Labor Employer Reporting Instructions

Part VIII	Issues of Limited Applicability to Labor Employers
Chapter 1	Separation/Severance Payments and Dismissal Allowances
Chapter 2	Miscellaneous Compensation and Sick pay
Chapter 3	Contract Services
Chapter 4	Form Letter GL-99, Employer's Deemed Service Month Questionnaire
Chapter 5	Form Letter GL-132, Annuitant Return to Service

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CHAPTER 1: Separation/Severance Payments and Dismissal Allowances

Payments that result from the abolition of an employee's job may be known as separation, severance, termination, coordination, dismissal, continuation, or guarantee payments or allowances. By whatever name they are called, they constitute creditable and taxable compensation. The regulations of the Railroad Retirement Board (RRB) distinguish between separation or severance allowances and dismissal allowances. These two types of payments are creditable in different ways.

Terminology
The name the employer gives the allowance does not govern the rules under which the payment is taxed and credited. If the terms of an agreement meet the definition of a dismissal allowance, but the employer calls it a separation allowance, the rules for a dismissal allowance still apply.

Separation Allowance
Under the Railroad Retirement Act (RRA) and Railroad Unemployment Insurance Act (RUIA), if an employee relinquishes job rights for the purpose of receiving an allowance, the payment is considered to be a separation allowance. A separation allowance is considered earned in the month that the employee fulfills the conditions necessary to receive the pay, which is usually the month in which the employment relation is severed or the month last worked. Consequently, for employers electing to report on an earned basis, the entire separation allowance should be reported as service and compensation in the month the employee relinquished employment rights or the month last worked.

Employers electing to report compensation on a paid basis, will report the separation allowance paid in the year as compensation on their annual report for that year. This is true regardless of whether the payment is made in a lump sum or in periodic installments. Employers electing to report compensation on an earned basis, should report the entire amount of the allowance to the year last worked or to the year of separation, up to the annual maximum. If the compensation exceeds the maximum for that year, the excess Tier I compensation is reported as miscellaneous compensation on Form BA-10. See Chapter 2 of this part.

Separation allowances and severance payments are not subject to conversion to work hours for the purpose of paying supplemental tax.

Dismissal Allowance
If, according to the terms of the agreement, the employee retains a genuine employment relation within the meaning of the RRA, and receives monthly or periodic payments, the payment is considered a dismissal allowance, not a separation allowance. The following, although not exhaustive, is evidence of an employment relation:

• the agreement provides that the employee does not relinquish employment rights until the end of the period covered by the allowance;

• the employee may be recalled during the period of the allowance;

• the employee remains covered under various employee plans; or

• the employee continues to receive employee benefits.

A dismissal allowance is a type of pay for time lost, as described in Part III, Chapter 7, and is creditable as service and compensation. Whereas most pay for time lost is awarded retroactively to a prior period where earnings were lost, a dismissal allowance is usually paid as part of current payroll. For reporting purposes, a dismissal allowance appears on the report as though the employee had continued to work during the period of the allowance.

Example of Separation vs Dismissal Allowance
Here is an example illustrating the difference between a separation allowance and a dismissal allowance. Employee Morris Code last worked in June 1997 at which time his job was abolished. He agreed in June 1997 to accept a monthly payment of $1,000 for two years beginning in July 1997. During the two years, Mr. Code retained various employee benefits. At the end of two years, he will relinquish his employee rights. Mr. Code is considered to be in receipt of a dismissal allowance. Compensation should be reported as follows: $6,000 for 1997, $12,000 for 1998 and $6,000 for 1999. Service months should be reported for the 24 months from July 1997 through June 1999.

Employee Bennie Fit last worked in June 1997 at which time his job was abolished. He agreed in June to accept $24,000, paid in 24 monthly installments, in consideration of his immediate resignation. No service months are creditable after June 1997 because no employment relation existed. Employers who elect to report compensation on an earned basis should credit all the compensation to June 1997, up to the 1997 annual maximum earnings bases. The money paid to Mr. Fit in 1998 and 1999, would be reported to 1996 by way of an adjustment on Form BA-4. Employers who elect to report compensation on a paid basis should report the compensation actually paid in 1997, 1998, and 1999, on their annual reports for those years without crediting additional service months.

