Fringe benefits: by occupation (trades people)

Transcription

1 Brown s Economic Damages Newsletter September 2010 Volume Seven Issue 9 Brown Economic offers 5 user-friendly economic loss calculators for quick, accurate, and cost-effective damages estimates: Non-Pecuniary (free) Working Life / Life Expectancy (free) Present Value (free) Housekeeping (pay per use) Income Damages (pay per use) Fringe benefits: by occupation (trades people) When quantum experts (or counsel) attempt to measure and account for nonwage benefits that is, the measure of non wage income that employers pay on behalf of employees to group insurance plans and retirement or pension plans many do not realize that there is a paucity of data available, and little of it specific to a company or job title. The best measure of any specific plaintiff s non wage benefits is an employer handbook or pay stub that sets out the employer s contribution to group insurance plans and savings or pension plans, 1 in terms of a dollar contribution or as a percentage of gross payroll. 2 (The latter is the most commonly used measure when fringe benefits are expressed but on occasion, an individual s pay stub will explicitly show the employer s dollar contribution. In such cases, this dollar contribution must be compared to the gross pay of the employee, minus bonuses or overtime or extra pay, 3 to generate the appropriate percentage). There are specific industry surveys that collect information not only about wages but about benefits too, along with employer practices relating to hours of work, overtime policies, statutory holiday and vacation pay, travel and subsistence allowances, and, since 2008, whether the employer anticipated increasing or decreasing the size of its workforce. One of these is profiled in this issue. It is Merit Contractors Association s 4 Wage and Benefit Survey Construction Trades in Cara Brown, M.A., Principal Maureen Mallmes, B.Sc., SEMC Dan Clavelle, M.Ec. Laura Dick, B.A. Al-Nashina Abji, M.A. Cindy Ghitter Elda Figueira, MLIS J.C.H. Emery, Ph.D. Frank Strain, Ph.D. Stephen Clark, Ph.D. Emmanuel Yiridoe, Ph.D. 1 By this, we do not mean the cost-sharing arrangement between employee and employer that is often cited in unionized collective agreements (i.e., 25%/75%) these percentages simply pertain to which group will pay how much of the total benefit. They do not yield information on how much the benefit costs as a percentage of the employer s payroll, the typical way the cost is expressed. Cooper- Stephenson and Saunders correctly note that And if there is joint employer-employee funding, a plaintiff who is being awarded full loss of earnings should receive only the value of employer contributions (Personal Injury Damages in Canada (2 nd edition), (Ontario: 1996 Thomson Canada Limited), p As Martin, author of Determining Economic Damages says, A simpler, more widely used method by economists, is to calculate benefits as a percent of pay. Both government studies and the Chamber of Commerce studies present data in a percentage format, and it is easy to explain in court. (Gerald D. Martin, Determining Economic Damages (California: James Publishing Incorporated), 2003, p Because the benefits are converted to a percentage, it is not appropriate to make the percentage smaller by enlarging the divisor (gross pay) when the benefits do not change with the payment of bonuses or overtime pay. 4 Merit Contractors Association in Alberta states its core purpose as supporting the open shop construction environment, with a view to maintaining and contributing to the training, development and well-being of construction industry workers by providing leadership, human resource services and programs, positioning construction industry jobs as attractive career options, and providing education and support for its members (see Brown Economic Consulting Inc. Help Line: BEC-ASST ( )

2 page 2 Volume Seven Issue 9 September 2010 Alberta. This association conducts a bi annual survey 5 for the following trades: ο Carpenters ο Construction labourers ο Concrete finishers ο Electricians (commercial/institutional/residential and industrial) ο Glaziers ο Insulators (commercial/institutional/residential and industrial) ο Lather interior systems mechanics ο Metal building systems erectors ο Millwrights ο Painters ο Pipefitters ο Plumbers ο Refrigeration and air conditioning mechanics ο Roofers ο Sheet metal mechanics Below, we review the findings from the January 2009 Merit Wage and Benefit Survey Construction Trades in Alberta as to the employer contribution to group insurance and retirement plans. 