View presentation on pay for time lost

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

Crediting Pay For Time Lost

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

Types of Pay for Time Lost

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

• Personal injury settlements that allocate a portion of the damages as lost wages for a specific period following the injury;
• Dismissal allowances (See Chapter 7 in this part);
• Guaranteed wages;
• Displacement allowances paid for loss of earnings resulting from displacement to a less remunerative position; and
• Reinstating awards.

Time Lost NOT Considered Creditable Compensation

In the following two situations, an award for time lost will not result in creditable service and compensation. In the first situation no payment was actually made and the other is where a payment was made but because the recipient was not an employee, the payment was not subject to RRTA taxes.

• Reinstatement awards often include awards for time lost, possibly referred to as “back pay”. If an award for time lost does not result in a payment to the employee, then no service or compensation is creditable under the RRA. This might occur if a reinstatement award is reduced for other earnings. If the award is reduced to zero, no service or compensation is creditable.
   
• Hiring discrimination awards may or may not include an element of time lost. If the payment is made to an individual who is not in an employment relation with the employer making the payment and the payment is not subject to RRTA taxes, the payment would not result in creditable service or compensation.

Governing Principles

The following principles should assist you in reporting pay for time lost.

• Credit when Earned. The compensation is considered earned in the missing months or the months the employee was displaced to a less remunerative position. Therefore, it should be reported as service and compensation for those months. If you are not sure of the open service months on record, telephone or write to the Protest Section. The telephone number is (312) 751-4809, 4876 or 4882.
   
• Employment Relationship Required. As with all compensation, an employment relationship must exist for that period (See 20 CFR 204.6). If a settlement agreement requires that an employee resign to receive the payment, the employment relationship ceases effective with the resignation. Allocation into the future is permissible as long as an employment relation is maintained. It may not be credited until the period has elapsed and proven to be time lost. There is no provision for crediting service in advance.
   
• Service and Compensation Must Relate to Actual Time Lost. An allocation may not be arbitrarily made to any period of missing service, but must relate to an actual period of absence. Therefore, an allocation based on a reinstatement may not be prior to the dismissal. The specific months must be identified on Form BA-4 , "Report of Creditable Compensation Adjustments".
   
• Ignore Deemed Service Months. In most instances, a pay-for-time-lost allocation increases service as well as compensation, often eliminating or reducing any deemed service months in the year(s) involved. Therefore, deemed service months in the year(s) of the allocation should not be considered in counting an employee's total service months. See Part III, Chapter 1 for an explanation of deemed service months. See the example in the following section which illustrates why we advise ignoring deemed service when determining months to allocate.
   
• Acceptable Pay for Allocation. The amount of the pay for time lost must relate to an employee's normal monthly pay. (See 20 CFR 211.3(b)). By regulation, a monthly allocation must be at least ten times the employee's daily pay rate in effect on the date of injury. For example, if an employee normally earned, $120 a day at the time of absence, the amount of pay for time lost allocated to each month should be at least $1200.
   
• Taxed when Paid. As with all compensation, pay for time lost is taxed under the Railroad Retirement Tax Act (RRTA) when paid. See taxation of compensation in Part III, Chapter 4. Because pay for time lost represents a period other than the current, the taxed amount and the creditable amount of the pay for time lost may differ.

Example of Allocating Service When Deemed Service Months are Involved

Employee Bob Brakeman worked from January through April 18, 2006, when he was injured on the job. Mr. Brakeman returned to work on October 6, 2006, and worked through December. Mr. Brakeman was reported to have service months of January through April and October through December and creditable compensation of $56,100. Based on the creditable Tier II earnings, Mr. Brakeman would be entitled to ten service months. Since seven months were reported, an additional three months may be deemed. ($56,100 ÷ 5,825 = 9.6, rounded up to 10 total months. The $5,825 represents the 2006 Tier II monthly earnings base of $69,900 divided by 12.) Because Mr. Brakeman has an employment relation in all months in 2006, the months of May, June, and July are deemed as service months.

In 2007, Mr. Brakeman is awarded a settlement that includes pay for time lost due to the 2006 injury of $2500 per month. Because Mr. Brakeman has deemed service for the three months stated above, the pay for time lost amount of $5000 is erroneously allocated to cover the two remaining months of August and September 2006. Mr. Brakeman now has total Tier II compensation of $61,100 in 2006 and reported service for the months January through April and August through December (10 months).

Based on the Tier II compensation of $61,100, Mr. Brakeman is entitled to 11 service months in 2006. ($61,100 / $5,825 = 10.5 rounded up to 11 months), so he will be deemed one (1) additional month. The settlement was intended to provide Mr. Brakemen with 12 months of service, however he is now short one service month.

Note: Deemed service months should NOT be counted when allocating pay for time lost. May through September should have been allocated as pay for time lost and Mr. Brakeman should have 12 service months in 2006. Deemed service months are the product of a calculation and when the components of the calculation are adjusted, the deemed months may also be adjusted.

Example of Crediting Compensation to Period Lost and Assessing Taxes When Paid

Employee Harry Clark was dismissed in July 2005. As a result of a Public Law Board decision, she was ordered reinstated with full seniority rights and full pay for the period July 1, 2005 through October 31, 2007. Ms. Clerk returned to work in November 2007 and in December received a payment of $56,000, $2000 per month for the period July 2005 through October 2007. The total amount of $56,000 should be considered together with the other compensation paid to Ms. Clerk in November and December 2007 to determine the correct amount of railroad retirement tax due for 2007. The 2007 tax rates and maximum earnings bases are used to compute the tax.

Service months and compensation in the amount of the award are creditable as if they had been earned in the period July 1, 2005 through October 31, 2007, using the appropriate maximums for that period. This award requires an adjustment to the prior years as follows:

2005

• Increase service months for July through December;
• Increase Tier I and Tier II compensation by $12,000, or by amounts to bring 2005 compensation to the maximum; and
• Increase RUIA compensation by $6,900 ($1150 x 6)

2006

• Increase service months for January through December;
• Increase Tier I and Tier II compensation by $24,000; and
• Increase RUIA compensation by $14,340 ($1,195 x 12).

All 2007 compensation and service will be reported on Form BA-3 , "Annual Report of Creditable Compensation", by the last day of February 2008.

Reporting Adjustments to the RRB

As with all compensation, withholding and depositing the proper taxes is not sufficient in itself to update an employee's record of service and compensation. Form BA-4 , "Report of Creditable Compensation Adjustments", must be filed to correct 2005 and 2006 record of service and compensation. The amount of the settlement allocated for 2007 ($20,000) should be included on the Form BA-3 , "Annual Report of Creditable Compensation", filed for 2007, along with the regular earnings paid in 2007. Remember, service months, Tier I, Tier II, and RUIA compensation are creditable based on an award for time lost.

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

Personal Injury Settlement

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

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

Employee in Receipt of RUIA Benefits

If a payment is made for time lost which covers a period for which unemployment or sickness benefits under the RUIA were previously paid, reimbursement is due the RRB. Contact the Claims Adjustment and Settlement Section for the correct amount to withhold from the award to reimburse the RRB. Refer to Part VI Chapter 8, for more information on employers' responsibilities under Sections 2(f) and 12(o) of the RUIA.

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

Reopening a Pay for Time Lost Award

The reopening of a pay for time lost award to make an additional award of service and/or compensation is considered a correction of the original record. The law limits the period during which corrections to service and compensation records may be filed. The period during which corrections may be filed begins with the date the report of the original award was due at the RRB. See Part V, Chapter 8, to determine time limits for filing corrections.

Report Service and Compensation to the RRB

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