Labor Employer Reporting Instructions

Part III	Particular Types of Compensation Payments
Chapter 1	Regular Earnings
Chapter 2	RUIA Compensation from Multiple Employers
Chapter 3	Delegate Service and other Exclusions to Creditable Compensation
Chapter 4	Selected Fringe Benefits
Chapter 5	Vacation Pay
Chapter 6	Back Pay
Chapter 7	Pay for Time Lost

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CHAPTER 1: Regular Earnings

Regular earnings are payments made for services rendered as an employee. This includes payments to part-time and periodic employees, as well as regular earnings paid to employees who are not working due to illness, injury, or pregnancy. Any payment made through the regular payroll system is presumed to be regular earnings. Regular earnings are creditable as follows:

Non-Monetary Earnings
Earnings may be paid as a commodity, a service, or a privilege. For example, a local lodge may pay earnings in the form of union dues. However, if an employee is to be paid in any form other than money, the employee and employer must first agree upon the value of the commodity, service, or privilege, and that payment is to be in the form of the commodity, service, or privilege. Non-monetary earnings are creditable in the amount of agreed-upon value. Earnings in the form of union dues are creditable compensation in the amount of the dues.

Reporting Compensation on a Paid or Earned Basis
Regular earnings may be reported as compensation for the period the payment was earned, referred to as "earned basis," or when the payment was made, referred to as "paid basis."

• Paid Basis: Compensation is credited and reported with respect to the reporting period in which compensation is paid, actually or constructively, regardless of when the services which generated the compensation were performed.

• Earned Basis: Compensation is credited with respect to the payroll period in which it was earned even though paid and reported at a later date.

Employers choosing to report compensation on a paid basis are subject to the proviso that an employee, within four years after the report, may request to have the compensation reported, by way of an adjustment, for the year in which it was earned. This proviso is found in RRB regulations 20 CFR 209.7 (3). Employee requests to have compensation adjusted to an earned basis may be made to the employer directly or to the Railroad Retirement Board who will notify the employer to file an adjustment report. Requests made under this proviso must be honored.

Service Months
Employees of national and system labor organizations earn service credit. Service is always reported when the service was actually or constructively performed. Therefore, service can never be reported for months after the employee retired, resigned, died, or relinquished employment rights. Compensation may be made and credited to former employees but former employees no longer perform service and are not credited with service months.

Adverse Effect of Erroneous Service Months
Reporting a service month when no service month is creditable can adversely affect both the employee and the employer. The employee may be denied benefits for the month of reported service or may receive benefits in excess of the correct amount based on the erroneous service month.

The employer's Railroad Unemployment Insurance Act contribution may be adversely affected in two ways. The employer may be erroneously determined to be the last employer on record and be charged for benefits paid. Also, the employee may be paid more than the correct amount of unemployment benefits which will then be charged to the employer when determining the employer's contribution rate.

CHAPTER 2: RUIA Compensation and Multiple Employers

Unlike compensation under the Railroad Retirement Act and the Railroad Retirement Tax Act, compensation and contributions under the Railroad Unemployment Insurance Act (RUIA) may be prorated among the multiple employers. If an employee of a national or system unit also worked for a rail carrier in the same month, the employee's combined earnings are creditable up to the monthly RUIA maximum. If the combined earnings exceed the RUIA monthly maximum, the creditable RUIA compensation may be prorated or allocated between the two employers. The method of proration is not set by the RRB but by agreement between the two employers. Any method which yields the correct RUIA compensation is acceptable to the RRB.

If RUIA is prorated between a national or system unit and the rail carrier, the national or system unit must retain the records of the employee's carrier earnings for the full payroll retention period (5 years), provided by the employee. Records retention is in Part VI, Chapter 3.

Method 1
One common method of apportioning RUIA compensation between two employers is for the system unit to report RUIA compensation only in the amount not reported by the primary employer. If the carrier has reported RUIA compensation in an amount less than the monthly maximum, subtract the compensation reported by the carrier from the monthly maximum. This remainder is the amount of RUIA compensation reported by the system unit. However, do not exceed the total earnings paid by the system unit for the month.

Method 2
Another method of apportioning RUIA compensation is for each employer to report RUIA compensation in a ratio equal to the ratio of the gross earnings paid by the two employers. 1) Determine the total earnings for the month and the total creditable RUIA compensation based on the total earnings. 2) Determine the ratio of the system unit earnings to the total earnings. 3) Multiply the creditable RUIA compensation by the system unit ratio. This will yield the system unit share of RUIA compensation under this method.

These two methods of RUIA compensation proration are illustrated in Appendix V.

CHAPTER 3: Delegate Service and other Exclusions to Creditable Compensation

The following payments made to an employee by an employer are not considered creditable compensation under the Railroad Retirement Act and the Railroad Unemployment Insurance Act:

• Payments made by a labor organization to delegates for attending the sectional, regional, or national convention.

