Chapter 4: Reportable Compensation

This section provides information about reportable compensation for members of the Public Employees’ Retirement System (PERS).

What is reportable compensation

For a payment to be subject to retirement system contributions and included a member’s retirement benefit calculation, the payment must meet the definition of compensation earnable in RCW 41.40.010. 

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

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:

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

Payments considered to be for services rendered and are therefore reportable:

• Base salary or wages you pay your employees for services rendered is reportable compensation
• Bonuses based upon meeting certain performance goals are for services rendered and are reportable

• Cafeteria Plans and Flexible Benefits 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 IRS code is reportable compensation if the employee has an absolute right to receive cash or deferred cash payments in lieu of the fringe benefits offered. 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 isn’t a salary or wage and isn’t reportable.
• Compensatory time – compensatory time is treated as regular paid service with Status Code A. Report the actual hours worked, not time and a half.

Lump sum compensatory cash outs must be retroactively spread over the months the time was accrued. Member and employer contributions are based on the contribution rates in effect at the time the service was rendered. Actual overtime hours worked are reported as creditable service as earned by calendar month.

When compensatory time is taken as leave, the time taken for retirement reporting purposes will be treated in the same manner as annual (vacation) leave or sick leave taken. The contribution rates in effect at the time the leave is taken will be used in the contribution calculation. Paid leave hours are reported as creditable service.

Lump sum compensatory time payments must be reported as earned by calendar month. Compensatory leave taken should be treated in the same manner as other leave taken.

• If the compensatory time is cashed out, report the compensation and actual hours when it was earned. If the compensatory time was used, report the compensation and actual hours when they were used, not earned.
• Deferred wages (payments earned by, but not paid to an employee) – payments earned by an employee for services rendered but deducted from their salary rather than paid are reportable.

• Holiday leave bank cash outs may or may not be reportable. See the PERS Reportable Compensation Table.
• Leave used – leave such as sick leave and annual leave that is accumulated over time and paid to a person during an excused absence is deferred compensation for services previously rendered and is reportable.
• Longevity or educational attainment – a member who receives a salary increase based on longevity or educational attainment receives a higher salary without working more hours. The higher salary indicates a higher service level due to greater experience or more education. The payment is for service and is reportable compensation.
• Retroactive salary increase – when paid to an employee who worked during the period covered by the increase, a retroactive payment increase is a salary or wage for services rendered and is reportable.
• Severance pay earned progressively – severance pay earned progressively is reportable compensation for PERS Plan 1 only if it is earned in the same manner as annual and sick leave. The employment contract or compensation policy in effect at the beginning of the employment period must specify that a certain amount of severance pay will be earned during that employment period in consideration for services rendered. Severance pay that qualifies as reportable compensation and is earned within the member’s AFC period, is excess compensation. Severance pay not earned progressively isn’t reportable.

For PERS Plans 2 and 3, no type of severance pay is reportable compensation.

Payments that aren’t for services rendered may be reportable

In general, payments can’t be considered reportable compensation unless they are for services rendered. Some payments are reportable that aren’t for services rendered. A description of these payments is included in WAC 415-108-463-510.

• Paid leave not earned progressively – may be reportable if the payment is equal to the salary for the position from which the employee is on leave and the payment is actually from the employer.
• Union leave – salary may be reportable if the leave of absence is authorized by a collective bargaining agreement that provides the member shall retain seniority rights with the employer during the leave of absence, and the compensation reported doesn’t exceed the salary paid to the highest-paid job class covered by the collective bargaining agreement.
• Legislative leave – salary foregone due to legislative leave may be reportable under the conditions listed for each plan type below.
  • Plan 1 – the salary the employee would have earned from their employer if the member contributions are paid by the member and the employer contributions are paid by the member or the employer.
  • Plans 2 and 3 – the employee chooses between the two options listed below. If the employee selects Option 1, they are responsible for paying the additional employer and employee contributions on any difference between the Option 1 and Option 2 amounts.
    • Option 1: The reportable compensation they would have earned had the member not served in the legislature
    • Option 2: The actual reportable compensation for non-legislative public employment and the legislative service combined

• Compensation authorized by statute for absence due to sickness or injury – certain types of payments for absence due to illness or injury have been identified by statute as reportable compensation. These payments are:
  • Assault pay – for state library, state institutions and state correctional institutions employees only.
  • Shared leave – for state employees only. RCW 41.04.650 – 670
  • Workers’ compensation – the regular salary an employee would have received had they not been absent due to an injury that occurred on the job. 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 41.40.038 for the rules about reporting this payment type.

Members receiving workers’ compensation benefits have the option to accumulate service credit through the uninterrupted payment of contributions on the monthly transmittal report or by purchasing service credit retroactively.

Contributions reported on the transmittal must be based on the regular compensation the member would have received if the disability had not occurred. DRS must receive full payment on regular compensation for the full length of the disability, or the member isn’t entitled to any service credit for that period.

Because contributions must be based on regular compensation, before transmitting contributions, it is important for the employer and member to agree on making full payments throughout the disability period. To document this commitment, the employer and member should enter into a written agreement to continue the contributions for up to 12 months unless the disability leave ends sooner or the member separates from service.

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, they 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.

• Standby pay – standby pay is excluded from the definition of service RCW 41.40.010; however, it is specifically identified as reportable compensation in RCW 41.40.010.
• Reinstatement pay – 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.
• Sick, annual and personal leave usage – annual leave and personal leave are typically accumulated over time and paid to a person during an excused absence. Leave accrues at a prescribed rate, usually a certain number of hours per month. The employee earns a leave day by rendering service during the month the leave was accumulated. When the employee uses their accrued leave to take a paid day off, the payment is deferred compensation for services previously rendered. The payment is a salary or wage earned for services rendered and is reportable.
• Cash out payments for sick, annual and personal leave – if an employee receives payment instead of using accrued leave, they receive a “cash out” for the accrued leave. Cash outs are reportable for PERS Plan 1 members only. Cash outs are excluded by statute from the definition of reportable compensation for PERS Plans 2 and 3 members. RCW 41.40.010
  Annual leave cash outs for more than 30 days or 240 hours in the highest average compensation period used to calculate a retirement benefit will result in an excess compensation billing (refer to the “excess compensation” section).

The following cash outs are reportable for PERS Plan 1 members only:

• Annual leave cash outs
  • For state government employees – cash outs for annual leave up to 30 days (240 hours) are reportable compensation. Cash outs for annual leave in excess of 30 days (240 hours) may be reportable if special rules are followed. RCW 43.01.040, RCW 43.01.044
  • For non-state government employees, all annual leave cash outs for PERS Plan 1 members qualify as reportable compensation.
• Sick leave cash outs
  • State government employees’ sick leave cash outs are excluded.
  • School district employees’ sick leave cash outs are excluded.
  • Educational service district employees’ sick leave cash outs are excluded.
  • Local government employees’ sick leave cash outs are reportable compensation.

Sick leave cash outs in the highest average compensation period used to calculate a retirement benefit will result in an excess compensation billing.

Payments not considered reportable compensation

The following payments aren’t for services rendered and aren’t reportable:

• Car allowance – some employers pay car allowances instead of reimbursing for actual miles driven in the employee’s car for the employer’s business. These payments aren’t for services rendered and aren’t reportable.
• Disability retirees
  • PERS Plan 1 – payments aren’t reportable until they meet the “gainful occupation” requirements under RCW 41.40.310 even though the employee may be in an eligible position. Contact the DRS Retirement Services Division for a determination of “gainful occupation.”
  • PERS Plans 2 and 3 – payments aren’t reportable until they meet the “comparable compensation” requirements under RCW 41.40.670 for Plan 2 and RCW 41.40.825 for Plan 3 even though the employee may be in an eligible position. Contact Employer Support Services for a determination of “comparable compensation.”