6 The Merit surveys are cross sectional and the coverage varies from year to year. The January 2009 survey was comprised of 495 firms and produced data for 9,549 employees. This compares to a similar number of firms in 2008, but fewer employees compared to the 2008 surveys (which covered 15,081 employees in January 2008 and 18,307 employees in June 2008). Merit Alberta explains the large drop in employee coverage being due to the reduction in the number of commercial and industrial carpenters and electricians across the province, and fewer employers reporting labourers on their payrolls. Merit Contractors Association ( MCA ) produces figures for two main areas in Alberta: Calgary, which includes southern municipalities such as Lethbridge, Medicine Hat and Red Deer; and Edmonton, which includes northern municipalities like Bonnyville and Grande Prairie. Before reporting on specific findings for the job categories listed above, I review on page 3 some of the general statistics relating to fringe benefits. 5 Merit Contractors Association requires a fee for purchasing the bi-annual survey. Brown Economic absorbs this fee when using it in specific cases. There are other Merit organizations in other provinces in Canada; some of them compile income information (i.e., British Columbia and Saskatchewan) but do not produce the information for non-members. Others do not have the resources to conduct these types of surveys. 6 These are the two main categories of benefits offered by employers. Group insurance refers to short- and long-term disability insurance; life insurance; AD&D; extended and supplementary health care; vision care (if offered); and dental care, all of which are non-taxable to the employee. (Source: KPMG Tax Planning 2009 and Tax Facts ). Retirement plans are self-explanatory; they include any employer-funded or employersponsored group savings, RRSP, or RPP plans (whether defined contribution, defined benefit, or benefit unit rate plans). Employers who offer group insurance plans may not necessarily offer retirement plans. For instance, in the January 2009 MCA survey, it was reported (on average) that whereas more than 90% of employers offered some type of group insurance plan to employees, only one-third offered retirement programs. Cooper- Stephenson and Saunders identify a third group of fringe benefits, called unconditional benefits, which they describe as benefits of an unqualified nature, such as the provision of accommodation, computer equipment or an automobile (Personal Injury Damages in Canada (2 nd edition), (Ontario: 1996 Thomson Canada Limited), p. 240). We do not address these benefits in this newsletter issue, as they would be person-specific and accordingly require specific proof rather than rely on statistical information.

3 Brown s Economic Damages Newsletter page 3 General findings on fringe benefits (for quantum experts) Over 70% of employees participate in at least one non wage benefit plan (group insurance, retirement or stock purchase plan). This is affirmed in Statistics Canada s publication Workplace and Employee Survey Compendium 2005 ( WES 2005 ): Non wage benefits were widespread in 2005, with almost three quarters of workers [75%] having access to them (p. 49). Participation in group insurance plans were more common than in group RRSP and stock purchase plans. 7 The WES 2005 reports that while 48% of all employers offered non wage benefits in 2005, this percentage varied dramatically by workplace size. Whereas 38 to 65% of employers with 1 to 19 employees offered non wage benefits, 95.2% to 99.8% of employers with 20 to 500 or more employees offered non wage benefits. 8 A rounder summary is stated in the WES 2005 survey: Whereas about 1 in 2 workers in small workplaces (1 to 19 employees) did not have non wage benefits, around 94.0% of workers had access to these benefits in large workplaces (500 employees or more). (p. 49) Men were somewhat more likely than women to participate in non wage benefits (73.5% versus 68.5%). 9 In the WES 2005 study, Statistics Canada found that fewer employees in retail trade and consumer services were offered nonwage benefits (35.8%) compared to those in the finance and insurance sector (79.8%). The participation rate in non wage benefits was higher among workers who were unionized (88.7% versus 64.6% for the non unionized) 10 or employed full time (76.3% versus 42.9% for part time). 