As illustrated above, the creditability of payments paid in consideration of termination of employment cannot be determined solely by when the payment is made and taxed. The date of the cessation of a genuine employment relation must also be considered when determining the period to which compensation is creditable.

Form BA-9, Report of Separation Allowance or Severance Pay
Whenever you make separation allowance or severance payments to an employee, such payments are to be reported to the RRB on Form BA-9, Report of Separation Allowance or Severance Pay. This report is needed to establish a disqualification period for unemployment and sickness benefits and to calculate any Separation Allowance Lump Sum benefit due at retirement. Information on Form BA-9 may also be used to make deemed service month determinations.

It is to the employer's advantage to timely file Form BA-9. If Form BA-9 is not filed and a disqualification period is not established, unemployment benefits could be overpaid and the experience-rated contribution rate inflated. The absence of Form BA-9 may also result in employee inquiries.

Separation Allowance Paid with Other Payments
If both a separation allowance and some other payment are being paid at the same time, it is preferable if the two payments are issued separately. This will make clear to both the employee and the RRB, the amount of separation allowance which is subject to Tier II tax. If a separation payment and another payment are combined, the Tier II tax on the pay receipt may not agree with the amount reported on Form BA-9 as subject to Tier II tax. Any such differences must be resolved. Separate payments will help to prevent unnecessary inquiries to the employer for clarification.

Filing Instructions for Reports of Separation Allowance or Severance Pay
Form BA-9, Report of Separation Allowance or Severance Pay, is due at the (RRB) no later than the last day of the month following the end of the quarter in which the separation or severance was paid. For example, reports of payments made during April through June 1997 are due at the RRB no later than July 31, 1997. While the filing of quarterly reports is required, you may file more often. It may be more convenient to file the forms on a monthly basis or each time you make a separation or severance payment.

Report Purposes
The report of separation allowance/severance pay is used for two purposes: to establish a disqualification period under the RUIA and to establish eligibility for an additional lump sum benefit under the RRA. If you fail to file Form BA-9 timely, no disqualification period will be established. Without the establishment of a disqualification, RUIA benefits may be paid improperly, which erroneously inflates the employer's RUIA contribution rate. It is important that you file Form BA-9 timely because benefits under both the RUIA and RRA may be affected.

Adjustments to reported severance pay are made on Form BA-9 also. Instructions on the reverse side of the paper form explain how to notate a Form BA-9 entry as an adjustment. Do not complete Form BA-9 to report a monthly dismissal allowance.

Form BA-9 is not used to update an employee's service and compensation record. The creditable compensation which results from a separation allowance or severance payment must be reported as regular compensation on Form BA-3a, or on Form BA-4, as appropriate. Separation allowance or severance pay may become miscellaneous compensation if the payment meets all of the conditions of miscellaneous pay as described in Chapter 2 of this Part. In such situations, the creditable compensation is reported on Form BA-10 as miscellaneous compensation.

Severance Pay/Separation Allowance and Earned/Paid Reporting
There are no special instructions for completing Form BA-9 based on whether you report compensation on an earned or paid basis. This is because it is assumed, prior to completing Form BA-9, that you have already correctly taxed and reported the separation allowance using the method (earned/paid) you have chosen. You then report on Form BA-9 the amount of the separation allowance that was already subject to tax and the amount that was already reported as compensation for the reporting period. If the separation allowance was paid out over a period, it may be necessary to file more than one Form BA-9.

CHAPTER 2: Miscellaneous Compensation and Sick Pay

Miscellaneous compensation is any payment which is subject to Tier I taxes and is creditable as

Tier I compensation, but cannot be credited as regular compensation. Employer's may use the "miscellaneous compensation" or "miscellaneous payments" to mean a variety of things, but "miscellaneous compensation," as referred to in these instructions, must meet these conditions:

• the payment is subject to railroad retirement tax;

• the payment is remuneration for services rendered in an earlier year;

• the payment cannot be credited to the earlier year because the employee already has maximum Tier I compensation credit in that year; and

• the payment cannot be credited to the year when the payment is made because no service was performed in the year of payment and the employer reports compensation generally on an earned basis. See Part III, Chapter 1 for an explanation of earned basis.