• Disability insurance – payments for disability insurance aren’t for services rendered and aren’t reportable. These payments are made to an employee because they aren’t able to render services due to a disability.
• Fringe benefits – payments made by an employer to a third party to provide benefits for an employee aren’t part of the employee’s salary or wage and aren’t reportable. Examples include insurance premiums and employer retirement contributions.
• Illegal payments – payments made by an employer in excess of the employer’s legal authority aren’t reportable.

• Optional payments – if an employee can receive an additional payment only by taking an action other than providing service, the payment isn’t for services rendered and isn’t reportable.

• Reimbursements for expenses – reimbursement for expenses incurred while performing services for an employer aren’t wages for services rendered and aren’t 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.
• Retirement bonus or incentive – a payment made to an employee as a bonus or incentive to retire or terminate isn’t a payment for services rendered and isn’t reportable.
• Severance pay not earned progressively – severance pay negotiated, because of a termination settlement or agreement, isn’t earned for services rendered and isn’t reportable. See the PERS Reportable Compensation Table for additional information.

• Workers’ compensation – workers’ compensation payments to a member aren’t payments for services rendered and aren’t reportable. This is true whether the payments come from the Department of Labor and Industries or from a self-insured employer.

Some employers have an employee on unpaid disability leave submit their workers’ compensation payments to them and then issue the employee a check through their payroll system. This exchange doesn’t change the nature of the workers’ compensation payments and doesn’t make the payments reportable. An employee may elect to make contributions and receive service credit for disability covered by industrial insurance. RCW 41.40.038

Establishing service credit for unpaid leave for Plans 2 and 3

In some circumstances, a PERS Plan 2 or 3 member may elect to establish service credit for unpaid leave. The regular compensation the member would have earned had they 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 isn’t reportable compensation. Depending on the type of leave, this compensation may or may not be included as AFC in calculating a member’s retirement benefit.

• Authorized unpaid leave – RCW 41.40.710 and RCW 41.40.805 provide members with an option to establish service credit for unpaid leave. Salary used to calculate the contributions for such periods isn’t reportable compensation and can’t be included as AFC in calculating a member’s retirement benefit.
• Military leave – salary used for purposes of calculating contributions owing for interrupted military service isn’t reportable compensation. If a member elects to purchase credit for 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 absence be used in the AFC calculation.

Non-monetary maintenance for Plan 1

Employees may receive non-money items from employers that may be a form of payment for services rendered. “Non-money maintenance compensation” means the fair market value of materials legally furnished by an employer to an employee or the employee’s dependents for personal use. If an employer provides materials for an employee’s personal use, the value of the use is non-money maintenance and is reportable for PERS Plan 1 only.

Excess compensation

Some types of reportable compensation for PERS members qualify as ‘excess compensation’ if included in the retirement benefit calculation. RCW 41.50.150

If a payment qualifies as excess compensation, the employer is billed for the increase in the retiree’s benefit to offset the increased cost to the trust funds. The employer’s bill is based on the present value of the increase to the retiree’s benefit. Present value is calculated using actuarial tables developed by the Office of the State Actuary and adopted into WAC by DRS.

Excess compensation consists of specific types of reportable compensation when the payment increases the member’s retirement allowance. If payment included in a retiree’s retirement allowance calculation qualifies as excess compensation, then the applicable employer is responsible for the trust fund liability. The employer is liable for the total estimated cost of all present and future retirement benefits attributable to the excess compensation. For more information regarding how a retirement allowance is calculated, refer to the appropriate member plan guides.

Excess compensation includes the following payments when used to calculate the member’s retirement allowance:

• Cash out of more than 240 hours of annual leave.
• Cash out of any other form of leave.
• Cash out in lieu of accrued annual leave.
• Any payment added to salary or wages concurrent with a reduction of annual leave.
• Any payment that exceeds twice the regular daily or hourly rate of pay (reported with Status Code A2).
• A payment for or in lieu of any personal expenses or transportation allowance to the extent that the payment qualifies as reportable compensation in the member’s retirement system.
• Any termination or severance pay (a termination or severance payment, which doesn’t qualify as reportable compensation, would not be excess compensation because it isn’t reportable).
• Payment for extra work done in which extra duties assignment was based upon the employee’s notification of intent to terminate or retire (see “retirement bonus or incentive”).
• Cash out of any form of leave other than annual (the most common example is sick leave. Any sick leave cash out that is included in a retiree’s AFC qualifies as excess compensation. A state agency or an educational employer doesn’t report sick leave cash outs. Sick leave cash outs aren’t included in the employee’s retirement benefit calculation).

Refer to RCW 41.50.150 for specific language. These payment types are discussed in more detail below.

• If a portion of an allowance or reimbursement qualifies as reportable compensation (such as a car allowance), that portion is excess compensation. Generally, allowances and reimbursements do not qualify as reportable compensation.

A leave cash out is any compensation added to wages or salary paid along with a reduction of the employee’s leave balance. Annual leave cash outs are reportable only for members of PERS Plan 1, TRS Plan 1 and WSPRS.

The following leave cash outs will result in an excess compensation invoice to the applicable employer if the cash outs increase a member’s retirement allowance:

• Cash out for more than 240 hours of annual leave.
• Annual leave is leave provided by an employer for the purpose of vacation. Annual leave doesn’t include leave for illness, personal business (if in addition to and different from vacation leave) or other paid time off. The one exception is when an employer authorizes only one type of leave to provide paid leave for vacation and illness as well as any other excused absence from work. In this situation, the multi-purpose leave will be considered annual leave and will only be considered excess compensation if it exceeds 240 hours.
• Cash out of any other form of leave, such as sick leave, regardless of amount.
• In characterizing leave cash outs, DRS will disregard any leave conversion by an employer from one form to another and will consider the leave to be what it was when originally earned. If compensation for the original form of leave falls under the definition of excess compensation, the employer will be responsible for paying the excess compensation invoice. Sick leave cash outs are reportable for PERS and TRS Plan 1 members. Sick leave cash outs for a state agency or an education employer aren’t reportable compensation.
• Any payment added to salary or wages in lieu of accrued leave.
• An employee reaches their maximum leave balance. Instead of accruing leave, the employee is paid the equivalent of the leave they would have earned. This is considered a leave cash out and is considered excess compensation if the total leave cash out exceeds 240 hours in their AFC period.

Payments for additional time worked

Can vehicle allowances be excess compensation?

Generally, a vehicle allowance isn’t reportable compensation. A vehicle allowance is sometimes paid to an employee in place of mileage reimbursements for using a personal vehicle while providing services to an employer. Because the payment is a reimbursement rather than salary, it isn’t a payment for services rendered and isn’t reportable.

However, if the employer keeps records that demonstrate the vehicle allowance exceeded the employee’s actual expenses, the portion of the allowance that exceeds actual expenses is reportable. The reportable expense would be excess compensation if it was paid during the compensation period used to calculate the retirement benefit WAC 415-108-480 for PERS and WAC 415-112-41301 for TRS.

Does severance pay qualify?

Severance pay may or may not qualify as reportable compensation, depending on whether it was earned for services rendered. Severance pay is reportable only for members of PERS Plan 1, TRS Plan 1 and WSPRS. If severance pay qualifies as reportable compensation, and the member’s retirement allowance is increased, it will result in an excess compensation invoice to the applicable employer.

Severance pay must be earned over time in the same manner as annual leave or sick leave to be reportable compensation for services previously rendered. Severance pay is earned over time if the employment contract(s) entered into at the beginning of employment specifies the amount of severance pay to be earned in the coming year in consideration for services rendered.

Severance pay that isn’t earned progressively, isn’t earned for services rendered, and isn’t reportable. Because such payments aren’t reportable compensation, they aren’t excess compensation. An example of severance pay not earned progressively is a payment negotiated as part of a termination agreement.

