The Staffing and Cost Structure report shows how staffing levels and costs have changed over the report year and provides a snapshot of the cost structure as at the last full pay period in June. Particular attention is placed on the drivers of longer term cost growth outside of annual EBA salary rises and overall staffing levels, namely the staffing costs driven by:

- increasing proportions of staff employed in higher grades (changing the classification mix)
- salary increases within grades (the net result of salary adjustments, such as progression payments and other movements)

All salary based measures exclude casual staff.

## Annual base salary

The annual base salary is the full time annual rate of pay applicable to the employee under the relevant industrial agreement / determination, where the annual pay rate of part time employees has been scaled up to full time pay rates to enable comparison.

This figure is used to calculate the following measures and is not shown in the report.

## Total annual salaries

This is an estimate of the total spend on staff salaries based on the remuneration of employees as at the last full pay period of June in the report year.

This is calculated by adjusting the annual base salary of each employee by their FTE (to provide a proxy of annual salary) and then calculating the sum for the total organisation.

Calculation:

*Total annual salaries=The total of (Annual base salary × FTE) for each employee*

This is a proxy for the overall expenditure on staffing as employee costs are likely to change across the year and will be subject to other adjustments.

## Average annual salary

This is an estimate of the average annual salary of active employees based on their annual rate of remuneration as at the last full pay period in June. It is calculated by adjusting the annual base salary of each employee by their FTE, calculating the sum for the organisation, and dividing this by the organisation’s FTE.

*Average annual salary per FTE=The total of (Annual base salary × FTE) for each employee÷Total FTE employees*

The average annual salary of active staff per FTE, is a proxy for the average annual salary each employee receives, as individual salaries are likely to include other adjustments and they may change over the year.

Change in average annual salary is a measure of the change in an organisation’s salary cost structure, excluding the impact of changes in overall staff numbers. It reflects changes in salary rates due to the combination of industrial agreement outcomes, changes in classification mix, and changes in where people sit in the pay scale within a classification.

The average annual salary forms the basis of the controllable cost component measures.

## Controllable cost component measures

Section 3 of the Staffing and Cost Structure report explores how the different drivers of staffing costs have influenced the annual change in cost structure, as represented by the change in the average annual salary per FTE (page 9). The measures are based on the following premise:

*The year to year change in average salary of VPS grade staff*

*=The year to year change in average annual salary due to salary changes within each grade (outlined below)*

*+The year to year change in average annual salary due to changes in classification mix (outlined below)*

*+The year to year change in average annual salary due to rises set by industrial agreement (i.e.EBA)*

### Year to year change in average salary due to salary changes within each grade

This measure provides the annual change in the average annual salary of VPS grade staff (as a whole) due to salary changes within each grade that were on top of the general rise set by industrial agreement.

It is calculated using the following methodology:

- For each grade:
- Increase the average annual salary of staff in the target grade at June of Year 1
^{[1]}(e.g. $70,000) by the standard industrial agreement salary increases that have occurred since June of Year 1 (e.g. 3.75%).

Example calculation: $70,000 ×1.0375=$72,625

This would be the average annual salary within the target grade at Year 2 if all other factors remained the same. - Subtract the adjusted average annual salary ($72,625 from Step 1.1) from the average annual salary figure for June of Year 2
^{[2]}(e.g. $75,000).

Example calculation: $75,000-$72,625=$2,375

This is the change in average annual salary between Year 1 and Year 2 excluding the impact of standard industrial agreement salary increases. - Multiply the change in average annual salary ex EBA ($2,375 from Step 1.2) by the proportion of total staff (FTE) in the target grade at Year 1 (e.g. 25% of all VPS grade staff).

Example calculation: $2,375×0.25=$594

This provides the relative contribution of the change in the average annual salary of the target grade to the overall change in average annual salary of VPS grade staff (as a whole).

- Increase the average annual salary of staff in the target grade at June of Year 1
- Repeat step 1 for each grade and sum the result for each grade.

Example calculation: $594 +$263+$200+$146+$74+$60+$5=$1,342

This is the total change in average annual salary that is due to changes in salary in each grade. - Express the result as a proportion of the average annual salary of all VPS grade staff at Year 1 (e.g. $85,000).

Example calculation: $1,342÷$85,000=1.6%

In this example, the average annual salary in Year 1 increased by 1.6% due to salary changes within each grade.

If the result was negative, staff turnover within grades has lowered the average annual salary. This could happen if staff high in a grade have left the organisation or have moved into a higher grade. They may not been have been replaced or their replacement was lower in the grade.

If the result was 0, the change in salaries within each grade have offset each other or they are not material.

If the result was greater than 0, this represents an increase in the average annual salary within grades, and an increase in the salary cost structure, over and above EBA increases.

### Year to year change in average salary due to changes in classification mix

This measure represents the change in average annual salary of VPS grade staff due to changes in classification mix (the change in the proportion of staff within grades) by removing EBA increases and the change in average annual salary due to salary increases within each grade (see previous page).

It is calculated using the following methodology:

- Increase the average annual salary of all VPS grade staff at June of Year 1 (e.g. $85,000) by the standard industrial agreement salary increases that have occurred since Year 1 (e.g. 3.75%).

E.g. $85,000 ×1.0375=$88,188

This is would be the average annual salary of VPS grade staff in Year 2 if all other things remained the same. - Subtract the adjusted average annual salary (step 1) from the average annual salary figure for June of Year 2 (e.g. $90,000).

E.g. $90,000-$88,188=$1,812

The result is the change in average annual salary between Year 1 and Year 2 excluding the impact of standard industrial agreement salary increases. - Express the result as a proportion of the average annual salary of all VPS grade staff as at June of Year 1.

E.g. $1,812÷$85,000=2.1%

This is the total increase in average annual salary ex EBA. This includes changes due to changes in classification mix as well as changes to salary within grades. - Subtract the year to year change in average annual salary due to changes within each grade (as derived according to 4.4.1). The result is the annual change in average annual salary due to changes in classification mix.

E.g. 2.1%-1.6%=0.5%

If the result was negative, the proportion of staff in higher classifications would have fallen, reducing underlying costs (outside of overall staffing movements), and reducing the compounding impact of future EBA increases.

If the result was 0, the classification mix did not change significantly or any changes offset each other.

If the result was greater than 0, the proportion of staff in higher classifications would have increased, increasing the compounding influences of EBA and progression increases in future years.

In this example, the average annual salary in Year 2 increased by 0.5% due to changes in the classification mix and the total change in average annual salary (1.6% + 0.5% + 3.75%) was 5.82%