OVERTIME PAYS
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if the Assessment of Rates is Made After the Orthodox Fashion, Overtime Benefits Both the Master and the Man IMUST begin this article by a reference to a problem partially dealt with in the previous issue. It related to an operator who was carrying sand and gravel over two lead mileages, one 37 miles, the other 214, The inquiry was unusual in as much as the haulier concerned was being paid a price per day, and not per ton as one might have expected. Over the 37-mile lead he was making three round trips per day, in addition to running a total of 24 miles empty between his own garage and the gravel pits.
I dealt only with the longer of the two leads, and it is of interest to observe that the daily mileage doing three round trips per day was 246. He was working a 10-hour day, so that if we allow one hour for the dead mileage he actually spent nine hours in doing the three 74-mile journeys. I gathered in the course of conversation which 1 eventually had with him, that he averaged 30 m.p.h. on the journeys and there was an average of half an hour for loading and unloading.
The material was collected from a hopper and delivered by tipping, and I commented that half an hour seemed an ample allowance for terminals if the work was done that way. The response was that there was often delay at each end, in one case waiting turn to get to the hopper, and in the other because of difficulty in getting into position to tip the load.
Losing £.1 5s. a Day The inquirer told roe that he had been offered £11 10s. per day for this particular load, and on going through the figures I came to the conclusion that at that rate he would be suffering a net loss of more than £1 5s. per day. I will not go into the full details of items of cost, but merely point out that I got a total of £.13 Os. 3d., for fixed charges per week, which included £2 per week for establishment costs and 10.36d. per mile. Taking a six-day week, the standing charges per day amount to £2 3s. 5d., and 246 miles at 10.36d. per mile is £10 l2s. 6c1., so that his total net cost comes to £12 15s. lid., as against the offer of £11 10s.
I suggested to him that he would he better advised to steer clear of this rate per day and to quote on a tonnage basis.
"Moreover," I said "I suggest that we had better calculate the rate in the orthodox manner, that is, taking a
44-hour week as the basis for our assessment of time charge, instead of the 60 hours which you have been using up to now."
"What difference is that going to make?" he asked.
"Quite considerable, and the difference, moreover, is in your favour. You see," I continued, "according to your method, 'wherein you assess the week as comprising 60 hours, you are spreading your establishment costs and standing charges over 60 hours instead of 44. If you can imagine, for the sake of argument, that your standing charges and establishment costs together amount to £15 per week, then the cost per hour for establishment costs and standing charges will be 5s., whereas if you take the orthodox 44-hour week your cost is 6s. 9d. per hour. If you assess your profit at the rate of 20 per cent. on cost, then your time charge in the one case would be 6s. an hour, and in the other very nearly 85."
Working on 60-hour Week " But surely, if I am in competition with other operators and wish to get down to a rock-bottom price, the sensible thing to do is to take the 60-hour week as a basis because I am then quoting on the understanding that I have put in my lowest possible tender."
"That might be all right if you were assured of 60 hours' work per week every week in connection with the work for which you are tendering. That, however, is not so, as we shall find when I come to deal with the shorter lead of 21+ miles."
I then got out a schedule of costs calculated in the orthodox way. He gave me his tax as being £35 per annum, which is 14s. per week. The basic wage in the case of an operator in a Grade 11 area and carrying six tons is £6 is., to which must be added 10s. 6d. to cover expenditure on National Insurance and Workmen's Compensation Act premiums and holidays with pay. Rent and rates I was told amounted to 5s. per week, and insurance £40 per
annum, or 16s. per week. Interest on capital outlay is £21 per annum, which is approximately 8s, 3d. per week. That brings the total of standing charges to £8 14s. 9d. per week. I took a particularly low figure for establishment costs, which I assessed at £2 per week. The total fixed
charges per week were thus £10 14s. 9d. Basing my calculation on a 44-hour week, that meant allowing 4s. 101d. per hour for fixed charges.
I will not go into the details of running costs, but will take the figure of 10.36d., as already discussed, making it 101d, per mile for the sake of simplicity in calculation.
" Now then," I said, "when you arc delivering three loads of sand and gravel over the 37-mile lead, the actual working mileage is 222 for that day. You must, however, make provision for the dead mileage at the beginning and end of the day, that is 12 miles each way, bringing your total daily mileage in connection with that particular lead to 246, and you tell me you work 10 hours altogether. Are you in agreement with my figure of approximately 20 per cent, on cost as being a fair way to assess profits?"
.20 Per Cent. Profit • "I am in agreement with that so long as I can get it. Indeed, I would be in agreement with a better figure than that, but it is very unlikely that I should get even 20 per cent., so that for the time being I should be glad if you would make your calculations on the basis of 20 per cent. profit."
"For the sake of simplicity," I went on, "I am going to depart somewhat from strict accuracy in assessing your charges. To the 4s. 101-d, fixed charges I am going to add Is. 11d., making your time charge 6s. per hour, and to the 101d. running cost I am going to add 21d., making the mileage charge Is. Id.