When to notify the public about excess compensation

When a PERS or TRS employer proposes to enter into a contract with an employee or group of employees that may result in an excess compensation billing, the employer must identify the compensation provision and the potential cost for excess compensation at an open public meeting. This notification may be part of the approval process for adopting a contract in whole and need not take place in separate or additional open public meetings. RCW 41.50.152

At the public meeting, the employer must provide the following information:

• Full disclosure of the nature of the proposed compensation provision. This would include an explanation of the pay provision and the services the employee is being compensated for.
• An estimate of the cost of the excess compensation billing the employer would have to pay as a result of the proposed compensation provision. 

When DRS bills the employer for the excess compensation, the employer must notify DRS of its compliance with the public notice requirement.

This section contains information about reportable compensation for members of the Teachers’ Retirement System (TRS).

What is reportable compensation

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 “earnable compensation” in TRS retirement law. RCW 41.32.010 
“Reportable compensation” is defined in the rules as “earnable compensation.”

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

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:

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

Payments considered to be for services rendered

• Base salary – base salary is a salary or wage earned for services rendered and is reportable. The base salary is usually described in the employee’s base contract.
• Sick and annual leave – sick and annual leave is accumulated over time and paid to a person during excused absences. The paid leave is deferred compensation for services previously rendered and is reportable.
• Earned severance pay – earned severance pay is reportable compensation for TRS Plan 1 only if it is earned progressively in the same manner as annual and sick leave. The employment contract or compensation policy in effect at the beginning of the employment period must specify that a certain amount of severance pay will be earned during that employment period in consideration for services rendered. Severance pay that qualifies as reportable compensation and is earned within the member’s AFC period, is excess compensation. For TRS Plans 2 and 3, severance pay isn’t reportable compensation.

• Bonuses – bonuses that are based upon meeting certain performance goals or having to work under unusual conditions such as over-enrollment, are earned for services rendered and are reportable.
• Retroactive salary payment – retroactive salary payments to an employee who worked during the period covered by the retroactive payment is a salary or wage for services rendered and is reportable.
• Evening or summer school payments – evening or summer school payments are for additional time worked and are usually authorized in supplemental contracts. These payments are for services rendered and are reportable.
• Extracurricular assignment payments – payments for extracurricular assignments, such as coaching, which provide services to an employer, are reportable.
• Supplemental contracts – a school district may compensate an employee for additional time, responsibility or incentives. RCW 28A.400.200 
  These payments are for services rendered and are reportable if they are for additional time or additional responsibility such as extra enrollment or duties, or an incentive payment for meeting performance goals specified by the employer.
• 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 payment is for service and is reportable compensation.
• Deferred wages – deferred wages are payments earned by but not paid to an employee. Payments earned by an employee for services rendered but deducted from their salary rather than paid are reportable. Examples include tax withholding, retirement contributions and voluntary deductions such as 403(b) contributions or other authorized deductions.
• Cafeteria plans and flexible benefits 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 IRS code, is reportable compensation if the employee has an absolute right to receive cash or deferred cash payments in lieu of the fringe benefits offered. In such an instance, the fringe benefit is provided instead of cash and is considered reportable compensation same as cash. If there is no cash option, the value of the fringe benefit isn’t a salary or wage and isn’t reportable.

Reportable compensation not for services rendered

In general, payments can’t be considered reportable compensation unless they are for services rendered. Some payments are reportable that aren’t for services rendered. A description of these payments is included in WAC 415-112-470- 477.

The following types of payments, not for services rendered, may be included as reportable:

• Paid leave not earned over time – paid leave not earned progressively may be reportable if the payment is equal to the salary for the position from which the employee is on leave, and the payment is actually from an employer.
• Union leave – salary isn’t reportable unless it meets the following criteria:
  • The employee is serving in an elected position with the labor organization. Non-elected positions aren’t 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 collective bargaining agreement between the employer and the labor organization authorizes such a paid leave of absence and provides that the member will retain seniority rights with the employer for the period of leave. RCW 41.37.260, WAC 415-106-265
  • The compensation reported doesn’t exceed the salary paid to the highest paid job class covered by the collective bargaining agreement.
  • When these four qualifications are met, and if the member had compensation reported to DRS for those periods, the employee is considered to be on authorized paid leave and is eligible to receive service credit.

Members who qualify for service credit while serving as a labor organization elected official should be reported on the monthly transmittal report. When they qualify for service credit by meeting the four conditions they are considered to be on authorized paid leave. Report the employee’s compensation, contributions, and hours or days of service with Status Code A.

• Legislative leave – salary foregone for legislative leave may be reportable if:
  • For Plan 1: The salary the employee would have earned had they not taken a leave to serve in the legislature, provided the member serves at least five years (only employee contributions are required).
  • For Plans 2 and 3: The member chooses between two options.
    • Option 1: The reportable compensation the member would have earned had they not served in the legislature. If they select Option 1, they are responsible for paying the additional employer and employee contributions on any difference between the Option 1 and Option 2 amounts.
    • Option 2: The actual reportable compensation received for teaching, plus the legislative reportable compensation.
• Sick, annual and personal leave usage – sick leave, annual leave and personal leave are typically accumulated progressively and paid to a person during a period of excused absence. Leave accrues at a prescribed rate, usually a certain number of hours per month. The employee earns a leave day by rendering service during the month the leave was accumulated. When the employee uses their accrued leave to take a paid day off, the payment is deferred compensation for services previously rendered. The payment is a salary or wage earned for services rendered and is reportable.
• Cash out payments for sick, annual and personal leave – if an employee receives payment instead of using accrued leave, they receive a “cash out” for the accrued leave. Annual leave and personal leave cash outs, like payments for leave usage, are deferred compensation earned for services previously rendered and are reportable for TRS Plan 1 members only. Cash outs are excluded by statute from the definition of reportable compensation for TRS Plans 2 and 3. RCW 41.32.010

Sick leave cash outs – by statute, sick leave cash outs are prohibited from being used in the calculation of an employee’s retirement benefit; therefore, sick leave cash outs aren’t reportable for any TRS plans.

Payments not considered reportable compensation

The following payments aren’t for services rendered and aren’t reportable:

• Reimbursements – reimbursements for expenses incurred while performing services for an employer aren’t wages for services rendered and aren’t 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.
• Car allowance – some employers pay car allowances instead of reimbursing for actual miles driven in the employee’s car for the employer’s business. These payments aren’t for services rendered and aren’t reportable.
• Disability insurance – payments for disability insurance aren’t payments for services rendered. They are for disability payments paid because an employee is unable to render service due to a disability. These payments aren’t reportable.
• Workers’ compensation payments – workers’ compensation payments to a member aren’t payments for services rendered and aren’t reportable. This is true whether the payments come from the Department of Labor and Industries or from a self-insured employer.

Some employers have an employee on unpaid disability leave submit their workers’ compensation payments to the employer and then issue the employee a check through their payroll system. This exchange doesn’t change the nature of the workers’ compensation payments and doesn’t make the payment reportable.

• Retirement bonus or incentive – a payment made to an employee as a bonus or incentive to retire or terminate isn’t a payment for services rendered and isn’t reportable.
• Severance pay not earned over time – severance pay negotiated because of a termination settlement or agreement isn’t earned for services rendered and isn’t reportable.

• Fringe benefits – payments made by an employer to a third party to provide benefits for the employee aren’t part of their salary or wage and aren’t reportable. Examples of these payment types are insurance premiums and employer retirement contributions.

Non-monetary maintenance for Plan 1

Employees may receive non-money items from employers that may be a form of payment for services rendered. “Non-money maintenance compensation” means the fair market value of materials legally furnished by an employer to an employee or their dependents for personal use. If an employer provides materials for an employee’s personal use, the value of that use is non-money maintenance compensation and may be reportable for TRS Plan 1 members.

Non-money maintenance compensation isn’t reportable for TRS Plans 2 and 3 members.

