Educational Incentive Pay

October 16, 2025
Circular Letter: 200-046-25
Topic: Special Compensation

To: All Contracting Public Agencies & Schools

Purpose

This Circular Letter provides guidance for employers to correctly report Educational Incentive Pay to the California Public Employees’ Retirement System (CalPERS) as either special compensation for classic members, or pensionable compensation for Public Employees’ Pension Reform Act of 2013 (PEPRA) members. The information contained in this Circular Letter is intended to help ensure compliance with the applicable laws and regulations, including Government (Gov.) Code sections 20636, 20636.1, 7522.34, sections 571 (classic members) and 571.1 (PEPRA members) of Title 2 of the California Code of Regulations (CCR). 

Compliance Requirements

Educational Incentive Pay is defined in CCR sections 571 (classic members) and 571.1 (PEPRA members) as compensation provided to employees for completing educational courses, certificates, or degrees that enhance their ability to do their job. Employers must have a program or system in place to evaluate and approve acceptable courses. In addition to meeting all other requirements for special compensation or pensionable compensation, as applicable, employers must adhere to the following requirements for Educational Incentive Pay:

  1. Enhancement of Job Performance:
    1. Educational Incentive Pay must directly enhance an employee’s ability to do their job.
    2. The education must relate to the employee’s current job classification and responsibilities. For example, an accounting certificate for a budget manager may qualify, but unrelated general education may not.
  2. Written Labor Policy or Agreement:
    1. For classic members, CCR section 571(b)(1) provides that all items of special compensation, including Educational Incentive Pay, must be supported by a written labor policy or agreement as defined in Gov. Code section 20049 that has been approved by the employer’s governing body.
    2. The labor policy must clearly explain eligibility requirements and acceptable courses, degrees, or certifications. It cannot reference another document for additional provisions.
    3. For PEPRA members, requirements for documenting Educational Pay in a written labor agreement are further defined in CCR section 571.1(a)(4)(H), which provides that pensionable compensation must be paid pursuant to a publicly available pay schedule that does not reference another document in lieu of disclosing the item of pensionable compensation other than those outlined in Gov. Code section 20049. Gov. Code section 20049 defines “Labor policy or agreement” as any written policy, agreement, memorandum of understanding, legislative action of the elected or appointed body governing the employer, or any other document used by the employer to specify the payrate, special compensation, and benefits of represented and unrepresented employees.
  3. Group or Class of Employment:
    1. Educational Incentive Pay must be available to all employees within a valid group or class of employment, as defined in Gov. Code sections 20636 and 20636.1 (classic members) and CCR section 571.1 (PEPRA members), such as job duties, work location, collective bargaining unit, logical work-related grouping, or date of hire.
    2. Additional eligibility requirements, such as performance criteria, years of experience, or salary range, are not allowed as they may exclude certain employees within the group or class.
  4. Reporting Requirements:
    1. Report Separately: Educational Incentive Pay must be reported as a separate item of special compensation (classic members) or pensionable compensation (PEPRA members) and not be included in the employee’s base payrate.
    2. Report as Earned: Educational Incentive Pay must be reported during the pay periods it is earned, not as a lump sum.
    3. Correct Compensation Category: Educational Incentive Pay must be reported under its appropriate category and not as other types of pay (e.g., Water Certification Premium or POST Certificate Pay).
  5. Maintain Documentation:
    1. Employers must keep records supporting eligibility for Educational Incentive Pay, such as certificates, coursework, or degrees.
    2. Employers must ensure certifications required for eligibility are renewed as needed to remain valid.

Common Errors

Recent reviews have found these common errors in reporting Educational Incentive Pay:

  • Incorrect Calculations: Including other types of pay (e.g., Paramedic Pay or Emergency Technician Pay) in the base payrate.
  • Improper Reporting: Educational Incentive Pay was incorrectly reported as a lump sum or misclassified under the wrong category.
  • Eligibility Issues: Paying employees who were not eligible or lacked supporting documentation.
  • Group or Class Issues: Adding extra eligibility requirements that excluded some employees in the group or class.
  • Non-Compliant Labor Policies: Written labor policies that did not meet the requirements of CCR sections 571 (classic members) and 571.1 (PEPRA members), such as labor policies that referenced other documents for payment provisions. Many policies failed to demonstrate how the education enhanced the employee’s ability to do their job.
  • Minimum Qualifications: Employees are not eligible for Educational Incentive Pay when the payment is for education that is required for the position (e.g., a Deputy City Attorney receiving Educational Incentive Pay for a law degree when the law degree is a minimum qualification for the position).

Recommendations for Compliance

To ensure compliance with Gov. Code sections 20636, 20636.1, and 7522.34, and CCR sections 571 (classic members) and 571.1 (PEPRA members), employers should:

  1. Review and Update Policies: Ensure written labor policies meet CCR sections 571 and 571.1, and clearly explain how the education enhances the employee’s ability to do their job.
  2. Ensure Group or Class Compliance: Verify that Educational Incentive Pay is available to all eligible employees within the defined group or class.
  3. Report Accurately: Report Educational Incentive Pay separately, accurately, and in the pay periods earned.
  4. Maintain Documentation: Keep eligibility records, including certificates and coursework, and ensure certifications are up to date.

Failure to comply with these requirements may result in improperly reported compensation being excluded from CalPERS reporting, which could affect retirement benefits.

Additional Resources

Additional information related to Educational Incentive Pay, compensation earnable, pensionable compensation, special compensation, written labor policy language, publicly available pay schedules, and Circular Letters can be found on our Compliance in Compensation Reporting webpage.

Questions

Questions related to Educational Incentive Pay compliance and reporting can be emailed to the Employer Account Management Division, Audit Compliance and Resolution Unit at: MOU_Review@calpers.ca.gov or you may call our CalPERS Customer Contact Center at 888 CalPERS (or 888-225-7377888-225-7377).

Brad Hanson, Chief
Employer Account Management Division