11 The likelihood of participating in these benefits also rose with earnings 42.4% of those with an hourly wage under $12 participated, compared with 75.3% for those earning between $12 and $20 and 88.5% for those earning more than $20 per hour. 12 In the absence of plaintiff specific information about contingencies, we usually rely on Watson Wyatt s (now Towers Watson s) COMPARISON TM database of 638 organizations that were polled about the extent of their coverage and percentage of gross payroll per employee that the employer pays. 13 These estimates are based on actual costs by Canadian companies who responded to the Towers Watson survey. They are categorized by industry sector only not by specific occupation, education level, firm size, geography, gender, or age. This is an important distinction, and not one that is widespread. Often counsel and insurers simply assume that because wage information is available by occupation or job title, as are unemployment rates and participation rates, that the benefit information is categorized similarly. In point of fact, without plaintiff specific data (such as an employer handbook or pay stub) we can only differentiate benefits by industry sector and this is primarily because there is a large variation between benefits 7 Affirmed in Statistics Canada s publication Workplace and Employee Survey Compendium 2005, Table 4.3, p Catalogue no X, Table 4.3, p Statistics Canada, The Canadian Labour Market at a Glance 2005 catalogue no XIE June 2006, p Affirmed in Statistics Canada s publication Workplace and Employee Survey Compendium 2005, Table 4.3, p. 48. There, we see that in smaller workplaces (1 to 19 and 20 to 99 employees), 15% more of employees who were unionized received health-related benefits and 10 to 20% more of employees who were unionized received pension-related benefits. 11 Affirmed in Statistics Canada s publication Workplace and Employee Survey Compendium 2005, p. 49: Being a full-time worker increased access to non-wage benefits (about three-quarters compared with almost half for part-time workers). 12 Statistics Canada, The Canadian Labour Market at a Glance 2005 catalogue no XIE June 2006, p. 75 and Statistics Canada s publication Workplace and Employee Survey Compendium 2005, p. 49: As earnings increased, so did the likelihood of receiving non-wage benefits. 13 This is one of the best sources available in Canada as it specifically polls numerous organizations and tracks actual costs, by industry sector and it is the largest survey of its kind in Canada. Statistics Canada s publication Workplace and Employee Survey Compendium 2005 reports non-wage coverage for employees in non-managerial occupations in Table 4.1 (pp ) but these estimates are not useful. When the hourly wages in the columns entitled Without non-wage benefits and With non-wage benefits are compared, the differences range from 16% to 30% to 46%. This would imply that the non-wage benefits are augmenting hourly pay by these percentages. The people surveyed to obtain the information in Table 4.1 must have included other variables than strictly employer premiums to group insurance and/or retirement savings plans. We do not use this source to estimate the fringe benefits contingency.

4 page 4 Volume Seven Issue 9 September 2010 offered by firms in different industries partly because industry sector will determine the size of average firms. Thus, in this issue, the value of having access to benefit coverage by specific job title and geographical sector from the Merit Contractors Association cannot be overestimated. The estimates most frequently used are 4.9 to 6.2% for employer contributions to group insurance, 14 and 5 to 15% for employer contributions to retirement or pension plans. 15 It is good practice to ignore the estimates discussed in human resource circles: they include a large component for paid time off, i.e., vacation and statutory holidays and paid sick leave. Since forensic economists almost always use full year, full time 16 salaries (i.e., salaries that are annual figures or based on 52 weeks per year), paid time off is already subsumed in the loss of income calculation. This cannot be emphasized enough, because novice practitioners can make the mistake of adding 25% or more for fringe benefits if they rely on human resource literature. 17 Using 25%+ grossly overstates (and double counts) the value of non wage benefits when the full year salary is used. Some forensic economists, who are minimalists, try to argue that by using the number in box on the T4, later transcribed onto line 101 of the plaintiff s personal income tax return, benefits are already included in the loss estimates. This is true only for benefits that are taxable to the employee and thus added into box 14 (and shown in box ). Note that KMPG s Tax Facts indicates that employer contributions to employer sponsored programs for health and dental care, weekly indemnity, long term disability, AD&D, and registered pension plan contributions are not a taxable benefit to the employee. (RRSP contributions by the employer are taxable, however). The only exception is group life insurance, but as we know from research, this comprises only 0.3% to 0.4% 21 of the 4.9% to 6.2% we use for the group insurance coverage benefit. For more information about the prevalence of benefits by industry and other characteristics, and findings from the COMPARISON TM database from Towers Watson, see our November/December 2006 newsletter issue entitled Fringe ( non wage ) Benefits Augmenting Gross Income, vol. 3, no. 10. This newsletter issue discusses other unique perks as well as valuation methods that tend to undervalue fringe benefits. We complete this newsletter issue with comments about the replacement cost of valuing fringe benefits, i.e., calculating the cost for an injured individual or family of purchasing coverage after the incident in question. 