Chapter 4: PSERS Reportable Compensation

Summary

Until WAC 415-106 is codified by the Code Reviser's office, WAC references are provided but no links are available.

This section contains information about reportable compensation for members of the Public Safety Employees' Retirement System (PSERS). "Is the payment for services rendered?" is the basic statutory standard used to determine whether payments qualify as reportable compensation. This section discusses the general application of this standard.

The actual rules that govern reportable compensation are contained in state retirement laws. [WAC 415-106-200 through 415-106-330] This section is a summary of those laws and is not intended to be a full description of the laws. If there are any conflicts between what is written in this section and state retirement law, the law will govern.

If you have questions regarding the information contained in this section, contact Employer Support Services.

What is Reportable Compensation

Until WAC 415-106 is codified by the Code Reviser's office, WAC references are provided but no links are available.

In order for a payment to be subject to retirement system contributions and included in the calculation of a member's retirement benefit, the payment must meet the definition of compensation earnable in RCW 41.37.010(6). "Reportable compensation" is defined in rule as "compensation earnable." The term "reportable compensation" was coined by DRS to use the same term when discussing compensation in different retirement systems.

Reportable Compensation is Based upon the Nature of the Payment

DRS determines reportable compensation based upon the nature of the payment you make to an employee, not the name given to it. To determine if a payment is reportable compensation, consider the following:

  • what the payment is for; and
  • whether the reason for the payment brings it within the statutory definition of compensation earnable.

Example:

A payment conditioned upon retirement is not reportable compensation. Attaching the label "longevity" to the payment does not change the fact that the payment is conditioned on retirement. Such a payment is not for services rendered and will not be counted as reportable compensation despite being identified by the employer as a longevity payment.

What Payments Qualify as Reportable Compensation?

The basic statutory standard for determining whether a payment qualifies as reportable compensation is if the payment is for services rendered. To determine whether a payment meets this definition and is to be reported, ask the following questions:

  1. Was the payment earned as a salary or wage for services rendered?
    • If the answer is no, the payment is not reportable.
    • If the answer is yes, ask the next question.
  2. Was the payment paid by the employer to an employee?
    • If the answer is no, the payment is not reportable.
    • If the answer is yes, the payment is reportable.

Example:

If you are in a third party employer/employee situation or have an employee contracting services, contact Employer Support Services for assistance in determining if the compensation needs to be reported.

Report Compensation for the Month It Was Earned

An employer must report all reportable compensation to DRS. Report compensation for the month in which it was earned. Compensation is earned when the service is provided, rather than when payment is made. [WAC 415-106-205]

Example:

Bill is paid in July for work performed during June. The employer must report his compensation to the department as "June earnings."

Types of Compensation

Use the Reportable Compensation Table as an index to the common types of compensation, or view types of compensation in each of the categories below:

Reportable for Services Rendered Reportable But Not for Services Rendered Not Reportable

Reportable Compensation for Services Rendered

Annual leave used—is accumulated over time and paid to a person during a period of excused absence. The paid leave is deferred compensation for services previously rendered and is reportable. [WAC 415-106-255(1)]

Base salary or wages—you pay to your employees for services rendered is reportable compensation. [WAC 415-106-215]

Cafeteria plans—Compensation received in any form under the provisions of a "cafeteria plan," "flexible benefits plan," or similar arrangement according to the provisions of section 125 of the United States Internal Revenue Code and:

  • If the employee has an absolute right to receive cash or deferred cash payments in lieu of the fringe benefits offered, then the compensations is reportable. In such an instance, the fringe benefit is provided instead of cash and is considered reportable compensation the same as cash.
  • If there is no cash option, the value of the fringe benefit is not a salary or wage and is not reportable. [WAC 415-106-290]
Types of Compensation Table

Callback Payment—if an employer offers an employee a special rate of pay for returning to work when called after the end of a regular shift, it is overtime and reportable. [WAC 415-106-220 (2)] Report as regular paid service, as earned, with status code 'A'. Overtime does not have to be identified separately from regular compensation on the transmittal, but report the actual hours worked, not time and a half.

Car Allowance Portion That Exceeds Actual Expenses—is reportable compensation. To prove the vehicle allowance exceeded the actual expenses, ongoing monthly records and documentation must be maintained. Refer to WAC 415-106-330(1)(b) for what is needed.