• Earnings from a local lodge of less than $25 a month for services to a railway labor organization do not generate a service month and are not creditable as compensation. (All earnings, regardless of the amount are subject to conversion to work hours for supplemental tax.)

• Earnings of any amount for services to local lodges of railway labor organizations are not creditable as compensation under the Railroad Unemployment Insurance Act. (Earnings of $25 or more a month for services to a local lodge are creditable as Tier I and Tier II compensation.)

• Contributions and payments for pension or profit sharing under a plan which qualifies for exclusion from income under the Internal Revenue Code. (Note - This exclusion does not apply to amounts withheld from the employees compensation for deposit into the pension plan in lieu of a wage increase, as negotiated with a labor union, including 401(k) and 401(a) plans.)

• Payments made to an employee's survivor or to an estate in the year after the employee died. (Payments made after death but in the year of death are creditable compensation.)

• Reimbursements for employment-related expenses incurred where reimbursement is not subject to tax. For reimbursements to be excluded from compensation, documentation of expenses is required. The following reimbursements are not creditable compensation:

• Educational assistance which is excluded from compensation under Section 127 of the Internal Revenue Code.

• Allowances or provisions for meals and lodging which are excluded from compensation under Section 119 of the Internal Revenue Code. That section covers meals and lodging provided by the employer and usually on the employer's premises.

• Allowances or reimbursements for travel, meals, and lodging which are incurred while traveling in the business of the employer and where paid under a plan in which the employee must account for expenditures. Any expenditures not accounted for are creditable compensation.

• Reimbursement for moving expenses which are deductible under Section 217 of the Internal Revenue Code.

CHAPTER 4: Selected Fringe Benefits

Group Term Life Insurance
The cost of group term life insurance is considered compensation under the Railroad Retirement Act to the extent that it is included in the gross income of an employee and subject to railroad retirement tax. The cost of group term life insurance with respect to periods within an employment relationship is treated the same as ordinary compensation creditable for both Tier I and Tier II purposes.

If compensation is being reported for the period in which the compensation was earned, the cost of group term life insurance, with respect to periods after the termination of the employment relation, should be reported to the month in which the employment relation ended, up to the applicable annual Tier I and Tier II maximums. If the maximum creditable Tier I amount has been received, additional amounts would be considered miscellaneous compensation because the payment meets all the conditions described in the Part VIII, Chapter 2 about miscellaneous compensation.

If compensation is being reported for the period the payment was made, the cost of group term life insurance would be reported as Tier I, Tier II, and RUIA compensation for the year paid. No service month can be reported because the individual is no longer an employee.

Pension Plans
Amounts withheld from the employee's compensation for deposit into an employer pension plan account, amounts deposited into an employer pension plan account in lieu of a pay increase, as negotiated with a labor union, or amounts deposited into a 401(k) pension plan for the employee, are considered to be the employee's funds and are creditable railroad compensation at the time of contribution. These amounts are subject to the railroad retirement tax. Employer matching funds are not considered compensation and are not subject to the railroad retirement tax.

CHAPTER 5: Vacation Pay

The Railroad Retirement Board does not establish vacation policy for employers. These instructions are intended only to provide information on correct reporting of service and compensation in various vacation pay situations. Every example is not applicable to every employer.

Although related, a determination of creditable service is made separately from a determination of creditable compensation. These instructions clearly distinguish between determinations of creditable service and determinations of creditable compensation.

Vacation Taken
Employees of national and system units may earn a paid vacation. Vacation compensation may be credited to the actual vacation period or may be credited when paid. It is assumed that only current employees with employment rights can actually take a vacation. Service is creditable for the actual vacation period. There is no option to credit service to the month paid. For example, employee Larry Lineman took vacation from December 15 through December 29. He was paid the following January 10. Service for the vacation period is creditable to December, when the vacation was taken. The vacation compensation may be credited to December, if compensation is reported when earned, or may be credited to January if compensation is reported when paid.

Former Employees
If vacation is paid to former employees it is presumed to be vacation paid in lieu of a vacation taken. See Vacation Pay in Lieu of Vacation Period later in this chapter. No service month can be reported if an employee is no longer in an employment relation when paid. Thus, in the above example, if Mr. Lineman terminated his employment in November, the vacation payment made to him in January may be credited as compensation in November or January but no service month is creditable after November.

Vacation Pay Credited after Date Last Worked
Vacation pay may be credited to a period after the date last worked when the vacation period would have extended into the month after the month last worked, if the vacation had immediately followed the date last worked. However, this is not an option if the employee does not have an employment relation during this period. Service for a vacation period cannot be credited after the employee retires, resigns, or otherwise relinquishes employment rights.