14 See, for instance, Table 2-4 in C.L. Brown, Damages: Estimating Pecuniary Loss, loose-leaf (Aurora, Ontario: Canada Law Book), 2009, p Table 2-5 on p shows the historical value of employer-sponsored plans in Canada in 1994, 1996 and 1998, which ranged from 3.50 to 4.70% in the public sector and 2.30 to 4.60% in the private sector. The costs of employer-sponsored benefits have increased since the 1990s. 15 See, for instance, Table 2-10 in C.L. Brown, Damages: Estimating Pecuniary Loss, loose-leaf (Aurora, Ontario: Canada Law Book), 2009, pp to This is true even for part-time, full-year salaries. The only exception where one would add a value for paid time off would be if the estimate was a part-year estimate (i.e., for a seasonal worker) and paid vacation pay and/or statutory holiday pay on each paycheck. These cases are typically partyear nurses or hospital workers, who do not work 52 weeks per year and may or may not work statutory holidays (and hence are not paid for them automatically), and as such the percentage for vacation pay and/or statutory holiday pay must be added onto the income estimate. Employers cannot ignore this since it is a mandatory payment. 17 For instance, Statistics Canada estimates that full-time employees in Canada miss an average of 9.1 days per year due to absenteeism due strictly to sick leave or no show days. Employee absences, disability payments and staff replacements cost employers more than $30 billion per year (Watson Wyatt). Unscheduled absences amount to a 4.1% direct cost to payroll (Mercer, Health, Productivity and Absence Survey, 2006). 18 Employment income (from line 101 on the tax return). 19 Other taxable allowances and benefits. They are already included in box See, for instance, Federal Income Tax Checklist for Employee Benefit Programs. 21 See Life insurance column in Table 2-4 in C.L. Brown, Damages: Estimating Pecuniary Loss, loose-leaf (Aurora, Ontario: Canada Law Book), 2009, p

5 Brown s Economic Damages Newsletter page 5 Trades people: fringe benefits in specific occupations We summarize below the findings from the MCA January 2009 survey for Alberta trades people. As noted above, the value of having specific benefits information by job title and geographical area cannot be overstated, given that we typically only have access to information by industry sector (the Towers Watson surveys) and not by specific job title. Table 1 summarizes the value of employer s benefit programs only the employer s cost, and only for companies that provide such benefits 22 (i.e., companies who do not provide benefits are not included this would downgrade the actual cost by the ratio of prevalence). Prevalence is published in Table II: Other Conditions of the survey. Table 1: Employer benefit programs, trades people Position Calgary Edmonton Alberta Carpenter 1.88% 1.86% - Labourer 3.01% 3.22% - Concrete Finisher 1.85% 1.89% - Electrician, commercial/institutional # 1.33% 1.46% - Plumber 1.76% 1.58% - Drywaller 2.27% 2.43% - Sheet metal worker 1.97% 1.60% - Refridgeration Mechanic 1.77% 1.51% - Glaziers 1.51% 2.31% - Pipefitters % Electrician, industrial # % Insulators- commercial/residential % Insulators- industrial % Millwrights % Painters % Metal building systems erectors % Roofers % Source: Merit Contractors Association, Wage and Benefit Survey Construction Trades in Alberta, January 2009, Tables I & II. Table 1 indicates that the employer contribution to group insurance benefits is quite a bit lower than the range of 4.9 to 6.2% given above from the Towers Watson COMPARISON TM database. This could be due to the number of nonunionized employers included in the MCA surveys; the smaller size of the employers; or it could be due to the more transitory nature of the workforce employed. The data in Table 1, however, are more appropriate when valuing the benefits of a tradesperson (unless we have company specific information, the tradesperson is unionized, or we have some other compelling reason not to use it) because they implicitly reflect the factors that influence the value of the benefits: the firm size, the level of income, the employment status (full time or part time), and to a lesser extent, education level. This is true even though the data are from Alberta the Towers Watson data have indicated there is 22 As per NOTATIONS #5 and #6 on p. 7 of the January 2009 survey.