Excess compensation

Some types of reportable compensation for TRS members qualify as “excess compensation” if included in the AFC period used in the calculation of a retirement benefit. Excess compensation is defined by statute in RCW 41.50.150.

If a payment qualifies as excess compensation, the employer is billed for the increase in the retiree’s benefit to offset the increased cost to the trust funds. The employer bill is based on the present value of the increase to the retiree’s benefit. Present value is calculated using actuarial tables developed by the Office of the State Actuary and adopted into WAC by DRS.

Excess compensation includes the following payments when used in the calculation of the member’s retirement allowance:

• Cash out of more than 240 hours of annual leave.
• Cash out of any other form of leave.
• Cash out in lieu of the accrual of annual leave.
• Any payment added to salary or wages concurrent with a reduction of annual leave.
• Any payment that exceeds twice the regular daily or hourly rate of pay (reported with Status Code A2).
• A payment for or in lieu of any personal expenses or transportation allowance to the extent that the payment qualifies as reportable compensation in the member’s retirement system.
• Any termination or severance pay (a termination or severance payment, which doesn’t qualify as reportable compensation, would not be excess compensation because it isn’t reportable).
• Payment for extra work done in which the assignment of extra duties was based upon the employee’s notification of intent to terminate or retire (see “retirement bonus or incentive”).
• Cash out of any form of leave other than annual (the most common example is sick leave. Any sick leave cash out that is included in a retiree’s AFC qualifies as excess compensation. A state agency or an educational employer doesn’t report sick leave cash outs. Sick leave cash outs aren’t included in the employee’s retirement benefit calculation).

Refer to RCW 41.50.150 for specific language. These payment types are discussed in more detail below.

Payment of double time and a half for work on a holiday doesn’t violate this provision. The standard compensation for work done on the holiday is compensated at time and a half. The standard compensation for the holiday, plus time and a half for working after regular work hours, equals double time and a half. Accordingly, the employee isn’t earning more than twice their regular rate of pay for the work done on the holiday.

If a portion of an allowance or reimbursement qualifies as reportable compensation (car allowance, for instance) that portion is excess compensation. Generally, allowances and reimbursements do not qualify as reportable compensation.

A leave cash out is any compensation added to wages or salary paid along with a reduction of the employee’s leave balance. Annual leave cash outs are reportable only for members of PERS and TRS Plan 1 and WSPRS.

The following leave cash outs will result in an excess compensation invoice to the applicable employer if the cash outs increase a member’s retirement allowance:

Cash out for more than 240 hours of annual leave.

• Annual leave is leave provided by an employer for the purpose of vacation. Annual leave doesn’t include leave for illness, personal business (if in addition to, and different from, vacation leave) or other paid time off from work. The one exception is when an employer authorizes only one type of leave to provide paid leave for vacation and illness, as well as any other excused absence from work. In this situation, the multi-purpose leave will be considered annual leave and will only be considered excess compensation if it exceeds 240 hours.
• Cash out of any other form of leave, such as sick leave, regardless of amount.
• In characterizing leave cash outs, DRS will disregard any conversion of leave by an employer from one form to another and will consider the leave to be what it was when originally earned. If compensation for the original form of leave falls under the definition of excess compensation, the employer will be responsible for paying the excess compensation. Sick leave cash outs are reportable for PERS and TRS Plan 1. Sick leave cash outs for a state agency or an education employer aren’t reportable compensation.
• Any payment added to salary or wages in lieu of accrued leave.
• An employee reaches their maximum leave balance. Instead of accruing leave, they are paid the equivalent of the leave they would have earned. This is considered a leave cash out and is considered excess compensation if the total leave cash out exceeds 240 hours in their Average Final Compensation (AFC) period.

Payments for additional time worked

If the employee’s regular salary isn’t expressed in terms of a daily or hourly rate, DRS will divide their regular annual or monthly salary by the number of regularly scheduled work days or hours in the work year or month. In calculating the number of regularly scheduled work days or hours in a work year, DRS will include all paid holidays and paid leave days, excluding days cashed out.

Can vehicle allowances be excess compensation?

That depends. A vehicle allowance isn’t reportable compensation. A vehicle allowance is sometimes paid to an employee in place of mileage reimbursements for using a personal vehicle while providing services to an employer. Because the payment is a reimbursement rather than salary, it isn’t a payment for services rendered and isn’t reportable.

However, if the employer keeps records that demonstrate the vehicle allowance exceeded the employee’s actual expenses, the portion of the allowance that exceeds actual expenses is reportable. The reportable expense would be excess compensation if it was paid during the compensation period used to calculate the retirement benefit. WAC 415-108-480, WAC 415-112-41301.

Does severance pay qualify?

That depends. Severance pay may or may not qualify as reportable compensation, depending on whether it was earned for services rendered. Severance pay is reportable only for members of PERS and TRS Plan 1 and WSPRS. If severance pay qualifies as reportable compensation, and the member’s retirement allowance is increased, it will result in an excess compensation invoice to the employer.

Severance pay must be earned over time in the same manner as annual leave or sick leave to be reportable compensation for services previously rendered. Severance pay is earned progressively if the employment contract(s) entered into at the beginning of the period of employment specifies the amount of severance pay to be earned in the coming year in consideration for services rendered.

Severance pay that isn’t earned progressively isn’t earned for services rendered and isn’t reportable. Because such payments aren’t reportable compensation, they aren’t excess compensation. An example of severance pay not earned progressively is a payment negotiated as part of a termination agreement.

When to notify the public about excess compensation

When a PERS or TRS employer proposes to enter into a contract with an employee or group of employees that may result in an excess compensation billing, the employer must identify the compensation provision and the potential cost for excess compensation at an open public meeting. This notification may be part of the approval process for adopting a contract in whole and need not take place in separate or additional open public meetings. RCW 41.50.152

At the public meeting, the employer must provide the following information:

• Full disclosure of the nature of the proposed compensation provision. This would include an explanation of the pay provision and the services the employee is being compensated for.
• An estimate of the cost of the excess compensation billing the employer would have to pay as a result of the proposed compensation provision. Upon request, DRS will provide information on how employers can develop the estimate.

When DRS bills the employer for the excess compensation, the employer must notify DRS of its compliance with the public notice requirement.

Excess compensation for TRS Plan 1 members includes:

Cash out – a cash out of annual leave in excess of 30 days. Cash out means any payment added to salary or wages concurrent with a reduction of annual leave, or any payment made instead of an accrual of annual leave.

Personal leave cash out payments are excess compensation to the extent they are included in the calculation of the member’s retirement benefit.

A cash out of any form of leave other than annual is excess compensation to the extent it is included in the calculation of the member’s retirement benefit.

Payment of double time and a half for work on a holiday doesn’t violate this provision. The standard payment for working on a holiday is compensated at time and a half. The standard payment for the holiday, plus time and a half for working after regular work hours, equals double time and a half. The employee isn’t earning more than twice their regular rate of pay for working on the holiday.

• Any other termination or severance pay – a termination or severance payment that doesn’t qualify as reportable compensation would not be excess compensation since it isn’t used in the calculation of the retirement benefit.
• Payment for extra work done – payment for extra work done in which the assignment of extra duties was based upon the employee’s notification of intent to terminate or retire see the “Retirement Bonus or Incentive”).

Excess compensation for TRS Plans 1, 2 and 3 members includes:

• If a portion of an allowance or reimbursement qualifies as reportable compensation (such as a car allowance), that portion is excess compensation. Generally, allowances and reimbursements don’t qualify as reportable compensation.
• Any payment (such as overtime) that is greater than twice the regular daily or hourly rate of pay.

This section contains information about reportable compensation for members of the School Employees’ Retirement System (SERS).

What is reportable compensation

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 41.35.010. “Reportable compensation” is defined in the rules as “compensation earnable.”