The option of crediting vacation pay after the date last worked may be exercised if it is to the employee's advantage, such as when the employee needs an additional service month for eligibility for an annuity under the Railroad Retirement Act (RRA). If the employee has already retired to accept an annuity under the RRA, additional service credit for vacation pay is generally not advantageous. An employee cannot receive an annuity under the RRA and work for an employer covered under the RRA for the same month. If additional service is credited after the month last worked, the employee is not entitled to receive an annuity for that month. If an annuity was already paid, the amount will be recovered from the employee.

Vacation Pay in Lieu of Vacation Period
If a vacation period was not taken, but rather, the accrued vacation was paid in a lump sum payment(s), a service month is not creditable based solely on the vacation pay. The vacation pay is creditable as compensation and is reported the same as you report compensation generally, but no service month is reported.

As stated in Chapter 1 of this part, any payment made through the regular payroll system is presumed to be regular earnings creditable as Tier I, Tier II, and RUIA compensation and generating service months. This is also true for vacation payments. If an employee receives five days vacation pay in the pay period ending July 26 and ten days vacation pay in the pay period ending August 9, it is presumed that service is creditable for July and August.

Vacation paid in lieu of a vacation period is often an accounting reconciliation. For example, if an employee is limited to twenty one days of accrued vacation going into the new year, and the employee has accrued twenty two days, one day will be paid at the end of the accounting year. Another common situation is when an employee resigns and is paid any unused vacation.

Example 1: Vacation pay and retirement
An employee worked from January through August 19, took vacation from August 20 through September 30, and retired October 1. On December 15, it was determined that the employee had three accrued vacation days which had not been taken. The three days were paid on December 28. The employee is credited with nine service months, including the vacation month of September, but is not entitled to a service month for December. The vacation payment made in December is included in the employee's creditable compensation reported for the year.

Example 2: Vacation pay in-lieu-of vacation period while on leave
An employee is on extended medical leave and has been in receipt of sickness benefits from the RRB from the beginning of the year. In June the employee requests that all accrued vacation be paid. On June 18, the employee is paid $2600 in a lump sum. No service months are creditable for June. The $2600 is included in the employee's creditable compensation for the year. The employee is entitled to sickness benefits for all days in June since the vacation payment is not attributable to a vacation period.

Example 3: Vacation period while on leave
An employee is on extended medical leave and received sickness benefits from the RRB from the first of the year. The employee requests accrued vacation of thirteen days, beginning June 24 through July 10 and the employer's vacation policy allows an employee to take a vacation period while on leave. The employee is paid $2000 on July 12 and $600 on July 26, for the pay periods included the vacation days. Service months are creditable for June and July. The $2600 is included in the employee's creditable compensation for the year. The employee is not entitled to sickness benefits for June 24 through July 10 because he/she received vacation pay for those days.

You will note that examples 2 and 3 are the same except that in example 2, the employee requested a payout of accrued vacation, whereas in example 3, the employee requested to take a vacation period.

Example 4: Vacation period taken in individual days while on leave
An employee is on extended medical leave and has been in receipt of sickness benefits from the RRB and supplemental sick pay from Trustmark since the beginning of the year. In June, the employee requests that accrued vacation of 13 days be taken as follows:

June 10 & 11
July 1 & 2
August 1 & 2
September 3 & 4
October 1 & 2
November 1 & 4
December 2

The employee is paid $400 vacation pay in each of the months June through November and $200 in December. The employee is credited with service for seven months June through December. The employee is not entitled to sickness benefits under the Railroad Unemployment Insurance Act for the days for which he took vacation. The $2600 is included in the employee's creditable compensation for the year.

Example 4 is similar to example 3 except that the employee in example 4 has spread his vacation over seven months to increase his service months. Again, whether an employee may elect vacation in the above manner is the policy of the employer not the RRB. These instructions are intended to inform you how to report should your personnel policy allow for this situation.

Example 5: Vacation pay to employee's survivors
An employee works through April 20 and is killed. On May 25, the employer pays to the survivors $2250 for the twelve days of vacation the employee had accrued. No service can be credited to May or any other month after the month the employee dies. The $2250 is subject to payroll taxes and is reported as creditable compensation. If, however, the accrued vacation was paid in a year subsequent to the year the employee died, the payment would not be creditable or taxable.

CHAPTER 6: Back Pay

Back Pay Defined
Back pay, as used in these instructions, is a retroactive wage increase. For example, a negotiated contract expires 12/31/96 but employees continue to work while a new contract is negotiated. A new contract is approved in August 1998 which includes a pay increase retroactive to 1/01/97 and 1/01/98. The retroactive increase, or back pay, is paid in September, for work done beginning January 1, 1997.