Because of regulations adopted in 1993 and related system improvements, an employer reporting compensation on a paid basis should include all creditable compensation in their annual report for the year and limit the use of Form BA-10, Report of Miscellaneous Compensation and Sick Pay, to reporting sick pay.

An employer reporting compensation generally on an earned basis, may continue to use

Form BA-10 to report miscellaneous compensation which meets the above conditions.

Example of Miscellaneous Compensation
An employee resigns on 12/31/97 and retires 1/01/98. He earned and received payments totaling $63,000 in 1997, and received a payment of $3,700 in March 1998 for his last pay period in 1997, for vacation pay and other benefits earned but not paid in 1997. Because the employer generally reports on an earned basis, the employer filed an adjustment increasing 1997 compensation by an additional $2,400 bringing the total compensation for 1997 to the maximum of $65,400. The remaining $1,300 paid in 1998 is reported as miscellaneous compensation for 1998.

You will note that the entire $3,700 paid in 1998 is subject to 1998 Tier I, Tier II and Medicare taxes. While the taxable and creditable compensation are not always equal for each year, particularly for employers who report compensation on an earned basis, the amounts will usually be equal in the aggregate for all years. In this example, the creditable Tier I compensation (after the adjustment) for 1997 is $65,400 and for 1998 is $1,300. The total creditable compensation for the two years is $66,700. The taxable compensation for 1997 is $63,000 and for 1998 is $3,700 for a total of $66,700.

Miscellaneous Compensation Used in Annuity Calculation
Because sick pay and miscellaneous pay are both creditable only as Tier I compensation, they are reported separately from regular earnings to help ensure the integrity of our records. Although sick pay and miscellaneous compensation are reported and maintained at the RRB in a record which is separate from the regular service and compensation record, all the Tier I compensation is considered together in calculating the Tier I component of an employee's annuity.

Sick Pay Paid by the Labor Organization
Sick pay is compensation paid under a plan or agreement available on the same basis to employees in a like class and payable for days not worked on account of injury, illness, sickness, disease, pregnancy, or childbirth. If an employee receives his or her regular earnings, wages, or salary while off sick, this is not sick pay but regular earnings. If your organization pays sick pay to your employees, request a copy of The Reporting Instructions for Creditable Sickness Payments from the RRB's Quality Reporting Service Center.

CHAPTER 3: Contract Services

If a labor organization contracts work with individuals not covered under the Railroad Retirement Act (RRA) and Railroad Unemployment Insurance Act (RUIA), this may allow the non-covered employees to be covered under the Acts as though they were railroad employees. For this to occur, the non-covered employees would have to be determined to be in an employee relationship to the labor organization.

The Railroad Retirement Board uses definitions of "employee" and "service" in the RRA and RUIA as well as principles of common law to determine whether a business relationship is that of an employer-employee or that of an independent contractor.

The primary basis of such coverage is Sections 1(b) of the RRA and 1(b) and 1(e) of the RUIA which define an employee as an individual in the service of an employer. Section 1(d)(1) of the RRA further characterizes "in the service of an employer" as either:

• subject to the employer's continuing authority to direct the work, or

• rendering professional or technical services and is integrated into the staff of the employer, or

• rendering, on the property of the employer's operations, personal services which are integrated into the employer's operations.

Subject to the Employer's Authority
A person is an employee if the employer for whom he or she works has the right to direct and control the way he or she works both as to the final result and as to the details of when, where, and how the work is to be done. The employer need not actually exercise control. It is sufficient that the employer has the right to do so.

Rendering Technical Services
Some services, such as bookkeeping, which are not necessarily associated solely with the railroad industry, may be performed by individuals integrated into the overall railroad staff or by individuals in a distinctly independent trade or business.

Rendering Integrated Services on Employer's Property
One indication of employee status would be performance of a service which by its nature is so integrated into the railroad's operation that it must be performed under the railroad's control. Therefore, if an individual, nominally on the payroll of a hiring agency, performed service for a railroad which is clearly an integral part of the railroad's operation, such as locomotive engineer, signalman, or maintenance of way, it would appear that individual would be an employee under the RRA and RUIA.

• the performance of work on the employer's premises;

• execution of a contract for continuing services over a long or indefinite period;

• devotion of substantially all of a person's working time to such services;

• the performance of duties similar to those previously performed as an employee; and

• the periodic payment of regular remuneration rather than payment for a specific result or work product.