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

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:

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

Payments considered to be for services rendered

• Base salary or wages – base salary or wages you pay your employees for services rendered is reportable compensation
• Compensatory time – compensatory time is treated as regular paid service with Status Code A. If the compensatory time is used, report the actual hours when they were used. If the compensatory time is cashed out, report compensatory time when it was earned.
• Overtime – overtime is treated as regular paid service reported as earned with Status Code A. Overtime doesn’t have to be identified separately from regular compensation on the transmittal, but you must report the actual hours worked, not time and a half. Status Code A1 is available to report overtime earnings greater than two times the hourly rate of pay. This Status Code is optional, and these earnings could instead be reported with Status Code A if desired.
• Sick and annual leave – sick and annual leave is accumulated progressively and paid to a person during a period of excused absence. The paid leave is deferred compensation for services previously rendered and is reportable.
• Bonuses – bonuses that are based upon meeting certain performance goals are for services rendered and are reportable

• Retroactive salary increase – a 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
• 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 for service and is reportable compensation.
• Cafeteria plans and flexible benefits 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 IRS code is reportable compensation if the employee has an absolute right to receive cash or deferred cash payments in lieu of the fringe benefits offered. 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 isn’t a salary or wage and isn’t reportable.
• Deferred wages – deferred wages include payments earned by but not paid to an employee. Payments earned by an employee for services rendered but deducted from their salary rather than paid are reportable. Examples include tax withholding, retirement contributions, and voluntary deductions, such as 403b contributions or other authorized deductions.

Reportable compensation not for services rendered

In general, payments can’t be considered reportable compensation unless they are for services rendered; however, some payments are reportable that aren’t for services rendered. A description of these payments is included in WAC 415-110 -488.

The following are payments not for services rendered that may be reportable:

• Paid leave not earned over time – paid leave not earned progressively may be reportable if the payment is equal to the salary for the position from which the employee is on leave, and the payment is actually from the employer.
• Union leave – salary isn’t reportable unless it meets the following criteria:
  • The employee is serving in an elected position with the labor organization. Non-elected positions aren’t covered by the law.
  • The employee continues to receive compensation from the SERS employer. The labor organization reimburses the employer for the amount of the employee’s compensation.
  • The collective bargaining agreement between the employer and the labor organization authorizes such a paid leave of absence and provides that the member will retain seniority rights with the employer for the period of leave. WAC 415-110-466
  • The compensation reported doesn’t exceed the salary paid to the highest-paid job class covered by the collective bargaining agreement

When these four qualifications are met, and if the member had compensation reported to DRS for those periods, the employee is considered to be on authorized paid leave and is eligible to receive service credit.

Members who qualify for service credit while serving as a labor-organization elected official should be reported on the monthly transmittal report. When they qualify for service credit by meeting the four conditions they are considered to be on authorized, paid leave. Report the employee’s compensation, contributions, and hours or days of service with Status Code A.

• Legislative leave – salary foregone while on legislative leave may be reportable dependent on the choice of the employee as follows:
  • Option 1: the reportable compensation they would have earned had they not served in the Legislature. If they select Option 1, they are responsible for paying the additional employer and employee contributions on any difference between the Option 1 and Option 2.
  • Option 2: the actual reportable compensation for non-legislative public employment and the legislative service combined.
• Compensation authorized by statute for periods of absence due to sickness or injury –the regular salary an employee would have received had they not been absent due to an injury that occurred on the job is reportable compensation if the employee is receiving benefits under Title 51 RCW (Industrial Insurance) or a similar federal workers’ compensation program. Refer to RCW 41.35.070 and WAC 415-110-479  for the rules about reporting this payment type.
• Standby pay – standby pay is identified as reportable compensation in WAC 415-110-469.
• Reinstatement or payment in lieu of reinstatement – if an employer makes payments to an employee for periods when they weren’t employed and those payments are made upon reinstatement or in lieu of reinstatement, the payments are reportable. RCW 41.35.010 specifically designates these payments are only reportable to the extent that they are equivalent to the salary the employee would have earned had they been working. The payment will be prorated over the entire period that they were suspended, terminated or otherwise absent from work. WAC 415-110-467
• Sick, annual and personal leave – sick leave, annual leave and personal leave are typically accumulated progressively and paid to a person during a period of excused absence. Leave accrues at a prescribed rate – usually a certain number of hours per month. The employee earns a leave day by rendering service during the month the leave was accumulated. When they use their accrued leave to take a paid day off, the payment is deferred compensation for services previously rendered and is reportable.
• Cash out payments for sick, annual and personal leave – if an employee receives payment instead of using accrued leave, they receive a “cash out” for the accrued leave. Cash outs aren’t reportable for SERS members. WAC 415-110-456
• Cash out of compensatory time – if compensatory time is cashed out, report the time as regular compensation with Status Code A. Report the compensation when it was earned as regular paid service, but report the actual number of hours, not time and a half. If the compensatory time is used instead, treat it as regular paid service with Status Code A, but report as used, not earned.

Payments not considered reportable compensation

The following payments aren’t for services rendered and aren’t reportable:

• Annual leave cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable.
• Fringe benefits – payments made by an employer to a third party to provide benefits for an employee aren’t part of the employee’s salary or wage and aren’t reportable. Examples of these payment types are insurance premiums and employer retirement contributions.
• Illegal payments – payments made by an employer in excess of the employer’s legal authority aren’t reportable.

• Optional payments – if an employee can receive an additional payment only on the condition of taking an action other than providing service, the payment isn’t for services rendered and isn’t reportable.

• Reimbursements for expenses – reimbursement for expenses incurred while performing services for an employer aren’t wages for services rendered and aren’t 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.
• Retirement bonus or incentive – a payment made to an employee as a bonus or incentive to retire or terminate isn’t a payment for services rendered and isn’t reportable.
• Severance pay – severance pay for earned overtime or otherwise isn’t reportable. WAC 415-110-458
• Car allowance – some employers pay car allowances instead of reimbursing for actual miles driven in the employee’s car for the employer’s business. These payments aren’t for services rendered and aren’t reportable.
• Disability retirees –payments aren’t reportable until they meet the “comparable compensation” requirements under RCW 41.35.440 for Plan 2, or RCW 41.35.690 for Plan 3 even though the employee may be in an eligible position. 
• Personal leave cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable.
• Sick leave cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable.

Establishing service credit for unpaid leave

In some circumstances, a SERS member can elect to establish service credit for periods of unpaid leave. The regular compensation the member would have earned had they been working is used to calculate the amount they must pay to establish the service credit. The regular compensation amount used to create the bill isn’t reportable compensation. Depending on the type of leave, this compensation may or may not be included as AFC in calculating a member’s retirement benefit.

• Authorized unpaid leave – members have an option to establish service credit for periods of unpaid leave. Salary used to calculate the contributions for such periods isn’t reportable compensation and can’t be included as AFC in calculating a member’s retirement benefit. RCW 41.35.470,   RCW 41.35.650 
•  Military leave – salary used for purposes of calculating contributions owing for a period of interrupted military service isn’t reportable compensation. If a member elects to purchase credit for periods of military service, and the military leave period falls within their AFC period, federal law requires the salary they would have earned during the period of absence be used in the calculation of the AFC.

This section contains information about salary that is reportable for members of the Law Enforcement Officers’ and Fire Fighters’ Retirement System (LEOFF). Reportable compensation for LEOFF must be basic salary. Not all payments from an employer to a LEOFF member qualify as basic salary. This section discusses what basic salary is.

What is reportable compensation?

For an employee’s salary or wages to be subject to retirement system contributions and included in the calculation of their retirement benefit, they must meet the definition of “basic salary” in LEOFF retirement law. RCW 41.26.030 , WAC 415-104-298

Basic salary differs between plans

The definition of basic salary is different for LEOFF Plans 1 and 2. WAC 415-104-305 – WAC 415-104-350 defines basic salary for LEOFF Plan 1. WAC 415-104-360 – WAC 415-104-405 defines basic salary for LEOFF Plan 2.