Like other compensation, back pay may be creditable for the month compensation is paid or for the period earned. Also, like other compensation, if back pay is reported for the month paid and the employee makes a timely request that it be allocated instead to the month(s) earned, the employer must submit an adjustment report accordingly. See Part VII, Chapter 2 for more information about employee protests of service and compensation records.

Service should not be reported for the month back pay was paid unless service is otherwise creditable for that month. In the case of a retroactive wage increase, it is presumed that service has already been credited based on the initial wage payment prior to the increase.

Back Pay vs Pay For Time Lost
Back Pay, as used in these instructions, is not pay for time lost. Employers have used the term back pay to refer to pay for time lost. For example, an employer may indicate that a discharged employee won reinstatement with back pay from the termination date. This would be payment for the period of lost wages, not back pay as defined above. The name the employer gives to the payment does not govern the rules under which the payment is creditable. An employer can use the term "back pay" for pay for time lost as long as the employer reports the pay to the RRB as though it were pay for time lost. See the next chapter for instructions on reporting pay for time lost.

CHAPTER 7: Pay For Time Lost

Because pay for time lost is an award of both service and compensation, it applies to national and system units. 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.

Types of Pay For Time Lost
Types of pay for time lost include, but are not necessarily limited to, the following:

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

• dismissal allowances (See Part VIII, Chapter 1);

• guaranteed wages;

• displacement allowances paid for loss of earnings resulting from displacement to a less remunerative position.

Awards for Time Lost Which Do NOT Result in Creditable Compensation
In the following two situations, an award for time lost will not result in creditable service and compensation. One is where no payment was actually made and the other is where payment was made but because the recipient was not an employee, the payment was not subject to tier tax.

• 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 tier tax, the payment would not result in creditable service or compensation.

• 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.
  

• 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, however, be credited until the period is elapsed and proven to be time lost. There is no provision for crediting service in advance.

• 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.

• 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 VIII, Chapter 4 for an explanation of deemed service months. An example illustrating why we advise ignoring deemed service in determining months to allocate follows.

• 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.

• As with all compensation, pay for time lost is taxed under the Railroad Retirement Tax Act when paid. See taxation of compensation in Part II, Chapter 4. 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.

Example of allocating service when deemed service months are involved
Employee Bob Brakeman worked from January through April 18, 1997, when he was injured on the job. Mr. Brakeman returned to work on October 6, 1997, and worked through December. Mr. Brakeman was reported to have service months of January through April and October through December and creditable compensation of $38,956. Based on the creditable Tier II earnings, Mr. Brakeman would be entitled to ten months. Since seven months were reported, an additional three months may be deemed. ($38,956 ) 4050 = 9.6, rounded up to ten total months. The 4050 is the 1997 Tier II earnings base of $48,600 divided by 12.) Because Mr. Brakeman has an employment relation in all months in 1997, the months of May, June, and July are deemed as service months.

In 1998, Mr. Brakeman is awarded a settlement for personal injury which 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 1997. Mr. Brakeman now has total Tier II compensation of $41,956 in 1997 and reported service for the months January through April and August through November. Based on the Tier II compensation of $41,956, Mr. Brakeman is entitled to eleven service months in 1997. ($41,956 ) 4050 = 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.

Example of crediting compensation to period lost and assessing taxes when paid
Employee Carry Clerk was dismissed in July 1995. As a result of a Public Law Board decision, she was ordered reinstated with full seniority rights and full pay for the period July 1, 1994, through October 31, 1997. Ms. Clerk returned to work in November 1997 and in December received a payment of $56,000, $2000 per month for the period July 1995 through October 1997. The total amount of $56,000 should be considered together with the other compensation paid to Ms. Clerk in November and December 1997 to determine the correct amount of railroad retirement tax due for 1997. The 1997 tax rates and maximum earnings bases are used for the purpose of computing the tax.

Service months and compensation in the amount of the award are creditable as if they had been earned in the period July 1, 1995, through October 31, 1997, using the appropriate maximums for that period. This award requires an adjustment as follows:

The amount paid for 1997, $20,000, would be included on the Form BA-3a, Annual Report of Creditable Compensation, filed for 1997, along with the earnings paid in or for 1997.

• 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, Retirement Contact Form. 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. Also attach a copy of the award for time lost.

• 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.

Employee in Receipt of Sickness or Unemployment Benefits
If a payment is made for time lost which covers a period for which unemployment or sickness benefits under the RUIA were previously paid, reimbursement is due the RRB. You should contact the Claims Adjustment and Settlement Section to learn the correct amount to withhold from the award to reimburse the RRB. Refer to Appendix II, Jurisdiction Guide, Subject: Request for Lien Amount under Section 12(o) of the RUIA, for the telephone number.

The amount withheld for reimbursement of benefits is in addition to employment taxes which 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.

Reopening a Pay-For-Time-Lost Award
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 VI, Chapter 2, to determine time limits for filing corrections.

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