• setting-up of an independent office or the performance of the work in places not associated with the employer's premises;

• performance of similar services for persons other than the employer;

• complete freedom as to the amount of time to be expended in rendering a particular service;

• agreements for the performance of services of a limited time period on a particular project; and

• payments for a particular result accomplished rather than regular remuneration on a time basis.

Who Makes the Decision
The three-member Board, based upon the recommendation of the General Counsel is responsible for making determinations of employee status. No single guideline in this chapter is controlling in a particular case but, together with like matters which the case may involve, forms a basis for a determination.

While employers may make the initial employment status decision, that decision may later be subject to investigation by the Division of Audit and Compliance in the Bureau of Fiscal Operations. Their findings are then forwarded to the General Counsel who will make a recommendation to the Board. Coverage examiners from the Division of Audit and Compliance will solicit information regarding the contract(s), using the Internal Revenue Service criteria which points to the existence of an employee status versus independent contractor status. The investigation may include an on-site inspection.

CHAPTER 4: Form Letter GL-99, Employer's Deemed Service Months Questionnaire

In order to complete Form Letter GL-99, an understanding of deemed service months is necessary.

Deemed Service Months
Because of changes in the Railroad Retirement Act, effective January 1, 1985, additional service months may be deemed in some cases where an employee does not actually work in every month of the year. An employee may never be credited with more than 12 service months in any calendar year and the employee must be in an employment relation with a covered railroad employer in order for that month to be deemed.

To determine the maximum number of deemed months for an employee for a year, 1) multiply the number of reported service months by 1/12 the annual Tier II maximum compensation for the year; and 2) subtract this product from the reported Tier II compensation. If the result is zero or negative, no deemed months are possible. If the result is a positive amount, 3) divide by 1/12 the Tier II maximum compensation, and 4) round up to a whole number. This is the maximum or potential number of deemed service months. The actual number of deemed service months will depend on whether the employee has an employment relation in the months not worked.

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 10 months. Since 7 months were reported, an additional 3 months may be deemed. ($38,956 ) 4050 = 9.6, rounded up to 10 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.

Form GL-99, Employer's Deemed Service Months Questionnaire
Employers do not report deemed service months and the deeming of service months has no effect on the employer's report of service and compensation or tax liability. Deemed service months are determined and recorded by the Railroad Retirement Board. Where the employee's Tier II compensation would yield additional service but an employment relationship is not apparent, the employer must provide that information by responding to Form GL-99.

Form GL-99 is designed to obtain information whether an employment relation exists in certain months. The person completing the form need only answer "Yes" or "No" to question 8. The remarks section is for supplementary information you may wish to provide; it should not be used in lieu of answering question 8 directly. A prompt reply will eliminate the need for the RRB to trace for GL-99 replies.

CHAPTER 5: Form Letter GL-132, Annuitant Return to Service

Why is Form Letter GL-132 Sent?
Form Letter GL-132 is designed to determine if a reported service month(s) after an annuitant's annuity beginning date is properly credited. An annuity under the Railroad Retirement Act (RRA) is not payable for any month in which an employee works or otherwise earns creditable service from an employer covered under the RRA. If service is reported for a month that is after the month an employee was awarded an annuity under the RRA, a Form Letter GL-132 will be sent to clarify the report.

It is important that the responses to GL-132 letters are properly completed because the Railroad Retirement Board must take subsequent action to recover legitimate benefit overpayments which employer responses ascertain.

Completing Form Letter GL-132
To complete Form Letter GL-132, first refer to the service month detail in Part I. A A1" indicates a reported service month and a A0" indicates that no service month was reported. Review the service month information for accuracy. Go to Part II and

• Check the first response if the service month detail is incorrect. The RRB will remove the service month(s) from the annuitant's record. You do not need to file Form BA-4, Report of Creditable Compensation Adjustments.

• Check the second response if the service month detail is correct and provide an explanation of the type of payment that produced the service month(s) under review.

• If neither of the two responses applies, call a Wage Accounting Examiner at (312) 751-3371 for further instructions.

When completing this form, an important reporting principle to remember is that service is always creditable when the service is performed, not when the payment is made and taxed. Service should never be reported for a month after the relinquishment of the employment relationship.

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