State Departments, Institutions, and Agencies; Sick Pay; Social Security

Subject:

State Departments, Institutions, and Agencies; Sick Pay; Social Security

Requested By:

Mr. W. H. Hambleton, Director Retirement and Health Benefits Division Department of the Treasurer

Question:

Does the sick pay plan for teachers and state employees" in the Teachers and State Retirement System qualify for exclusion from "wages" under Section 209 of the Social Security Act?

Conclusion:

No.

The question has arisen whether sick pay payments made to teachers and state employees who are members of the Teachers’ and State Employees’ Retirement System qualify for exclusion from the term "wages" under Section 209 of the Social Security Act, 42 USC § 409, as interpreted by the regulations of the Social Security Administration. The Teachers’ and State Employees’ Retirement System includes both teachers, whose sick pay provisions are established by the North Carolina State Board of Education, and state employees who are mostly subject to the statutory provisions of Chapter 126, the State Personnel Act, and the regulations adopted by the State Personnel Commission pursuant to that Chapter.

The bulk of state employees are covered by the State Personnel Act, Chapter 126 of the North Carolina General Statutes. G.S. § 126-8 provides that "(sick) leave allowed as needed to such state employees shall be at a rate not less than ten days for each calendar year, cummulative from year to year." G.S. § 126-4(5) authorizes the State Personnel Commission, subject to the approval of the Governor, to establish policies and rules governing sick leave. Pursuant to this authority, the State Personnel Commission has adopted rules providing that a full-time permanent, probationary or provisional employee who is working or on paid leave for at least one-half of the regularly scheduled work days in any month shall earn sick leave at the rate of 6 hours and 40 minutes per month or a total of 80 hours per year. A part-time permanent, probationary or provisional employee who is employed on a continuing basis with a permanent part-time appointment for as much as half time may earn sick leave on a pro rata basis if he or she works one-half or more of the scheduled work days in a month. The Commission’s rules provide that sick leave may be granted for the following: (1) Illness or injury which prevents an employee from performing his usual duties; (2) a maximum of 3 days in case of death in the employee’s immediate family; (3) medical appointments; (4) quarantine due to a contagious disease in the employee’s immediate family; (5) the actual period of temporary disability connected with child bearing. Sick leave may be taken in units of one hour and is charged only against scheduled work hours. Sick leave with pay has no effect on the employee’s increment anniversary date, and the employee is treated as if he is actually working during those days for purposes of earning annual leave, sick leave, and similar considerations.

These sick leave provisions have their origin in a report of "The Salary and Wage Commission" to Governor Angus W. McLean, October 1, 1925. That report included recommendations that state employees should be allowed ten days per year of sick leave with pay for purposes of personal illness necessitating absence from work or quarantine because of contagious disease in the employee’s immediate family. The manual put out by the State Budget Bureau in 1945 also provided ten days per year of sick leave with pay to each employee, such sick leave to be used for personal illness necessitating absence from work or quarantine because of contagious disease of the family, and referred to the fact that sick leave had been made available since October 1, 1925, when ten days were credited to each employee then in service. It appears that sick leave has followed basically the same form for state employees since October 1, 1925, although some modifications, additions, and deletions have been made as to the precise circumstance in which sick leave may be taken and the particular employees covered.

Public school teachers, who are also members of the Teachers’ and State Employees’ Retirement System, are subject to the sick leave provisions of the State Board of Education. Since the enactment of Chapter 1372 of the 1955 Session Laws, the Board has been empowered to authorize and provide for sick leave with pay for public school employees pursuant to G.S. § 115-11(13). In 1973, that subdivision was rewritten as follows:

(13) Power to Make Provisions for Sick Leave. – The Board shall provide for a minimum of five days per school term of sick leave with pay for all public school employees and shall promulgate rules and regulations providing for necessary substitutes on account of said sick leave. The pay for a substitute shall be fixed by the Board. . . ." (Emphasis added)

The current regulations of the Board were adopted effective July 1, 1977, and provide teachers with sick leave during any actual period of temporary disability resulting from personal illness or injury, for illness in the employee’s immediate family, and for death in the immediate family not to exceed three days leave on any one occasion. Employees earn .83 days per month sick leave for any monthly pay period in which they are in pay status for one-half or more of the regularly scheduled work days and may take sick leave in increments of one-half day. Part-time teachers employed for 50% or more of full-time employment may earn and use sick leave on the basis of their percentage of employment. Teachers on sick leave with pay receive their full salary during such periods.