Definition of basic salary for LEOFF Plan 1

Basic salary for LEOFF Plan 1 means the basic monthly rate of salary or wages including longevity pay but not including overtime earnings, special salary, or wages upon which pension or retirement benefits will be computed and upon which employer contributions and salary deductions will be based.

• Salary or wages means payments for services rendered by a LEOFF member to an employer. Payments that aren’t for services rendered to an employer do not qualify as basic salary.
• Longevity pay means a payment in addition to the basic monthly rate of pay that is based solely upon the length of employment with the employer and paid to all LEOFF members who have served the same length of time with the employer.
• Position means the employment held at any particular time. The employment held is defined by the duties required of the employee as a condition of employment.

• Attached to a position means a payment conditioned on specific duties required of the person holding the position.

Definition of basic salary for LEOFF Plan 2

Basic salary for LEOFF Plan 2 is a payment that is a salary or wage earned during a calendar month for personal services rendered by a member to an employer. Certain payments that aren’t for personal services rendered by a member also qualify if there are specific provisions in the laws identifying them as basic salary. Other payments not specifically identified in the rules qualify as basic salary only if the payments are for services rendered. These payments are described later in this chapter under the section discussing what is and isn’t reportable for LEOFF Plan 2 members.

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 what the payment is for and whether the reason for the payment brings it within the statutory definition of basic salary.

Plan 1

Reportable compensation for Plan 1

The following payment types qualify as basic salary and are reportable to DRS:

• Basic monthly rate – the basic monthly rate of compensation paid by an employer to a member for services rendered. “Basic monthly rate” means the rate of salary or wages attached to a position excluding overtime or special salary or wages.
• Longevity pay – longevity pay is reportable if it is based solely upon length of employment with the employer and paid to all law enforcement officers or fire fighters who have served with the employer for the same length of time.
• Deferred payments – deferred payments attached to a position are basic salary. Deferred payments may include but aren’t limited to member contributions to LEOFF and salaries or wages deferred according to the provisions of sections 401(k), 403(b), 414(h), 457, or other similar sections of the IRS code.
• Retroactive basic salary increase – when attached to a position, a retroactive basic salary increase is basic salary. If a payment is part of the basic monthly rate of salary or wages attached to a position or is a longevity payment, it is basic salary even if it is retroactive.
• Paid leave – paid leave is basic salary. Payments from an employer for authorized paid absences from work are basic salary.

• Payments upon reinstatement or in lieu of reinstatement – these payments are paid leave and qualify as basic salary. The payment will count as basic salary for the payroll periods when the person would have earned the payment had they been working.
  • For a payment in lieu of reinstatement to qualify as paid leave, the person’s termination date must occur after the payroll period(s) when the payment would have been earned.
  • Payments under WAC 391-45-410 are basic salary for the period(s) covered by the reinstatement.
  • Payments upon reinstatement or in lieu of reinstatement are basic salary only to the extent they equal the basic salary a member would have earned had they been working.
• Union leave – periods of authorized leave to serve as an elected official of a labor organization that meet the statutory requirements qualify for service credit. RCW 41.26.197
  The salary payments provided by the employer, subject to reimbursement from the union, qualify as basic salary to the extent the payments do not exceed the basic salary for the highest-paid job class covered by the collective bargaining agreement negotiated between the labor organization and the employer.

An employee who takes leave to serve as an elected official of a labor organization might be eligible for retirement service credit for the period of leave if specific qualifications are met:

• They are serving in an elected position with the labor organization. Nonelected positions aren’t covered by the law.
• They continue to receive compensation from their PERS, TRS or LEOFF employer. The labor organization reimburses the employer for the amount of their compensation.
• The collective bargaining agreement between the employer and the labor organization authorizes such a paid leave of absence and provides that the member will retain seniority rights with the employer for the period of leave.
• The compensation reported to the retirement system for the member who is on such a leave isn’t greater than the salary paid to the highest paid job class covered by the collective bargaining agreement.

When these four qualifications are met, and if the member had compensation reported to DRS for those periods, they are considered to be on authorized paid leave and are eligible to receive service credit.

Members who qualify for service credit while serving as a labor organization elected official should be reported on the monthly transmittal report. When they qualify for service credit they are considered to be on authorized paid leave. Report their compensation, contributions and hours or days of service with Status Code A.

• Shift differential – shift differential is basic salary. Additional payments to a member for working swing shift or night shift are attached to the duties of the position.
• Additional duty pay – additional duty pay is basic salary.

Compensation not reportable for Plan 1

The following payment types aren’t considered basic salary and aren’t reportable to DRS for LEOFF Plan 1:

• Deferred wages – deferred wages not attached to a position are special salary or wages and are excluded from LEOFF Plan 1 basic salary.
• Employer matching payments – payments that are dependent on the employee’s participation in a particular program aren’t basic salary.

• Additional deferred compensation – additional deferred compensation offered to an individual isn’t basic salary. This is a special salary or wage and isn’t reportable.
• Educational premium payments – if an employer provides additional salary based upon the member’s level of education, it is a special salary or wage and isn’t reportable.

• Payments conditioned upon acquiring and maintaining a designated certification – these payments for certification (such as emergency medical technician), are a form of educational premium pay. It is a special salary or wage and isn’t reportable.
• Cafeteria plans and Flexible Benefits plans – compensation paid under the provisions of a ‘“cafeteria plan,” “flexible benefits plan,” or similar arrangement, according to the provisions of section 125 of the IRS code, is a special salary or wage and isn’t reportable.
• Leave cash outs – cash outs of leave and other severance pay aren’t reportable. A cash out for unused accrued leave is a deferred salary. Cash out for unused accrued leave is a deferred salary or wage for services previously rendered. In LEOFF Plan 1, the payment isn’t basic salary but a special salary or wage and isn’t reportable.
• Severance pay – any form of severance pay based upon termination isn’t reportable.
• Overtime – additional pay earned for working time in excess of a regularly scheduled shift is specifically excluded from basic salary for LEOFF Plan 1 and isn’t reportable.
• Holiday pay – additional pay for working a holiday is considered overtime and isn’t reportable.
• Callback pay – callback pay is a special rate of pay for being called back to work and isn’t reportable.
• Court pay – court pay is an additional payment for appearing in court or performing other duties outside of a member’s regularly scheduled shift and isn’t reportable.
• Deferred payments – deferred payments that aren’t attached to a position aren’t reportable.
• Disability payments – payments from an employer during periods of disability leave aren’t payments for services rendered and aren’t reportable.
• Third party payments – third party payments (such as payments from an insurance company) aren’t reportable.
• Employer-paid taxes and retirement contributions – employer-paid taxes and retirement contributions aren’t salary or wages and aren’t reportable.
• Fringe benefits – payments made by an employer to a third party to provide benefits for an employee (such as insurance premiums) aren’t reportable.
• Illegal payments – payments made by an employer in excess of the employer’s legal authority aren’t basic salary and aren’t reportable.
• Reimbursements for expenses – reimbursements or allowances in lieu of expenses aren’t reportable.

• Payments based on additional certification or qualifications – if a member receives payments based upon personal expenses incurred in maintaining a certification or qualification, the payment is reimbursement, not compensation, and isn’t reportable.
• Standby pay – payment for time not actually worked but when the member must be available to work if the need arises isn’t reportable.

Retirement or termination bonuses aren’t reportable.

• Severance pay – additional payments based fully or partially on notification of a member’s intent to terminate or retire aren’t a salary for services rendered and aren’t reportable.
• Retirement bonus or incentive – payments based on retirement eligibility are specific to a member and aren’t attached to the position. These payments aren’t reportable.
• Payments in lieu – a payment or any other transfer in lieu of an item that doesn’t qualify as basic salary isn’t reportable.

