Compliance in Compensation Reporting
It’s important for employers to report accurate member information in compliance with the Public Employees' Retirement Law (PERL) Government (Gov.) Code and California Code of Regulations (CCR). This ensures accurate retirement benefits for our members and their beneficiaries. Retirement benefits are calculated based on a member's years of service credit, age at retirement, and final compensation (average salary for a defined period of employment). Inaccurate reporting of compensation can cause inaccurate calculation of retirement benefits that may result in underpayment or overpayment for both members and employers.
Audit Compliance & Resolution
The CalPERS Audit Compliance & Resolution team assists employers to ensure compliant reporting. We provide direct service in reviewing labor policies, agreements, and pay schedules to determine if compensation can be reported for retirement benefits. Below are some helpful resources available to employers for various audit scenarios and resolutions, as well as references to applicable PERL, Gov. Codes, and CCRs:
Compensation is commonly referred to as payrate and special compensation. The reporting of payrate and special compensation must adhere to the applicable PERL regulations.
Applicable Gov. Codes and CCRs
- Definition of Compensation (Gov. Code section 20630)
- Definition of Compensation Earnable (Gov. Code section 20636)
- Definition of Compensation Earnable for School Member (Gov. Code section 20636.1)
- Definition of Pensionable Compensation (Gov. Code section 7522.4)
- Definition of Special Compensation (CCR section 571)
- Definition of Special Compensation for New Members (CCR section 571.1)
Common Reporting Scenarios
- Base Pay: Special compensation items must be reported separately from base pay under the correct special compensation category and type.
- Lump Sum: Special compensation items shall be reported as earned regardless when paid and shouldn’t be reported as a lump sum amount earned over a period of time.
- On-Call Members: Any type of pay when a member is “on call” isn’t reportable because it’s work not performed during normal working hours of the position. However, it can be considered overtime pay because it is work not rendered during normal working hours.
Common Labor Policy and Agreement Issues
Labor policies and agreements are the backbone of reporting compensation. If labor policies or agreements don’t adhere to the PERL, Gov. Codes, and CCRs, the compensation may not be reportable.
- Written Labor Policy Requirement: Special compensation items must be contained in a written labor policy or agreement and meet the definition of CCR section 571 for classic members or CCR section 571.1 for new members to be reportable.
- Compounding: Special compensation items can be compounded (including other items for calculation) as a condition of payment.
For example, if the employer provides Longevity Pay based on 10% of an employee’s base pay plus Educational Incentive, the Longevity Pay may be calculated on a compounded factor of 10% the base pay plus the Educational Incentive. However, the written labor policy or agreement must specify the condition of payment.
- Labor Policy/Agreement Changes: While most memorandum of understanding (MOU) between an employer and collective bargaining group are effective for three years, it’s important to understand that any revision or update to the pay schedule must be adopted by the governing body. Therefore, if there are any changes, the employer shall include a side letter to clarify the amendment or amend the MOU for compensation purposes.
- Top of Range Violation: If a special compensation item is only provided for employee(s) at the top of a range (i.e., top step employee), it violates the group or class of employment definition. A group or class of employment is multiple employees considered together as they share similarities in job duties, work location, collective bargaining units or other logical work-related grouping. In addition, a single employee is not a group or class.
Special Compensation Reportability Table
Refer to the Special Compensation Reportability Table to determine when special compensation is reportable based on the member category and enrollment level.
Pay schedules provide base rate of pay for positions or classifications. It shouldn’t include any special compensation or additive pay in the base rate of pay.
- Requirement for a Publicly Available Pay Schedule (CCR section 570.5)
Common Pay Schedule Scenarios
- Multiple Pay Schedules: Employers can maintain multiple pay schedules based on classification, collective bargaining, etc. and aren’t required to maintain one master salary schedule.
- Additional Pay: Pay schedules shouldn’t include other payments. If the additional pay is deemed reportable as a special compensation, it must be reported separately from base rate of pay and earnings.
- Employment Contracts: If executive or unrepresented groups are under an employment contract that includes the position and salary information, it is not considered a pay schedule even if the contract is public information. Pay schedules must meet the requirement for a publicly available pay schedule and an employment contract is considered as a group or class of one.
- Effective Date vs. Revision Date: The effective date is the date when the publicly available pay schedule first went into effect, while a revision date is the date when the publicly available pay schedule was last revised following the effective date. Therefore, any instances that a publicly available pay schedule is approved, a revision date must be added pursuant to CCR section 570.5(a)(6).
- Pay Rate Ranges: Although certain positions have a broader range, a broad range payrate shall not be established to cover multiple positions and/or duties. Often, special consultants have a broad range in variance of the pay schedule. It’s often used as a blanket range as special consultants may be needed for special projects. A pay schedule identifies the position title for every position. The broad ranges render the publicly available pay schedule unhelpful for transparency and review.
It may be helpful to utilize compliant labor policies and/or agreement language previously determined as reportable for CalPERS. Below are some examples of language to use as a template for various compensation reported:
Bonus Pay should be defined under a system or policy based on an individual’s performance to achieve the Bonus Pay. An employer can provide Bonus Pay at any level. However, only Bonus Pay due to superior performance from an individual can be reported. It is important to have a system in place for evaluating an individual to provide an overall rating of “above average” or “superior performance.” In addition, Bonus Pay is only reportable for a classic member; a PEPRA member is excluded for reporting, but can still be paid.
