Pay for time lost is a type of creditable compensation attributable to wages lost for an identifiable period of absence from active service. Its statutory basis is Section 1(h)(2) of the Railroad Retirement Act (RRA), Section 1(h)(I) of the Railroad Unemployment Insurance Act (RUIA), and Sections 211.3 and 322.6 of the regulations.

Pay for time lost differs from other compensation in that the payment may not be credited when paid, but by definition, must be credited to the period for which the time was lost. Applicable payroll taxes are assessed at the rates applicable when the payment was made. See the example later in this chapter.

• Personal injury settlements that allocate a portion of the damages as lost wages for a specific period following the injury;

• Dismissal allowances (See Chapter 7 in this part);

• Guaranteed wages;

• Displacement allowances paid for loss of earnings resulting from displacement to a less remunerative position; and

• Reinstating awards.

• Reinstatement awards often include awards for time lost, possibly referred to as "back pay". If an award for time lost does not result in a payment to the employee, then no service or compensation is creditable under the RRA. This might occur if a reinstatement award is reduced for other earnings. If the award is reduced to zero, no service or compensation is creditable.

• Hiring discrimination awards may or may not include an element of time lost. If the payment is made to an individual who is not in an employment relation with the employer making the payment and the payment is not subject to RRTA taxes, the payment would not result in creditable service or compensation.

• Credit when Earned. The compensation is considered earned in the missing months or the months the employee was displaced to a less remunerative position. Therefore, it should be reported as service and compensation for those months. If you are not sure of the open service months of record, telephone or write to the Protest Section. The telephone number is (312) 751-4809, 4883, 4823 or 4882.

• Employment Relationship Required. As with all compensation, an employment relationship must exist for that period (See 20 CFR 204.6). If a settlement agreement requires that an employee resign to receive the payment, the employment relationship ceases effective with the resignation. Allocation into the future is permissible as long as an employment relation is maintained. It may not be credited until the period has elapsed and proven to be time lost. There is no provision for crediting service in advance.

• Service and Compensation Must Relate to Actual Time Lost. An allocation may not be arbitrarily made to any period of missing service, but must relate to an actual period of absence. Therefore, an allocation based on a reinstatement may not be prior to the dismissal. The specific months must be identified on Form BA-4, Report of Creditable Compensation Adjustments.

• Ignore Deemed Service Months. In most instances, a pay-for-time-lost allocation increases service as well as compensation, often eliminating or reducing any deemed service months in the year(s) involved. Therefore, deemed service months in the year(s) of the allocation should not be considered in counting an employee's total service months. See Part III, Chapter 1 for an explanation of deemed service months. An example follows illustrating why we advise ignoring deemed service when determining months to allocate.

• Acceptable Pay for Allocation. The amount of the pay for time lost must relate to an employee's normal monthly pay. (See 20 CFR 211.3(b)). By regulation, a monthly allocation must be at least ten times the employee's daily pay rate in effect on the date of injury. For example, if an employee normally earns $120 a day, the amount of pay for time lost allocated to each month should be at least $1200.

• Taxed when Paid. As with all compensation, pay for time lost is taxed under the Railroad Retirement Tax Act when paid. See taxation of compensation in Part IV, Chapter 1. Because pay for time lost represents a period other than the current, the taxed amount and the creditable amount of the pay for time lost may differ.

In 2000, Mr. Brakeman is awarded a settlement for personal injury that includes pay for time lost due to the injury of $1500 per month. Because Mr. Brakeman has deemed service for three months, the pay for time lost allocation is $3000 for the two remaining months of August and September 1999. Mr. Brakeman now has total Tier II compensation of $45,960 in 1999 and reported service for the months January through April and August through November. Based on the Tier II compensation of $45,960, Mr. Brakeman is entitled to 11 service months in 1999. ($45,960 / 4475 = 10.3 rounded up to 11 months.) In this example, Mr. Brakeman is now short one service month. As you can see, deemed service months are the product of a calculation and when the components of the calculation are adjusted, the deemed months may also be adjusted.

1997

• Increase service months for July through December

• Increase Tier I and Tier II compensation by $12,000, or by amounts to bring 1997 compensation to the maximums

• Increase RUIA compensation by $5,340 ($890 x 6)

1998

• Increase service months for January through December

• Increase Tier I and Tier II compensation by $24,000

• Increase RUIA compensation by $11,100 ($925 x 12).

The amount paid for 1999, $20,000, would be included on the Form BA-3a, Annual Report of Creditable Compensation, filed for 1999, along with the earnings paid in or for 1999.

• As with all compensation, withholding and depositing the proper taxes is not sufficient in itself to update an employee's record of service and compensation. An appropriate report of service and compensation must be submitted to the RRB.

• Service months and RUIA compensation are creditable based on an award for time lost.

• If an employee has filed for an annuity, the employer will likely receive Form G-88A.1, Request for Verification of Last Date Carried on Payroll. Any current payments for time lost should be included on this form. The "date last worked" should reflect the last day paid for lost time, if that date is later than the actual date worked.

• Allocation for time lost must relate to the time lost resulting from the injury. Therefore, the allocation cannot begin prior to the date of the injury.

• If the personal injury claim includes time lost and the settlement or court order does not specify an amount for time lost, or does not allocate an amount to factors other than time lost, the entire amount of the settlement is presumed payable for time lost and compensation is creditable and taxable based on the full amount.

The amount withheld for reimbursement of benefits is in addition to employment taxes that must be withheld on a payment for time lost. Reimbursement of sickness benefits yields a tax credit for the employer of any Tier I employer tax paid. Reimbursement of unemployment benefits is credited to the employer's record in determining the RUIA contribution rate.

The reopening of a pay for time lost award to make an additional award of service and/or compensation is considered a correction of the original record. The law limits the period during which corrections to service and compensation records may be filed. The period during which corrections may be filed begins with the date the report of the original award was due at the RRB. See Part VII, Chapter 2, to determine time limits for filing corrections.

Service months, Tier I, Tier II, and RUIA compensation are creditable based on an award for time lost. Withholding and depositing the proper taxes will not update an employee's record of service and compensation. An appropriate report of service and compensation must be submitted to the RRB.