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Projected Wages and Benefits
Ruby Alaska Mine
Purpose
The purpose of this work is to develop a table of annual total costs for an employee
serving in particular positions that are anticipated for the Ruby Alaska mine. The table
can then be used together with a manning table to develop the total labor costs for cash
flow projections and subsequent economic analysis. Total employee cost can also be
compared to the Mine Cost Service cost models to make site specific adjustments to
mining and processing costs that are used in MSOPIT and other MineSight routines being
used for mine design.
Approach
The desired end result of this work is an Excel spreadsheet that projects the total cost of
labor and benefits. The spreadsheet will have adjustable yellow information fields that
can be adjusted for minor variations in assumptions and that can then adjust
automatically the end cost projection.
The initial input is the hourly wage for a position or annual salary for a salaried position.
This information was obtained from ------------------------------------------(
).
Hourly wages can then be adjusted from a 2011 base to account for inflation to the
beginning of 2015 and for any premium chosen to attract the needed workforce. It is
assumed that for most workers wage inflation was minimal due to high unemployment
over the time period. A rule of thumb that a wage differential of 10% will motivate
change was also used. The initial adjustment of 11.43% was used. The exact number
corresponds to the increase in Alaska’s minimum wage over the time period (
).
Various benefits and costs are then added in the spreadsheet as a percentage of wages, on
a per person basis, or by dividing the total projected cost of a service by the number of
employees to be benefited. Itemization of assumptions used follows.
Assumptions for Initial Calculations
Because there is a significant mining industry in the surrounding area it is assumed that
the Ruby Alaska mine will attract its needed labor force using better wages and benefits.
This assumption is reflected in an after inflation upward adjustment of wages of around
10%. The spreadsheet allows for this number to be changed.
It is assumed that most miners will not live in Ruby Alaska, but will work a 2 weeks on 2
weeks off schedule and be flown in from Fairbanks. The assumed schedule during the 2
weeks “on” is 10 hour shifts, 7 days per week – thus 70 hour work weeks. It is assumed
that 40 hours will be base pay and 30 hours will be overtime at 1.5 times standard hourly
wage. The weeks worked and hours worked in a week are adjustable.
Of a 52 week year it was assumed that the mine would be closed 1 week for Thanks
Giving, 2 weeks for Christmas and New Years, 1 week for the 4th of July, 1 week for
other work disruption and that a worker would have another week of vacation at a time of
there choosing. This yields a 46 week year and a 2 weeks on 2 weeks off suggests a 23
week year. It was assumed that workers would have 4 of the off weeks paid at 40 hours
per week (paid vacation). The 4 weeks of paid vacation derives from the assumption that
4 of the six missing weeks occur on planned shut down which is equally likely to affect
any worker 50% of the time: thus 2 weeks. It is then assumed that a problem shut down
will impact a worker for one week when they should have been on. The workers will get
standard pay for these times. The worker then get 1 week paid vacation/sick leave. This
totals to 4 weeks of 40 hour per week base pay. These assumptions can also be adjusted.
Next benefit costs that are a percentage of salary were considered. Social Security was
paid at 6.2% on the first $118,000 of earnings, 1.45% Medicare was paid on all earnings
(ADP, 2015). Unemployment insurance 2.68%, and workman’s compensation 4% were
paid on all wages and salaries at Alaska rates (
). It was assumed that
employees would get up to 6% of 401K match and that the utilization would be 100%.
Any of these assumptions can be adjusted in yellow fields of the spreadsheet.
Fixed cost per employee benefits are then computed. It was assumed that the company
would purchase insurance with a $10,500 per year family deductable, but would then
contribute $6,000 to an Employee Health Savings account. The original plan was to have
a free employee health clinic for primary care in Ruby and to have employees and their
families live in Ruby. A subsequent decision to have only a mining camp in Ruby with 2
weeks on and 2 weeks off meant that families could not get care from the onsite clinic
and thus the contribution to a health savings account. The cost of health insurance and
the health savings account for high deductible insurance are all adjustable in yellow
fields. The assumed health insurance cost came from ____________________ (
).
Closely associated with the health insurance is the cost of a primary health care clinic and
emergency room in Ruby, as well as a standby helicopter for emergencies. These costs
are considered fixed on an annual basis and came from another student report in this
study (Alcorn, 2015). They are divided over the number of employees the mine is
assumed to have. Currently this is 491. The number of employees and the fixed clinic
and emergency costs are adjustable in yellow fields.
It was also assumed the company would provide dental and vision insurance. The costs
for these came from _____________________(
). These costs are also adjustable in
yellow fields.
Conclusion
The product of this work is a spreadsheet that calculates base pay on a total of regular and
overtime hours worked in one year and then itemizes the cost of vacation, Social
Security, Medicare, Unemployment Insurance, Workman’s Compensation, 401K match,
health insurance, dental insurance, vision insurance, Health Savings Account
Contributions, and onsite medical care. The spreadsheet then summarizes actual pay
from either salary or basic and overtime hours worked in a year. The fringe cost is then
divided by base pay to yield the percentage burden on the wage. Finally a total cost for
each type of employee is calculated. Knowing the annual cost of an employee allows a
manning table to yield a total personnel cost for the year.
Several things apparent from the table might be noteworthy. The burden cost for an
employee was not the same for every position. Perhaps this would not be unexpected
since some fringe costs are a percentage of wages while others are a fixed cost per
person. The second note is that the burden cost for the benefits offered is at the high end
of the scale – about 72 to 115% of wages for hourly earners and 29% to 78% for salaried
people. Most standard benefits tables and models look for mines to have about 40 to
70% burden on the wage.
A typical hourly worker at this mine is usually costing over $100,000 and the two weeks
on 2 weeks off schedule requires this mine to pay nearly half of hours at overtime which
drives many fringe costs up a proportional amount. The mine will have to have two
complete separate work crews. While the cost of building up and having a resident
workforce in Ruby will require some potentially significant capital costs, the decision to
have an off-site workforce is most certainly expensive from an operating cost standpoint
and one may want to more closely examine the relative cost of a workforce in Ruby
versus and 2 on 2 off non-resident mining camp work schedule.
References
ADP, 2015, “Changes to Social Security and Medicare Wages and Rates, and Pension
Plan Limitations for 2015”, Internet article referenced Feb. 7, 2015,
http://www.adp.com/tools-and-resources/adp-research-institute/insights/insightitem-detail.aspx?id=F5E4F8C7-0887-4C94-AFEB-21C7B25DD3BF
Alcorn, Nick, 2015, Week 2 report on wages and benefits, Sr. Design Class submission,
Department of Mining Engineering, Southern Illinois University at Carbondale, Feb. 3,
2015.
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