Compensatory time—is treated as regular paid service with status code ‘A’. Report the actual hours worked, not time and a half. [Refer to DRS Notice 86-001, Reporting of Compensatory Time] If the compensatory time is:

  • Cashed out: report the compensation and actual hours when it was earned.
  • Used: report the compensation and actual hours when they were used, not earned.

Court Pay —if an employer pays an employee an additional payment for appearing in court or performing other duties outside the regular shift, it is overtime and reportable. [WAC 415-106-220 (3)] Report as regular paid service, as earned, with status code 'A'. Overtime does not have to be identified separately from regular compensation on the transmittal, but report the actual hours worked, not time and a half.

Deferred wages/Payroll Deductions (payments earned by, but not paid to, an employee)—Payments earned by an employee for services rendered but deducted from his or her salary rather than paid are reportable. [WAC 415-106-300]

Examples include:

  • Tax withholding
  • Member retirement contributions
  • Voluntary deductions; i.e., 403b contributions or other authorized deductions.

Note: Employer contributions are a fringe benefit and aren't reportable. [WAC 415-106-295]

Types of Compensation Table

Holiday Pay—Additional pay for working on a scheduled holiday is reportable. The extra pay is overtime and should be reported as regular paid service. [WAC 415-106-220 (1)] Report as regular paid service, as earned, with status code 'A'. Overtime does not have to be identified separately from regular compensation on the transmittal, but report the actual hours worked, not time and a half.

Example:

Bill works on Christmas day. He is given the option of taking another day off with pay or receiving an extra day's pay. If he opts for the extra pay, the payment is overtime and is reportable compensation. If he takes another day off in lieu of the extra pay, it is paid leave and also qualifies as reportable compensation.

Longevity or educational attainment—A member who receives a salary increase based upon longevity or educational attainment receives a higher salary without working more hours. The higher salary indicates a higher level of service due to greater experience or more education. The payment is a payment for service and is reportable compensation. [WAC 415-106-215]

Overtime—is treated as regular paid service, reported as earned, and with status code 'A'. Overtime does not have to be identified separately from regular compensation on the transmittal, but report the actual hours worked, not time and a half. [WAC 415-106-220]

Performance Pay—if based upon meeting certain performance goals is for services rendered and is reportable. Employers must document the dates over which performance bonuses are earned and provide the information if requested by DRS. [WAC 415-106-230]

Example:

An employer pays each employee in a work group an additional $100 if the work group had no work related accidents in the preceding year. Remaining accident free is a performance goal. Therefore, the payment is reportable. The bonus should be prorated over each of the preceding twelve months during which it was earned.

Types of Compensation Table

Personal holiday used—is accumulated over time and paid to a person during a period of excused absence. The paid leave is deferred compensation for services previously rendered and is reportable. [WAC 415-106-255(1)]

Retroactive salary—increase paid to an employee who worked during the period covered by the retroactive payment increase is a salary or wage for services rendered and is reportable. While payment is paid in a lump sum to cover the increase earned during the earlier period, the employer must report the compensation in the month(s) it was earned.  Refer to WAC 415-106-245 for payments that qualify.

Sick leave used —is accumulated over time and paid to a person during a period of excused absence. The paid leave is deferred compensation for services previously rendered and is reportable. [WAC 415-106-255(1)]

Time off with pay—includes sick leave, vacation leave or personal leave accumulated over time and paid to a person during a period of excused absence. The paid leave is deferred compensation for services previously rendered and is reportable. [WAC 415-106-255(1)] See also Paid Leave not earned over time.

Types of Compensation Table

Some Payments Are Reportable That Are Not for Services Rendered

In general, payments cannot be considered reportable compensation unless they are for services rendered. However, some payments are authorized by RCW 41.37 as reportable compensation. A description of these payments is included in WAC 415-106-205 through 415-106-330.The following are payments not for services rendered that may be reportable.

Assault Pay, State Employee—Qualifies as reportable compensation for Department of Corrections employees. [WAC 415-106-270(1)] Refer to the RCW 72.09.240 for what is authorized.

Duty Disability Leave—If a member applies to purchase lost service credit, the regular salary an employee would have received had he or she not been absent due to an injury that occurred on the job is reportable. In order for this to be reportable compensation, the employee must be receiving benefits under Title 51 RCW (Industrial Insurance) or a similar federal workers' compensation program. Refer to RCW 41.37.060 for the rules about reporting this payment type.