Bonus Pay will be paid for “superior” performance based on the criteria documented on the “evaluation.” Superior performance is defined at the rating of 5.01 and above. For employees with “superior” performance, the amount of the Bonus Pay shall be:
|Score between 9.01 to 10.00||10% of base salary as Bonus Pay|
|Score between 8.01 to 9.00||9% of base salary as Bonus Pay|
|Score between 7.01 to 8.00||8% of base salary as Bonus Pay|
|Score between 6.01 to 7.00||7% of base salary as Bonus Pay|
|Score between 5.01 to 6.00||6% of base salary as Bonus Pay|
Overall Rating System
Bonus Pay will be paid for “superior” performance based on the criteria documented on the “evaluation”. Superior performance is defined at the rating of exceed expectation and above. For employees with superior performance, the amount of the Bonus Pay shall be:
|Outstanding Performance||10% of base salary as Bonus Pay|
|Exceed Expectation||7.5% of base salary as Bonus Pay|
|Meet Expectation||5.0% of base salary as Bonus Pay|
Note: In this example, “Meet Expectation” is not considered a “superior” performance. An employer can still pay the 5.0% as Bonus Pay, but it is not considered reportable compensation.
If an employee obtains and maintains ‘insert degree/certificate,’ the employee shall be compensated for ‘insert fixed amount or percentage of their base pay.’
List the approved holidays entitled for Holiday Pay. You can include personal or floating holiday as a condition on the MOU, but it is not reportable; it can still be paid. The employer generally sets the terms on Holiday Pay. Here are some samples of recommended language on the condition of payments.
Employees who are assigned based on required staffing may be assigned to work holidays as part of the regular work schedule. If an employee works a holiday as part of the regularly scheduled workweek, the employee is paid the straight-time rate of pay for the regularly scheduled shift, and the employee will receive eight (8) hours, paid time and one-half as part of Holiday Pay as listed on the approved holidays.
If the holiday falls on the employee’s regularly scheduled day off, the employee is paid double time or two (2) times their straight-time rate of pay for eight (8) hours per holiday.
Note: You can set a higher rate of pay or compensate for more than 8 hours. In addition, the rate of pay is not defined; therefore, defaulted to straight-time base pay.
Base Pay Compounded with Additional Benefits
The regular rate of pay, for purposes of holiday pay, includes base pay plus the hourly equivalent of any special compensation (e.g., Education Incentive, Shift Differential, etc.).
Employees who are assigned based on required staffing may be assigned to work holidays as part of the regular work schedule. If an employee works a holiday as part of the regularly scheduled workweek, the employee is paid the regular rate of pay for the regularly scheduled shift, and the employee will receive eight (8) hours, paid time and one-half as part of holiday pay as listed on the approved holidays.
If the holiday falls on the employee’s regularly scheduled day off, the employee is paid double time or two (2) times their regular rate of pay for eight (8) hours per holiday.
Note: You can set a higher rate of pay or compensate for more than 8 hours. Regular rate of pay is defined to include additional compensation for calculation of Holiday Pay.
Special Assignment Pay
If an employee is assigned to ‘insert special assignment duties or work condition’ routinely and consistently, the employee shall be compensated for ‘insert fixed amount or percentage of their base pay.’
Temporary Upgrade Pay
If an employee is assigned to perform ‘insert condition such as out-of-class duties’ of an upgraded position or classification at full capacity, the employee shall be compensated for ‘insert fixed amount or percentage of their base pay.’
Note: Uniform Allowance is not reportable for PEPRA members but can still be paid as a benefit. In addition, any value of purchase, rental, or maintenance of uniform is considered as Uniform Allowance.
Direct Uniform Allowance
“Positions or classifications” required to wear uniform will be provided a Uniform Allowance of “$X.XX (fixed amount) or up to $X.XX” each fiscal year. The value of the uniform provided is reported to CalPERS as compensation subject to retirement contributions for employees in classic retirement tiers (not PEPRA).
Uniform Rental and Maintenance
“Positions or classifications” provided a uniform as a requirement to wear during working hours. The rental and maintenance of the uniform will be “$X.XX (fixed amount) or up to $X.XX” each fiscal year based on the cost of renting and laundering of the uniform. The value of the uniform provided is reported to CalPERS as compensation subject to retirement contributions for employees in classic retirement tiers (not PEPRA).
The following resources are available to help new contacts become familiar with CalPERS compensation reporting procedures:
- Circular Letters
- 200-003-20 (PDF): Statutory and Regulatory Requirements for Publicly Available Pay Schedules
- 200-019-20 (PDF): Common Issues on Special Compensation Reporting and Labor Agreement Conditions
- 200-013-17 (PDF): Commonly Misreported Special Compensation Items for Schools
- 200-048-16 (PDF): Off-Salary-Schedule Pay
- 200-064-17 (PDF): PEPRA of 2013 Adoption of Pensionable Compensation Regulations
- 200-047-19 (PDF): Compensation for Settlement Agreements
- 200-050-19 (PDF): Uniform Allowance - Reportable and Nonreportable Components
- 200-049-19 (PDF): Reportability of Coaching Stipends
- Cognos Reports
- Participant Appointment Details Report – Provides details of every appointment from the employer
- Posted Contribution Detail Report – Provides compensation data for an employee
- Employer Education - Employer Training Classes (Business Rules and myCalPERS)
For additional assistance, email us or call 888 CalPERS (or 888-225-7377).