6 page 6 Volume Seven Issue 9 September 2010 little geographical difference in the value of benefits across companies, but rather differences arise more so because of industry sector, firm size, income level, and employment status. Table 2 shows the value of retirement plan programs provided by employers of trades people in Alberta. Table 2: Employer retirement programs, trades people Position Calgary Edmonton Alberta Carpenter 3.45% 3.28% - Labourer 5.90% 4.95% - Concrete Finisher 4.04% 3.51% - Electrician, commercial/institutional # 2.55% 2.53% - Plumber 3.51% 2.19% - Drywaller % - Sheet metal worker 3.49% 2.90% - Refridgeration Mechanic 2.48% 2.05% - Glaziers 2.17% 2.31% - Pipefitters % Electrician, industrial # % Insulators- commercial/residential Insulators- industrial % Millwrights % Painters % Metal building systems erectors % Roofers % Source: Merit Contractors Association, Wage and Benefit Survey Construction Trades in Alberta, January 2009, Tables I & II. Again, Table 2 shows a range of values for retirement benefits quite a bit lower than the range of 5 to 15% cited above for pension plan contributions by employers across Canada from the Towers Watson COMPARISON TM database. In addition to the values shown in Tables 1 and 2 above, we may decide in a particular case to combine them with the information on prevalence from the MCA survey i.e., weight the values in Tables 1 and 2 by the proportion of employers in the MCA survey who offer either group benefits or retirement benefits. These weightings are obtained from the Yes / No percentages reported in Table II: Other Conditions from the MCA survey. (The proportion of firms who offered group benefits ranged from 88 to 100%; but the proportion of firms that offered retirement benefits ranged from 12 to 72%) Importantly, the NOTATIONS accompanying the tables to the MCA survey indicate that although the retirement data and benefit data in Tables I and III are calculated using a weighting factor (#4), the retirement data and benefit data in Table II is not weighted they represent the average contribution levels only among companies providing such programs (#5).

7 Brown s Economic Damages Newsletter page 7 Caveat: Using replacement coverage to value benefits Some quantum experts ignore data on fringe benefits and instead adopt a replacement cost approach by valuing, for instance, the cost of health premiums. (In Alberta, this would be a poor approach, since the provincial government instituted a zero premium policy as of Jan. 1, 2009). 24 In reality, however, the major disadvantage to this approach is that simply calculating the cost of provincial health premiums does not adequately proxy the former coverage enjoyed by the injured person or the decedent. For instance, it does not even include the provincial drug prescription non group coverage available to residents. Moreover, group insurance consists of, in most instances, the following components aside from provincial health care premiums: Life insurance Dependent life insurance Accidental death & dismemberment insurance ( AD&D ) Extended health care 25 Vision care Dental care Short term disability coverage 26 Long term disability coverage Although it is possible to obtain quotes from brokers as to the cost of individually sponsored plans, they will be both more expensive and likely provide lower quality coverage than employer group plans. 27 For instance, many group plans will provide STD/LTD up to a certain income level based on non evidence maximums, which means that the employee does not have to qualify for coverage based on health reasons. This would not be true for an individual policy. As Martin recommends, the employer s contribution usually represents the most conservative estimate of the loss, and the easiest estimate for the economist to make. 28 Moreover, within industries that offer similar compensation levels, it is often the breadth and depth of the non wage benefit plans that sway potential employees to choose their employer or remain with their employer. This is true for many occupations within the oil and gas industry in Alberta. 