Refer to Retirement Reporting Reminders - Temporary Duty Disability for rules for reporting employees who are on a leave of absence due to a temporary duty disability. [RCW 41.37.060, WAC 415-106-270(2)]

Note: Whether this salary is reported on the monthly transmittal or the service credit is purchased retroactively, no more than 12 consecutive months of service credit will be granted. If a member returns to work for at least one month, he or she may be eligible for another 12 consecutive months of service credit regardless of whether the disability leave is due to a flare-up of the original injury.

Types of Compensation | Table

Legislative leave—if the member takes leave without pay from an eligible PSERS employer to serve in the legislature and elects to participate in PSERS as a legislator, then for any year in which the member serves in the legislature, the employee may choose between:

  • Option 1: The reportable compensation he or she would have earned had the member not served in the legislature; or
  • Option 2: The actual reportable compensation for non legislative public employment and the legislative service combined. [WAC 415-106-285]

Note: If the employee selects Option 1, he or she is responsible for paying the additional employer and employee contributions on any difference between the Option 1 and Option 2 amounts.

Paid leave—may be reportable to the extent authorized by RCW 41.37.260 and WAC 415-106-260. Payment from an employer while on authorized leave of absence is reportable if:

  • The payment does not exceed the salary for the position from which the employee is on leave; and
  • The payment is actually from the employer, not from a third party. One exception: see Union leave.
Types of Compensation Table

Reinstatement Payments—if an employer makes payments to an employee for periods the employee was not employed and those payments are made upon reinstatement or in lieu of reinstatement, the payments are reportable. [RCW 41.37. 010(6)(b)] specifically designates these payments are only reportable to the extent that they are equivalent to the salary the employee would have earned had he or she been working. The payment will be prorated over the entire period that the employee was suspended, terminated, or otherwise absent from work. [WAC 415-106-240]

Shared Leave, State Employee—the compensation received due to a leave-sharing program qualifies as reportable compensation. If the employee is not a state employee, shared leave payments are not reportable. [WAC 415-106-270(3)]

Standby pay—is is specifically identified as reportable compensation in [RCW 41.37.010 (6)]; however, the service is excluded from the definition of service. [RCW 41.37.010 (7)] Therefore, report the compensation, but not the hours. [WAC 415-106-225]

Temporary Duty Disability—see Duty Disability

Unpaid leave of absence —For certain periods of unpaid leave of absence identified by statute, such as authorized leave for education purposes, family or medical leave, or other unpaid employer-approved leave, a member may apply for and purchase lost service credit. Under RCW 41.37.260 for periods of unpaid leave, the compensation attributed to the period of time on leave will not be included in the member's AFC (except interruptive military service). Refer to Chapter 3 - PSERS Optional Service Credit for helpful publications. [WAC 415-106-280]

Note: A member shall be eligible to receive a maximum of two years service credit during a member's entire working career for those periods when a member is on an unpaid leave of absence authorized by an employer. One exception is interruptive military service which may entitle a member for up to five years of military service. [RCW 41.37.260(4)]

Vacation Leave Used—see Annual Leave Used

Types of Compensation Table

Payments That Aren't Reportable Compensation

The following payments are not for services rendered and are not reportable.

Annual leave cash out—If an employee receives payment instead of using accrued leave, the payment is a cash out and is not reportable. [WAC 415-106-255(2)]

Car Allowance in Lieu of Expenses—some employers pay car allowances instead of reimbursing for actual miles driven in the employee's car for the employer's business. These payments are not for services rendered and are not reportable. [WAC 415-106-330(1)(a)] However, under if the car allowance exceeds expenses, some portion may be reportable.

Car Provided by Employer—the value of an employer-provided vehicle is not reportable.[WAC 415-106-325]

Cash out payments for sick, annual and personal leave—if an employee receives payment instead of using accrued leave, he or she receives a "cash out" for the accrued leave. Cash outs are not reportable for PSERS members. Cash outs are excluded by statute from the definition of reportable compensation. [RCW 41.37.010(6) and WAC 415-106-255(2)]

Disability Insurance Payments—for disability insurance are not for services rendered and are not reportable. These payments are made to an employee because he or she is not able to render services due to a disability. [WAC 415-106-275]

Fringe Benefits—payments made by an employer to a third party to provide benefits for an employee are not part of the employee's salary or wage and are not reportable. Examples of these payment types are insurance premiums and employer retirement contributions. [WAC 415-106-295] Refer to Cafeteria Plans for an exception.