Plan 2

Reportable compensation for Plan 2

The following types of payments qualify as LEOFF Plan 2 basic salary and are reportable:

• Basic salary – base salary or wages you pay to your employees for services rendered is reportable compensation.
• Deferred wages – if earned for services rendered, deferred wages are basic salary. Deferred wages include but aren’t limited to:
• Member contributions to LEOFF
• Salaries or wages deferred according to sections 401(k), 403(b), 414(h), 457 or other similar sections of IRS code 
• Holiday leave bank cash outs – may or may not be reportable. 
• Retroactive basic salary increases – a 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.
• Cafeteria plans and flexible benefits plans – compensation received in any form under the provisions of a “cafeteria plan,” “flexible benefits plan,” or similar arrangement according to section 125 of the IRS code is basic salary only if the member can receive cash or deferred payments instead of the fringe benefits.
• Overtime – additional pay earned for working time in excess of regularly scheduled shift(s) is a salary or wage for services rendered and is reportable. Overtime is treated as regular paid service reported as earned with Status Code A. Overtime doesn’t have to be identified separately from regular compensation on the transmittal, but you must report the actual hours worked, not time and a half. WAC 415-106-220 
  
  Status Code A1 is available to report overtime earnings greater than two times the hourly rate of pay. This Status Code is optional, and these earnings could instead be reported with Status Code A if desired. Overtime includes but isn’t limited to:
  • Callback pay for being called back to work
  • Court pay for appearing in court or performing other duties outside of a member’s regularly scheduled shift
  • Additional pay for working on a holiday

• Paid leave – payments received from an employer for authorized paid absences from work are basic salary for LEOFF Plan 2. Paid leave is basic salary and is reportable only to the extent that it is the equivalent of the basic salary a member would have earned had they been working. The portion of any payment that exceeds that amount isn’t basic salary and isn’t reportable. Reportable leave payments include:
  • Leave payments earned for services rendered

• Leave payments not earned for services – if an employer authorizes a period of paid leave but doesn’t require the use of leave previously earned for services rendered, the payment isn’t a salary or wage for services rendered; however, RCW 41.26.520 authorizes service credit for all periods of paid leave. Because the periods are creditable, the pay received is considered basic salary to the extent that it is equal to the basic salary the member would have earned had they been working and is reportable.
• Reinstatement or payment in lieu of reinstatement – 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, they are paid leave and qualify as basic salary. The payments are reportable for the payroll periods when they would have earned the payment had they been working.
  • For a payment in lieu of reinstatement to qualify as paid leave, the person’s termination date must occur after the payroll period(s) when the payment would have been earned.
  • Payments under WAC 391-45-410 are basic salary for the period(s) covered by the reinstatement.
  • Payments upon reinstatement or in lieu of reinstatement are basic salary only to the extent they equal the basic salary a member would have earned had the member been working.
• Union leave – periods of authorized leave to serve as an elected official of a labor organization that meet the requirements of RCW 41.26.520 qualify for service credit. The salary payments provided by the employer that are subject to reimbursement from the union qualify as basic salary to the extent they do not exceed the highest-paid job class covered by the collective bargaining agreement negotiated between the labor organization and the employer.
• Salary or wages not attached to a position – a salary or wage for services rendered to an employer is basic salary.

• Performance bonuses – payments made for meeting or exceeding performance goals set by an employer are a salary or wage for services rendered and qualify as basic salary if it is documented in an employer policy or specific agreement between the employer and member before earning the bonus.

• Shift differential – additional payments to a member for working swing shift or night shift are a salary or wage for services rendered. The payments are basic salary and are reportable.
• Disability payments – under certain circumstances, a LEOFF Plan 2 member is entitled to a disability leave supplement for periods of disability leave. RCW 41.04.500–550 
• The following types of disability payments are considered basic salary and are reportable to DRS:
  • Disability leave supplement – the member-paid portion of the disability leave supplement funded through use of their accumulated sick or vacation leave is basic salary and is reportable.
  • Disability leave banks – if an employer maintains a disability leave bank that may be used to make salary replacement payments for members during periods of disability, such payments are paid leave and are reportable

Compensation not reportable for Plan 2

The following are payment types that aren’t considered basic salary and aren’t reportable to DRS for LEOFF Plan 2.

• Disability payments – employer contributions to the disability leave supplement provisions do not qualify as basic salary and aren’t reportable
• Workers’ compensation – payments made under Title 51 RCW are excluded from the definition of basic salary and aren’t reportable
• Private insurance – any payment from a third party insurance company is neither paid leave nor payment for services rendered and isn’t reportable
• Employer-paid taxes or contributions – employer-paid taxes and employer-paid contributions aren’t salary or wages and aren’t reportable
• Fringe benefits – payments made by an employer to a third party to provide benefits for an employee (such as insurance premiums) aren’t reportable
• Illegal payments – payments made by an employer in excess of the employer’s legal authority aren’t basic salary and aren’t reportable
• Reimbursements for expenses – reimbursements or allowances in lieu of expenses aren’t reportable

• Termination or retirement bonuses – an additional payment based on notification of a member’s intent to terminate or retire isn’t basic salary and isn’t reportable
• Statutorily excluded payments – payments authorized by a law that excludes the payment from the calculation of a retirement allowance aren’t reportable
• Cash outs – cash outs of unused accrued leave are specifically excluded from the definition of basic salary and aren’t reportable
• Severance pay – any form of severance pay is excluded from the definition of basic salary and isn’t reportable
• Payments in lieu – a payment or any other transfer in lieu of an item that doesn’t qualify as basic salary isn’t reportable

What is reportable compensation

This section contains information about reportable compensation for members of the Public Safety Employees’ Retirement System (PSERS).

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

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:

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

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

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:

• Annual leave used – annual leave 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
• Base salary or wages – base salary or wages that you pay to your employees for services rendered is reportable compensation. WAC 415-106-215
• Cafeteria plans and flexible benefits 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 IRS 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 compensation 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 isn’t a salary or wage and isn’t reportable. WAC 415-106-290
• Callback payment – if an employer offers an employee a special pay rate for returning to work when called after the end of a regular shift, it is overtime and reportable. WAC 415-106-220 
  Report as regular paid service, as earned, with Status Code A. Overtime doesn’t have to be identified separately from regular compensation on the transmittal, but you must report the actual hours worked, not time and a half.
• Car allowance – the portion of a car allowance 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 for what is needed.
• Compensatory time – compensatory time is treated as regular paid service with Status Code A. Report the actual hours worked, not time and a half. When paid, lump-sum compensatory cash outs must be retroactively spread over the months the time was accrued. Member and employer contributions are based on the contribution rates in effect at the time the service was rendered. Actual overtime hours worked are reported as creditable service as earned by calendar month.

When compensatory time is taken as leave, the time taken for retirement reporting purposes will be treated in the same manner as annual (vacation) leave or sick leave taken. The contribution rates in effect at the time the leave is taken will be used to calculate contributions. Paid leave hours are reported as creditable service when taken.

To summarize, lump sum compensatory time payments must be reported as earned by calendar month when paid. Compensatory leave taken should be treated in the same manner as other leave taken.

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 Report as regular paid service as earned with Status Code A. Overtime doesn’t have to be identified separately from regular compensation on the transmittal, but you must report the actual hours.
• Deferred wages/payroll deductions – payments earned by an employee for services rendered but deducted from their salary rather than paid are reportable. WAC 415-106-300
• Examples include tax withholding, member retirement contributions and voluntary deductions, such as 403b contributions or other authorized deductions.
• Employer contributions are a fringe benefit and aren’t reportable. WAC 415-106-295
• 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
• Report as regular paid service as earned with Status Code A. Overtime doesn’t have to be identified separately from regular compensation on the transmittal, but you must report the actual hours worked, not time and a half.