The bulk of members in the Teachers’ and State Employee’s Retirement System are subject to one or the other of the two sick leave plans discussed above. The question remains whether these sick leave plans qualify for exclusion of sick pay pursuant to those plans for "wages" for Social Security purposes. Section 209 of the Social Security Act excludes from "wages" for purposes of Social Security deductions:

"The amount of any payment (including any amount paid by an employer for insurance or annuities, or into a fund, to provide for any such payment) made to, or on behalf of, an employee or any of his dependents under a plan or system established by an employer which makes provision for his employees generally (or for his employees generally and their dependents) or for a class or classes of his employees (or for a class or classes of his employees and their dependents), on account of (1) retirement, or (2) sickness or accident disability, or (3) medical or hospitalization expenses in connection with sickness or accident disability, or (4) death." Sec.

209(b), Social Security Act, 42 USC § 409 (b)

The act also excludes from wages for purposes of Social Security deductions "any payment on account of sickness or accident disability, or medical or hospitalization expenses in connection with sickness or accident disability, made by an employer to, or on behalf of, an employee after the expiration of six calendar months following the last calender month in which the employee worked for such employer." Sec. 209(d), Social Security Act, 42 USC § 409(d).

The Social Security Administration has interpreted sections 209(b) and (d) of the Social Security Act in an effort to clarify exactly which sick pay payments or plans will be held excludable from Social Security deductions.

"Generally speaking, governmental entities are authorized to make payments to employees for salary purposes only and pay the employees from a salary account. Under these circumstances, State hold that payments made to employees absent on sick leave are not payments on account of sickness but are continuations of salary despite sickness. They are not, therefore, excluded under Section 209(b) or (d). Accordingly, such payments would not be excluded from wages as sick pay." Handbook for State Social Security Administrators. § 413(b).

This interpretation has been upheld in New Mexico v. Weinberger, 517 F.2d 989 (10th Cir. 1975), cert. denied, 423 U.S. 1051 (1976).

State employees subject to the Personnel Act and teachers subject to the regulations of the State Board of Education are paid sick pay for a limited number of days per year when they are actually sick. These payments are made in the amount of the employee’s regular salary. The employee is treated as if he worked on the days on which he took sick leave for purposes of earning annual leave, time worked towards salary increments, inclusion in hospital and medical benefits programs, and other similar considerations. Sick leave payments are made from regular salary appropriations and regular salary accounts within the employing unit’s budget. Sick leave payments are not part of a special plan established to protect an employee against loss of income while he is sick, but are merely a limited continuation of his salary during a period of illness and may bear little relationship to the actual period of illness if it extends beyond the number of days the employee has earned and/or accumulated. Sick leave standing to the employee’s credit at the time of his retirement is treated as creditable service for purposes of determining the amount of service rendered by the employee for which he may be given credit towards his retirement allowance. G.S. § 135-4(e). For all these reasons, it appears that sick leave with pay is not payment on account of sickness, but a continuation of salary despite sickness, within the meaning of Section 209 of the Social Security Act, 42 USC § 409, as interpreted by the Social Security Administration. Therefore, it appears to this office that sick leave payments made to teachers and state employees who are members of the Teachers’ and State Employees’ Retirement System do not qualify for exclusion from wages for purposes of Social Security deductions.

Rufus L. Edmisten Attorney General

Norma S. Harrell Associate Attorney