Types of Compensation Table

Illegal Payments—made by an employer in excess of the employer's legal authority aren't reportable. [WAC 415-106-305]

NonMoney Payments—Nonmoney compensation is compensation provided in a form other than money and is not reportable. Examples include: living quarters, food, board, equipment, clothing, laundry, transportation, fuel and utilities. [WAC 415-106-315]

Optional Payments—if an employee can receive an additional payment only on the condition of taking an action other than providing service, the payment is not for services rendered and is not reportable. [WAC 415-106-310]

Example:

An employer offers to make a contribution to a deferred compensation plan on behalf of an employee only if the employee agrees to defer a portion of his or her salary. Because the employee does not have an absolute right to receive the contribution based solely on the rendering of service, the payment is not reportable compensation.

Types of Compensation Table

Personal holiday cash out—If an employee receives payment instead of using accrued leave, the payment is a cash out and is not reportable. [WAC 415-106-255(2)]

Reimbursements for Expenses—incurred while performing services for an employer are not wages for services rendered and are not reportable. Examples of reimbursement expenses include mileage reimbursements for use of a private car on employer business or meal and lodging reimbursements for business trips. [WAC 415-106-320]

Retirement Bonus or Incentive—a payment made to an employee as a bonus or incentive to retire or terminate is not a payment for services rendered and is not reportable. [WAC 415-106-235] However, if the agreement requires additional service, refer to RCW 41.50.730.

Severance Pay—is not reportable, whether earned over time or not. [WAC 415-106-250]

Shared Leave, Local Government Employee—if the employee is not a state employee, shared leave payments are not reportable. [WAC 415-106-270(3)]

Sick leave cash out—If an employee receives payment instead of using accrued leave, the payment is a cash out and is not reportable. [WAC 415-106-255(2)]

Types of Compensation Table

Union leave—salary is not reportable unless it meets the following criteria:

  • The employee is serving in an elected position with the labor organization; non-elected positions are not covered by the law.
  • The employee continues to receive compensation from the PSERS employer; the labor organization reimburses the employer for the amount of the employee’s compensation.
  • The compensation reported does not exceed the salary paid to the highest paid job class covered by the collective bargaining agreement.
  • The leave of absence is authorized by a collective bargaining agreement between the labor organization and the employer that provides the member shall retain seniority rights with the employer during the period of leave. [RCW 41.37.260(2) and WAC 415-106-265]

Note: The reporting information for members in DRS Notice 93-014 for an employee who takes a leave of absence to serve as an elected official of a labor organization also applies to PSERS.

Vacation Leave Cash Out—see Annual Leave Cash Out

Workers' Compensation—payments to a member are not payments for services rendered and are not reportable. This is true whether the payments come from the Department of Labor and Industries or from a self-insured employer. [WAC 415-106-275]

An employee may elect to make contributions and receive service credit for periods of disability covered by industrial insurance. [RCW 41. 37.060] Refer to the publication Retirement Reporting Reminders - Temporary Duty Disability.

Note: Some employers have an employee on unpaid disability leave submit his or her worker's compensation payments to the employer and then issue the employee a check through their payroll system. This exchange does not change the nature of the worker's compensation payments and does not make the payments reportable.

Establishing Service Credit for Unpaid Leave

In some circumstances, a PSERS member may elect to establish service credit for periods of unpaid leave. The regular compensation the member would have earned had he or she been working is used to calculate the amount the member must pay to establish the service credit. The regular compensation amount used to create the bill is not reportable compensation. Depending on the type of leave, this compensation may or may not be included as Average Final Compensation (AFC) in calculating a member's retirement benefit.

Authorized Unpaid Leave - RCW 41.37.260 provides members with an option to establish service credit for periods of unpaid leave. Salary used to calculate the contributions for such periods is not reportable compensation and cannot be included as AFC in calculating a member's retirement benefit.

Military Leave - Salary used for purposes of calculating contributions owing for a period of interrupted military service is not reportable compensation. However, if a member elects to purchase credit for periods of military service, and the military leave period falls within the member's AFC period, federal law requires the salary the member would have earned during the period of absence be used in the calculation of the AFC.

For DRS publications on optional service credit, refer to PSERS Optional Service Credit.

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