Did Government Contractors Get a Payroll Break?

In the 1980s, Congress undertook a number of politically unpopular efforts to reel in a budget deficit that was skyrocketing, much like it is today.  Taxes were raised substantially and spending increases were handled with caution.  But one of the measures taken by Congress seems to have flown under the radar: an adjustment to the payroll conversion method used for determining the bi-weekly pay of salaried federal white-collar employees.

Prior to 1985, the salaries of federal white-collar employees were converted to an hourly rate by dividing the annual salary by 2080 hours (40 hours in a workweek multiplied by 52 weeks in a year).  The Government Accountability Office (GAO) provides an illustrative example of how the 2080 conversion method would work for a white-collar employee:

Illustrative annual salary	Hourly rate of pay with 2080 conversion method	Bi-weekly gross pay with 2080 conversion method	Annual gross pay with 2080 conversion method
$104,000	$50.00	$4,000	$104,000

According to GAO, the payroll conversion method was changed by The Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law No. 99-272) from the 2080-hour method to the current 2087-hour method on a “basis of concerns over the budget deficit.”

The change was justified because the 2087-hour method is technically more accurate than the 2080-hour method--the 2087 method accounts for the leap year--but according to GAO, the actual intent of the change was to “permanently (1) reduce the cost of their [federal white-collar employees] annual compensation; (2) lower premium pay rates for overtime; and (3) reduce the government contribution for retirement.”

Strangely, federal contractors were among those exempted from the change in payroll conversion, and most continue to use the 2080-hour method for determining hourly billable rates for their salaried employees.  The following example from GAO demonstrates how the difference plays out:

Illustrative annual salary	Hourly rate of pay with 2080 conversion method	Hourly rate of pay with 2087 conversion method	Annual gross pay with the 2080 method	Annual gross pay with the 2087 method	Difference in annual gross pay
$104,000	$50.00	$49.83	$104,000	$103,646.40	$353.60

The information provided by GAO can be found in a letter to a father and son who have been trying to get someone in the government to acknowledge that the different payroll conversion methods are screwing the government out of tens, if not hundreds of millions of dollars per year (in case you're wondering, POGO had never heard of GAO doing research on behalf of a member of the public).  But despite the evidence GAO provides, they ultimately conclude that the difference is not a concern because “had Congress thought it necessary, they could have expanded its coverage to contract employees as well. For whatever reason, Congress chose not do so.”

I'm not sold.  According to Dr. Paul C. Light, contract employees accounted for over half of the federal workforce, an estimated 7.6 million jobs, in 2005.  Let's imagine that 10% of those contractors are salaried employees with an average annual salary of $104,000/year: we're talking close to a $270 million/year difference in gross pay due to the conversion method.

It's difficult to estimate how much money the government is actually losing because contractors don't provide much information about their workforce.  But if federal employees can take a hit in the wallet to help with our budget deficit, surely contractors can as well.  And with an ever increasing deficit, every little bit helps.

-- Jake Wiens

Comments

[Dfens]

Wow, you people are so naive. Have you ever gone into a defense contractor plant and wondered where all of the draftsmen and secretaries went? No, probably not. Well, imagine you did. Imagine you'd gone into a defense contractor's plant 20 years ago and saw about 5 draftsmen for every engineer and every first level manager had a secretary. What would you see if you went back today? They are all gone. Why? The draftsmen are all gone because the companies can only charge the government 2/3rds to 3/4ths of what they can charge for an engineer to do the same task. The secretaries are gone because they work on overhead. In other words, they take their salaries directly out of company profits. An engineer will charge directly to the contract to type that memo. Janitors too. We've got rats all over our plant now because they want the engineers to take out their own trash. The janitor got paid out of company overhead, but engineers charge the time they spend emptying their trash directly to the government at a rate of $150 to $200 per hour. Only problem is, engineers are slobs, hence the rats. All this happens right under your noses and you're worried about a hand full of leap year hours? This is the funniest blog on the internet. It's like watching someone search for an elephant with a microscope.

[KSBR stupified]

Jake, me lad, you need to have your eye on the ball. Do you think the small cost to government that you cite is a meaningful part of contractor cost? Of course, it's not.
You seem riveted on retribution. Before docking the contractors, let's plus them up with the monetized value of legendary government job security and freedom from accountability, a pension plan that almost all private sector empoyers don't even attempt, and the privilege of serving the people. BTW, what is your salary? Are you ready for sacrifice for the common good in the coming administration? We're ready in my organization.