ 15, $ 20, $ 15, Road & Bridge 5 $ 25, $ 19, $ 25, $ 19, Treasurer 1 $ 28, $ 28, $ - County Attorney 2 $ 26, $ 6, $ 4, $ 32, $ 4, Natural Resources 2 $ 50, $ 38, $ 50, $ 38, District Attorney 5 $ 52, $ 39, $ 52, $ 39, Planning and Building 4 $ 59, $ 45, $ 59, $ 45, Assessor 4 $ 169, $ 102, $ 169, $ 102, Facilities and Information Technology 1 $ 10, $ 209, $ 130, $ 220, $ 130, Engineering 4 $ 225, $ 115, $ 225, $ 115, Human Services 23 $ 271, $ 203, $ 271, $ 203, Sheriff 25 $ 534, $ 338, $ 534, $ 338, Grand Total 6 $ 85, $ 1,659, $ 1,078, $ 1,745, $ 1,078, Voluntary Separation and FTE Reduction Program Executive Summary June 2014

5 Comparison with 2010 Program The following tables compare the Program with the Program offered in 2010: Program Cost/Savings Estimates: 2010 Compared to Estimated Estimated Costs Savings Estimated Costs Estimated Savings FTE Reduction $ 8,511 $ 26,107 $ 14,031 $ 85,734 Voluntary Separation $ 1,261,974 $ 2,569,566 $ 1,078,389 $ 1,659,992 Program Totals $ 1,270,485 $ 2,595,673 $ 1,09,420 $ 1,745,726 Salary and Estimated Benefits (Benefits estimated at 17%) $ 1,486,467 $ 3,036,937 $ 1,278,131 $ 2,042,499 Est. One Year Net Savings In 2011 $1,550,470 In 2014 $764,368 Ongoing Annual Savings (including 17% Benefits Est.) $ 3,036,937 est. $ 2,042,499 est. Program Participation: 2010 compared to Program Year Total Applications Received Approved by Department or Office Denied by Department or Office Declined or Withdrawn by the Participant Total Accepted Program Participants FTE Reduction Voluntary Separation* Grand Total FTE Reduction Voluntary Separation Eliminate FTE Refill at a Lower Rate Reorganization Grand Total *The only option for the 2010 Program was the elimination of the position Voluntary Separation and FTE Reduction Program Executive Summary June 2014

6 Program Observations and Lessons Learned Offering the Voluntary Separation Incentive Program and the Voluntary FTE Reduction Program to employees in has helped County departments and elected offices meet their targeted budget reductions. Although net program savings are estimated at $780,784 for 2014, after the incentive payments are accounted for, the ongoing savings is estimated at $2,042,499 with $1,272,984 of that attributed to the General Fund. Unlike the 2010 Program, which required the permanent elimination of an FTE, the Voluntary Separation Program provided the option of refilling the vacated position at a lower rate. This was much more attractive to departments and elected offices since it allowed them to maintain the position (FTE) while still saving money. Over time, the new employees who filled the positions will receive salary increases, promotions and other employment actions that will increase their annual earnings and, ultimately, reduce the annual ongoing savings. However, this does not diminish the fact that significant savings has been and will be realized for 2015 and beyond. Turnover Increasing Some turnover is expected and is healthy for an organization. The turnover from this program supported a budgetary reduction for the County, but turnover also has a cost. The impact of replacing a fully trained and satisfactorily performing worker includes: loss of productivity when the employee leaves (during the actual vacancy); the cost of hiring and training a new employee;, and slower/less efficient productivity until the new employee is able to function at full productivity. There are also hard costs associated with turnover, such as, overtime paid to hourly staff for covering the vacancy, payout costs associated with the separation, reduced service time due to vacancy, recruitment costs (advertising, salaries for staff involved in interviewing, time associated with the interview process), training costs for new employees (this can differ greatly depending on the business requirements of the department or elected office), and potentially unemployment costs if awarded by the State. It is generally estimated that the cost of turnover is approximately 20% of an employee s annual salary. From 2012 to 2013 Larimer County experience a 4% increase in Turnover, going from a 9% turnover rate to 13% (this includes the VSIP separations). If we exclude the VSIP separations, turnover in 2012 would have been 7% and in 2013 would have been 9%, so there is still a 2% increase in turnover, which is significant. From 2012 to 2013 we saw a 50% increase in Regular/Limited Term separations. In 2012 there were 137 separations and 205 in In can be attributed to the separation program and 57 in Excluding the separations from the program we still experience a 33% increase in Regular/Limited Term separations. The turnover described above is not problematic, but it is something HR will continue to monitor and determine if we see a trend. The takeaway here is that, at least at this point, we don t recommend incentivizing further turnover. With a more competitive job market and the County s slower ability to recover financially than our competitors, including municipalities, we are likely to lose more employees in the next few years than we have experienced in the past Voluntary Separation and FTE Reduction Program Executive Summary June 2014

7 Trend in Reduced Refill Rate In addition to increased separations, we have experienced a decrease in our refill rate, which is the number of positions refilled (hired) compared to the number of position separated. In 2012, there were 36 position left unfilled by departments and elected offices based on the difference of separations to hires. In 2013 there were 80 positions left unfilled. This increase in the number of unfilled positions intensifies employees current workload, and can lead to additional separations and loss of knowledge. Not all of these vacancies are attributable to the Voluntary Separation Incentive Program, but some of them are. Some of the reasons for reduced refill rates include: Decision by department or elected office to leave the position vacant for the long-term and see if they can operate efficiently without it Decision by department or elected office to leave the position vacant for the short-term to recoup separation costs (payout of sick, vacation, and compensatory time) or provide short-term salary savings Difficultly in recruiting a qualified candidate The list above is not exhaustive and reasons will vary by department and elected office. Choosing not to refill a position is, and should continue to be, a consideration for all vacancies and is considered a best practice in staffing. The central theme of this observation is that a reduced refill rate and increased turnover rate, when combined, may lead to employee fatigue. Workload and Employee Fatigue As noted above, both turnover and reductions in refilling of vacancies can further promote employee fatigue, sometimes referred to as burnout. In addition, many County departments and elected offices have already reduced staff size due to necessary budget reductions over the last few years. Some service levels have been adjusted and technology has been employed to help support these reductions; however, greater workload and higher levels of employee fatigue/stress are increasingly being reported. This has been recently intensified by emergency events of fire and flood. HR is working with the Wellness Benefits Coordinator to develop programs and offerings in support of this need and we will continue to monitor the issue through the annual employee survey, exit interview questionnaires and analysis of overtime/compensatory time utilized. If the trend continues, it could lead to further turnover and loss of valuable employees, creating challenges in meeting identified service levels and customer needs. Conclusion The Voluntary Separation Incentive Program produced results as expected. HR will continue to monitor the trends described above assist departments and elected offices in the development of strategies to address them. Solutions will not be one-size-fits-all and will need to be tailored to the service area business need Voluntary Separation and FTE Reduction Program Executive Summary June 2014