• 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 service level due to greater experience or more education. The payment is for service and is reportable compensation. WAC 415-106-215
• Overtime – overtime is treated as regular paid service reported as earned with Status Code A. Overtime doesn’t have to be identified separately from regular compensation on the transmittal, but you must report the actual hours worked, not time and a half. WAC 415-106-220
  You can use optional Status Code A1 to report overtime earnings greater than two times the hourly rate of pay, or you can use Status Code A.
• Performance pay – if based upon meeting certain performance goals, performance pay is for services rendered and is reportable. Employers must document the dates during which performance bonuses are earned and provide the information if requested by DRS. WAC 415-106-230

• Personal holiday used – a personal holiday 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
• Retroactive salary – an 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 made 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 – sick leave 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
• Time off with pay – sick leave, vacation leave or personal leave accumulated progressively and paid to a person during a period of excused absence is deferred compensation for services previously rendered and is reportable (see paid leave not earned over time). WAC 415-106-255

Some payments are reportable that aren’t for services rendered

In general, payments aren’t 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 – 415-106-330. The following are payments not for services rendered that may be reportable:

• Assault pay, state employee – assault pay qualifies as reportable compensation for Department of Corrections’ employees. WAC 415-106-270(1) Refer to 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 is reportable had they not been absent due to an injury that occurred on the job. For this to be reportable compensation, they 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

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, they 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.

• 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 any year in which they serve in the legislature, the employee may choose between:
  • Option 1 – the reportable compensation they would have earned had they not served in the legislature
  • Option 2 – the actual reportable compensation for non-legislative public employment and the legislative service combined WAC 415-106-285

If the employee selects Option 1, they are responsible for paying the additional employer and employee contributions on any difference between the Option 1 and Option 2 amounts.

• Paid leave – is reportable to the extent authorized by RCW 41.37.260 and WAC 415-106-260. Payment from an employer while on an authorized leave of absence is reportable if the payment doesn’t 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 (see union leave below for an exception to this).
• 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 specifically designates these payments are only reportable to the extent that they are equivalent to the salary the employee would have earned had they 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 isn’t a state employee, shared leave payments aren’t reportable. WAC 415-106-270
• Standby pay – standby pay is specifically identified as reportable compensation in RCW 41.37.010; however, this service is excluded from the definition of service. RCW 41.37.010 
  Report the compensation, not the hours. WAC 415-106-225
• Temporary duty disability – see duty disability above.
• Unpaid leave of absence – for certain periods of unpaid leave of absence identified by statute such as authorized leave for education purposes, family leave, 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 time on leave will not be included in the member’s AFC (except interruptive military service). WAC 415-106-280

A member is eligible to receive a maximum of two years’ service credit during a member’s entire working career for those periods when they are 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

• Vacation leave used – see annual leave used (above).

Payments that aren’t reportable compensation

The following payments aren’t for services rendered and aren’t reportable:

• Annual leave cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable. WAC 415-106-255
• 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 aren’t for services rendered and aren’t reportable. WAC 415-106-330 
  However, if the car allowance exceeds expenses, some portion may be reportable.
• Car provided by employer – the value of an employer-provided vehicle isn’t reportable. WAC 415-106-325
• Cash out payments for sick, annual and personal leave – if an employee receives payment instead of using accrued leave, they receive a “cash out” for the accrued leave. Cash outs aren’t reportable for PSERS members. Cash outs are excluded by statute from the definition of reportable compensation. RCW 41.37.010,  WAC 415-106-255
• Disability insurance payments – payments for disability insurance aren’t for services rendered and aren’t reportable. These payments are made to an employee because they aren’t 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 aren’t part of their salary or wage and aren’t reportable. Examples of these payment types are insurance premiums and employer retirement contributions. WAC 415-106-295
• Refer to cafeteria plans (above) for an exception.
• Illegal payments – payments made by an employer that exceed the employer’s legal authority aren’t reportable. WAC 415-106-305
• Non-money payments – payments provided in a form other than money aren’t 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 a payment only on the condition of taking an action other than providing service, the payment isn’t for services rendered and isn’t reportable. WAC 415-106-310

The following payments aren’t for services rendered and aren’t reportable:

• Annual leave cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable. WAC 415-106-255
• 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 aren’t for services rendered and aren’t reportable. WAC 415-106-330; however, if the car allowance exceeds expenses, some portion may be reportable.
• Car provided by employer – the value of an employer-provided vehicle isn’t reportable. WAC 415-106-325
• Cash out payments for sick, annual and personal leave – if an employee receives payment instead of using accrued leave, they receive a “cash out” for the accrued leave. Cash outs aren’t reportable for PSERS members. Cash outs are excluded by statute from the definition of reportable compensation. RCW 41.37.010,  WAC 415-106-255
• Disability insurance payments – payments for disability insurance aren’t for services rendered and aren’t reportable. These payments are made to an employee because they aren’t 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 aren’t part of their salary or wage and aren’t reportable. Examples of these payment types are insurance premiums and employer retirement contributions. WAC 415-106-295 (Refer to cafeteria plans [above] for an exception.)
• Illegal payments – payments made by an employer that exceed the employer’s legal authority aren’t reportable. WAC 415-106-305
• Non-money payments – payments provided in a form other than money aren’t 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 a payment only on the condition of taking an action other than providing service, the payment isn’t for services rendered and isn’t reportable. WAC 415-106-310

• Personal holiday cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable. WAC 415-106-255
• Reimbursements for expenses – reimbursements for expenses incurred while performing services for an employer aren’t wages for services rendered and aren’t 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 isn’t a payment for services rendered and isn’t reportable. WAC 415-106-235; however, if the agreement requires additional service, refer to RCW 41.50.730.
• Severance pay – severance pay isn’t reportable whether earned progressively or not. WAC 415-106-250
• Shared leave, local government employee – if an employee isn’t a state employee, shared leave payments aren’t reportable. WAC 415-106-270
• Sick leave cash out – if an employee receives payment instead of using accrued leave, the payment is a cash out and isn’t reportable. WAC 415-106-255
• Union leave – salary isn’t reportable unless it meets the following criteria:
  • The employee is serving in an elected position with the labor organization. Non-elected positions aren’t covered by the law.
  • The employee continues to receive compensation from the PSERS employer. The labor organization reimburses the employer for the employee’s compensation amount.
  • The collective bargaining agreement between the employer and the labor organization authorizes such a paid leave of absence and provides that the member will retain seniority rights with the employer for the period of leave. RCW 41.37.260,  WAC 415-106-265
  • The compensation reported doesn’t exceed the salary paid to the highest-paid job class covered by the collective bargaining agreement.

When these four qualifications are met, and if the member had compensation reported to DRS for those periods, the employee is considered to be on authorized, paid leave and is eligible to receive service credit.

Members who qualify for service credit while serving as a labor-organization elected official should be reported on the monthly transmittal report. When they qualify for service credit by meeting the four conditions they are considered to be on authorized paid leave. Report their compensation, contributions and hours or days of service with Status Code A.

• Vacation leave cash out – see annual leave cash out (above).
• Workers’ compensation – payments to a member aren’t payments for services rendered and aren’t 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 can elect to make contributions and receive service credit for periods of disability covered by industrial insurance. Refer to notice 17-007. RCW 41. 37.060
• Some employers have an employee on unpaid disability leave submit their workers’ compensation payments to the employer and then issue the employee a check through their payroll system. This exchange doesn’t make the payments reportable.
• Establishing service credit for unpaid leave – in some circumstances, a PSERS member can elect to establish service credit for unpaid leave. The regular compensation the member would have earned had they been working is used to calculate the amount they must pay to establish the service credit. The regular compensation amount used to create the bill isn’t 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 unpaid leave. Salary used to calculate the contributions isn’t reportable compensation and can’t be included as AFC in calculating a member’s retirement benefit.
• Military leave – salary used to calculate contributions owing for interrupted military service isn’t reportable compensation; however, if a member elects to purchase credit for military service, and the military leave period falls within their AFC period, federal law requires the salary they would have earned during the period of absence be used in the calculation of the AFC.