24 Thus, if the quantum expert took the replacement cost approach, and argued for zero benefits because the provincial government is presently absorbing the premium costs for Alberta residents, this would undervalue other healthcare benefits; but it would likely undervalue the health care premiums as well, if or when the provincial government ceases this policy. 25 Different versions of extended health care are offered by employers, such as flex plans, HSAs ( health spending accounts ) and MRPs ( medical reimbursement plans ). Many include coverage for numerous paramedical services (i.e., $500 per year each for chiropractors, physiotherapists, massage therapists, acupuncturists, podiatrists, naturopaths, osteopaths, audiologists, speech therapists, etc.) that are undervalued in the employer s contribution, as the total value depends on user prevalence. 26 This may not be offered by the employer if EI sickness benefits are used instead. 27 As Martin, author of Determining Economic Damages says, An actuary will tell us that in a group plan, the younger and generally more healthy members are subsidizing the older members. (Gerald D. Martin, Determining Economic Damages (California: James Publishing Incorporated), 2003, p Gerald D. Martin, Determining Economic Damages (California: James Publishing Incorporated), 2003, p

8 Brown s page 2 Economic Damages Volume Newsletter Six Issue 1 January page UPDATING NON PECUNIARY AWARDS FOR INFLATION (AUGUST 2010, CANADA) Non-Pecuniary Damages - Sample Awards Year of Accident/ "Inflationary" $10,000 $25,000 $50,000 $75,000 $100,000 Year of Settlement or Trial Factors* August 2009-August $10,117 $25,293 $50,586 $75,879 $101,172 Avg August $10,153 $25,382 $50,764 $76,146 $101,528 Avg August $10,375 $25,938 $51,875 $77,813 $103,751 Avg August $10,597 $26,491 $52,983 $79,474 $105,966 Avg August $10,809 $27,021 $54,043 $81,064 $108,086 Avg August $11,048 $27,620 $55,241 $82,861 $110,482 Avg August $11,254 $28,134 $56,268 $84,401 $112,535 Avg August $11,564 $28,910 $57,821 $86,731 $115,642 Avg August $11,826 $29,564 $59,128 $88,691 $118,255 Avg August $12,123 $30,308 $60,615 $90,923 $121,231 Avg August $12,453 $31,134 $62,267 $93,401 $124,534 Avg August $12,669 $31,673 $63,345 $95,018 $126,690 Avg August $12,795 $31,988 $63,976 $95,964 $127,952 Avg August $13,002 $32,506 $65,012 $97,518 $130,024 Avg August $13,207 $33,018 $66,037 $99,055 $132,073 Avg August $13,491 $33,727 $67,454 $101,181 $134,908 Avg August $13,513 $33,782 $67,565 $101,347 $135,129 Avg August $13,765 $34,414 $68,827 $103,241 $137,655 Avg August $13,970 $34,925 $69,850 $104,775 $139,700 Avg August $14,756 $36,891 $73,781 $110,672 $147,563 Avg August $15,463 $38,657 $77,313 $115,970 $154,627 Avg August $16,233 $40,583 $81,167 $121,750 $162,333 Avg August $16,885 $42,213 $84,426 $126,639 $168,852 Avg August $17,621 $44,053 $88,106 $132,159 $176,212 Avg August $18,360 $45,899 $91,799 $137,698 $183,598 Avg August $19,087 $47,718 $95,436 $143,154 $190,872 Avg August $19,909 $49,772 $99,544 $149,316 $199,087 Avg August $21,077 $52,693 $105,386 $158,080 $210,773 Avg August $23,345 $58,364 $116,727 $175,091 $233,454 Avg August $26,262 $65,654 $131,308 $196,962 $262,616 Avg August $28,922 $72,305 $144,610 $216,915 $289,220 Jan August $32,943 $82,358 $164,715 $247,073 $329,430 $84,426= $50,000 x represents the dollar equivalent in August 2010 of $50,000 based on inflation increases since Similarly, $329,430 (=$100,000 x 3.294) represents the dollar equivalent in August 2010 of $100,000 in 1978 based on inflationary increases since the month of January * Source: Statistics Canada, Consumer Price Index, monthly CPI release, rolling average (except for Jan. 1978). Consumer Price Index Unemployment Rate From Aug 2009 to Aug 2010* For the month of August 2010 (rates of inflation) Canada** 1.7% Canada: 8.1% Vancouver: 1.8% Vancouver: 7.4% Toronto: 3.1% Toronto: 9.1% Edmonton: 0.7% Edmonton: 7.0% Calgary: 0.5% Calgary: 6.7% Halifax: 1.6% Halifax: 6.1% St. John's, NF: 2.4% St. John's, NF: 8.3% Saint John, NB: 1.8% Saint John, NB: 8.2% Charlottetown: 1.2% Charlottetown (PEI): 11.2% * Using month-over-month indices. Source: Statistics Canada ** 12 month rolling average up to August 2010 is 1.2% (see table above). Brown Economic Consulting Inc. HEAD OFFICE #216, A Street South West Calgary, AB T2H 0E8 T F #907, 1128 Sunset Drive Kelowna, B.C. V1Y 9W7 Toll Barrington St., Suite 300 Halifax, NS B3J 3R7 Toll help@browneconomic.com Web