Chapter 5: Special Conditions - Procedure for Reporting Deferred Payments

Summary

Some employees earn compensation in one month but are paid that compensation in a later month. If you defer payment of employees’ compensation, you need to make sure employees’ compensation is identified properly on the transmittal report by the Earning Period (month and year the compensation was earned).

This same rule applies to members’ contributions (except Plan 3) and hours for the associated compensation.

Some of the employers who report deferred payments of employee compensation include school districts, community and technical colleges, educational service districts, the State School for the Deaf, the State School for the Blind, and four-year colleges and universities.

Procedure for Reporting Deferred Payments

Which Employees must be Considered

Special reporting on the monthly transmittal is required any time an employee has earnings deferred for payment in a later month. For example, an employee may:

  • work for nine or ten months but be paid over 12 months;
  • be paid on a month lag; or
  • receive supplemental earnings during the year (e.g., for coaching).

Special reporting is not required if an employee is paid all salary in the month in which it is earned.

How to Determine the Deferred Amounts

When you defer payment of an employee's compensation, you must determine the amount of compensation (and the corresponding contributions) you have deferred each month. The following example shows how this can be accomplished for an employee who works for ten months (from September through June) but is paid over 12 months.

Note: If an employee is paid additional compensation for other duties, does not complete a contract, is given additional contracts, or makes other changes during the school year, you will need to make the necessary adjustments in your reporting to account for those changes.

Step One

Determine the amount of compensation you will pay the employee each month. In this example, the employee is paid over 12 months; divide the employee's total annual contract amount by 12.

Annual contract amount $43,200.00
Divided by months in the year ÷ 12
= Monthly compensation paid $ 3,600.00

Step Two

Determine the employee's daily or hourly rate of pay by dividing the employee's total annual contract amount by the number of days or hours the employee has been contracted to work.

Annual contract amount $43,200.00
Divided by contract days ÷ 180
= Daily salary $ 240.00

Or

Annual contract amount $43,200.00
Divided by contract days ÷ 180
Divided by hours in day ÷ 7.5
= Hourly salary $ 32.00

Step Three

Determine the amount of compensation the employee earned in a given month by multiplying the daily or hourly salary times the number of days or hours the employee worked that month. (Include days or hours the employee was in paid status; e.g., paid holidays, vacation time, or sick leave.)

Daily salary $ 240.00
Multiplied by days worked x 21
= Monthly compensation earned $5,040.00

Or

Hourly salary $ 32.00
Multiplied by hours worked x 157.5
= Monthly compensation earned $5,040.00

Step Four

Compare the monthly amount the employee was paid and the amount the employee earned. The difference is the amount of compensation that will be deferred.

Compensation earned $5,040.00
Minus compensation paid -3,600.00
= Deferred amount $1,440.00

Note: You will also need to figure the amount of contributions due on this deferred amount and report these deferred contributions when you report the deferred compensation.

How to Report the Deferred Amounts

How you report the deferred amounts of compensation and contributions will depend on the reporting method you choose. You can select either of two methods. With either method, you must always report the total compensation paid and identify the compensation by when it was earned.

Method #1: Next Month Correction

With this method, you will add lines to your transmittal report each month to account for the deferred amounts of compensation and contributions from the preceding month. The chart on the following page shows how to use this method to report a PERS Plan 1 member with a 12-month contract of $43,200. Notice that:

  • service is reported in hours because the employee is a PERS Plan 1 member;
  • multiple lines are used for reporting after the employee's first month;
  • the compensation and contributions that have been deferred are identified with the proper earning period; and
  • with July and August reporting, status code B is used to report zero compensation, contributions, and service for these months when the employee did not work.

Method #1 Chart

Method #2: End-of-Year Correction

With this method, you will wait until the last few months of the employee's contract year to account for the deferred payments from the preceding months. The chart on the following page shows how to use this method to report a TRS Plan 1 member with a 12-month contract of $43,200. Notice that:

  • a single line is used for reporting for the first nine months of the 12-month contract. Multiple lines are needed for reporting during the final three months of the contract;
  • for June, July and August reporting, status code A is used to report the deferred compensation and contributions from prior months. Compensation is identified by the proper earning period; and
  • with July and August reporting, status code B is used to report zero compensation, contributions and service for these months when the employee did not work.

Method # 2 Chart

Points to Remember

When reporting deferred compensation and contributions, remember the following points:

  • Make sure the total compensation you report for each reporting period matches the total compensation the employee was paid for that period. Some, or all, of this compensation may need to be identified as earned in a prior period.
  • Use additional lines in your reporting when you need to report more than one earning period. Use the line with the current earning period to report the actual number of hours or days the employee works in a month.
  • Use status code B and report zero compensation, contributions and service in any months when the employee does not work.
  • Be sure to adjust your reporting if the employee has multiple contracts, does not complete a 12-month contract, earns other compensation, or makes other changes during the school year.

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