Agency organizational components tend to fall in the smaller sizes, so the focus of this example is a small organization of about 230 people. The assumption is that this organization has been in existence for some time so there is historical information on what the costs of staff are. It is also assumed that the calculation is being made a few months before the start of the fiscal year in question. Therefore, there is no need for detailed computations of various levels of pay and benefits since they are available from the accounting reports. The calculation is for a full Federal fiscal year, i.e., October 1 through September 30. Various known and assumed changes in the composition of the staff and their costs are illustrated in this example. The estimated per full-time equivalent (FTE) cost for the year, based on the accounting data assumed to be available, is $86,000. The dollar amounts are in thousands. Certain aspects of the calculation (or estimate) are explained below. This table includes more detail than would be appropriate for briefing management - it is more of a worksheet for the analyst than a tool for communication with management.
|Base, for starting year, from accounting reports||225.0||$19,350|
|Adjustments cost increases:|
|4% pay raise on January 1||$581|
|45 within grade increases||$58|
|Cash awards & bonuses||$250|
|Differential pay (night, hazardous duty)||$25|
|New hires - 24||12.0||$1,032|
|3 LWOP* returnees||1.5||$129|
|Lump sum payments|
|Unused vacation leave||$24|
|Summer employment - 4||1.0||$20|
|Adjustments cost decreases|
|Two people expected to take extended leaves.||-1.0||-$86|
|Net projected payroll change||3.5||$1,448|
|Projected payroll budget||228.5||$20,798|
|* Leave without pay.|
Base, for starting year: Developing this base amount requires analysis and judgment. The calculation is usually for a fiscal year that is to start in the future, so there is no actual accounting information for the first pay period of the fiscal year in question. The way to proceed is to use the most up to date accounting information on the payroll costs that is representative of the makeup and pay of the workforce as it is likely to prevail in the year for which the calculation is being made. It is unlikely that a perfect fit will be found from the accounting system, so analytical adjustments will have to be made by the budget analyst.
These adjustments should focus on the costs captured by the accounting system that are not routinely recurring, such as a one-time large expenditure for cash awards. The point is to derive a reasonably accurate value for the payroll costs that is not going to change except for reasons that can be incorporated into the calculation as adjustments. The items identified in the example as adjustments would be the types of costs that should be examined in the accounting reports to possibly adjust to derive the base amount. The benefit of using recent accounting information as the starting point is that actions related to payroll that took place prior to the report's effective date, such as pay raises and promotions, are already integrated into the costs reported by the accounting system and there is no need to make special efforts to research facts of this nature. The analytical effort should be focused on what the future changes may be.
Effective date of the transactions in the accounting reports needs to be ascertained. There are lags in all reporting systems, including cost accounting systems, and the date at which certain transactions are recorded may be far from the date at which they took place. For example, a pay raise for a payroll system that is based on monthly payments may take two to three months to be reflected in an accounting report, so the time at which this cost is reflected in the reports must be known by the analyst so appropriate adjustments can be made to the data. In most Federal agencies, the effects of the annual January pay raise can be safely assumed to be reflected in accounting reports for mid-February and later.
FTE are full time equivalents, not people. FTE are the same as workyears. The analyst must keep this distinction clearly in mind as she proceeds with a payroll computation. People working use FTE. A person working full time for a full year will use one FTE for the fiscal year, but a person working full time for three months of the fiscal year will only use 0.25 FTE in the year. It is true that full time permanent employees can be assumed to cost one full FTE, and they will do so if they were employed in the past and are expected to be employed for the indefinite future, but this is not true for full time employees newly hired, or those expected to leave before the end of the fiscal year. And an employee who may have used 0.25 FTE in the current year may well use a full FTE next year. Some organizations have headcount or FTE limits, so keeping track of numbers of people may be necessary as well as budgeting for FTE. Even if there is no need to account for FTE, FTE are more convenient to use to calculate payroll costs than to do it directly using dollars. FTE can be used to calculate paid hours of people on the payroll and then translate the FTE value into dollar costs.
Detail. The amount of detail used in a calculation requires that the analyst exercise sound judgment. It is always useful to spell out all details that affect the outcome of an analysis, or that may make a difference that matters if the facts were to change. Spelling out the detail can be done either in footnotes, in separate analyses in other spreadsheets or databases, or simple computations documented in comments or notes. It is not advisable to incorporate data and assumptions into the formulas in a spreadsheet; although formulas need to provide for the proper calculations using the assumptions made, the actual assumptions and the data should be clearly visible without having to inspect the formulas. This, of course, can lead to much detail, and for this reason sound judgment needs to be exercised as to what is important and what is not. For some analyses a large number of variables that have little effect on the outcome can be aggregated into one category, with the details relegated to a footnote. Supporting analyses can also be prepared as separate analyses that stand on their own.