" In connection with this longer lead, we have to allow 10 hours and 246 miles. The charge for 10 hours at 6s. per hour is £3, and for 246 miles at Is. Id., £13 6s. 6d. The total charge is, therefore, £16 6s. 6d., which is a fraction more than I8s. per ton, and 18s. per ton is what I suggest as the fair charge.
"You now see the difference in the charge brought about by the two methods of calculating it. Previously we had come to the conclusion that a net cost per day was £1215s. 11d.; if I add 20 per cent., then I get £15 7s.
"What do you say to dealing with the 211-mile lead in the same way, so that we can have a figure under consideration when I come to deal with what is really at the back of my mind, and that is the economy of overtime?"
"I am in your hands entirely," he responded, then added " this seems to me to be a very interesting subject."
Four Deliveries a Day
"Well, then," I went on, "on the basis of the times already taken as applicable to the 37-mile lead, I am of the opinion that you will be able to do four, but not more, deliveries per day, and that the day will consist of nine hours instead of I0."
"You are right there," he agreed, " but I would like you to tell me how you arrive at that conclusion."
"1 allow one hour for your 24 dead miles at the beginning and end of the day, two hours for your terminal delays, and I take 1 hr. each way for the 211-hour run, that is 1+ hrs, per journey, giving me six hours for travelling, two for terminals, one for dead mileage-nine hours in all.
"Your charge must, therefore, be for nine hours at 6s., which is £2 14s., plus 196 miles at Is. Id. (£10 12s. 4d.), a total of £13 6s. 4d. For this sum 24 tons have been carted, the rate, therefore, being I Is. Id. or, if you like a nice round figure, I Is. per ton.
"I have no figures which will allow comparison between this rate for the 211-mile lead and what it would have been had you taken as a basis the 60-hour week, but apart from that there is the fault that you are allowing for a 60-hour week, whereas you may not do more than 54, that is six days of nine hours per day, as compared with six days of 10 hours per day."
"1 am afraid I do not quite see your point," he said. "My idea is to charge extra per hour over and above 44 hours per week to allow for overtime payments." " "If you do that," I replied, "you will not only be departing from your own principle of charging a competitive rate, but you will be overcharging your customer by making him pay twice over for your standing charges."
" I do not understand you," he answered. "Surely the extra amounts I have to pay my driver for working overtime must be charged accordingly, otherwise I shall make a loss on every hour that I work over the 44 in each week." On the contrary," I explained, "you will be perfectly safe if you reduce your charge per hour for every hour over the 44, the reason being that in the orthodox assessment of costs and charges which I have just described there is provision for the reimbursement of standing charges and excess wages in the 44 hours.
All Costs Met "You see," I went on, "in the 4s. if/IA.-per-hour cost which I have used in my calculation of rates per ton there is provision 'for the full amount of the expenditure on the items of tax,' rent and rates, insurance, interest, first cost, establishment charges and the basic week's wage, plus provision for Insurances and holidays.
"In the forty-fifth hour of the week the only amount which you will have to find is one hour's wages at timeand-a-quarter, that is 3s. 51d., as against 4s. 104d.
"Indeed, if I take the full 60-hour week as a basis for calculating, then all that you will have to pay for the extra 16 hours is six hours at 3s. 54d. (£1 Os. 711), plus 10 hours at time-and-a-half, making £2 ls. 3d., so that the 16 hours' extra work will cost you £3 Is. 101d., which is 3s. 101-d. per hour, or Is. less, rather than Is. more, than provided for in our calculation.
"I can put it another way. The total of standing charges and establishment costs that we have been using up to now is £10 14s. 9d., that is for a 44-hour week. If the driver be employed for 60 hours in the week he draws an extra £3 Is. 101d, and that is all that is added to your fixed costs, bringing them up to £13 16s. 71d. Basing your charge on that, you would need to bring your price down from 6s. to 5s. 6d. per hour."
"How do you make that out?"
Calculating Hourly Charge "In this simple way. I divide £13 16s. 70. by 60, the number of hours worked, which gives me 4s. 71d. as actual cost. If I add 20 per cent. profit, then I get 5s. 6d. per hour."
" Can you then give me a set of figures showing what I should charge per hour over and above the basic 44-hour week?"
"That, indeed, is simple enough. For the first six hours over the 44 you should charge the driver's wage at timeand-a-quarter, which is 3s. 51d., plus 81d. for 20 per cent. profit, which makes it 4s. 2d.; for hours .beyond that up to 60 you should charge at the driver's wage at time-and-ahalf, which. is 4s. 11d., again plus 20 per cent., or 104d., making 5s. per hour."
This figure, I explained, he could use if he were up against keen competition, when he felt he must quote the minimum. If those conditions .did not apply, then I suggested he maintained the 6s. per hour and Is. ld. pet mile, sharing with his driver the benefit of overtime
work ing. S.T.R.