20 CFR 404.1051A(b)(1)
The issue before the Appeals Council (AC) was whether the sick leave payments received by the claimant during 1983 from State of New York were considered wages for purposes of section 203(f)(5)(A) of the Social Security Act (the Act).
The claimant, who was born on February 28, 1921, had a heart attack and last worked for the Unified Court System of the State of New York on December 5, 1982. He subsequently applied for old-age insurance benefits (OAIB) and his first month of entitlement was March 1983. The claimant received full sick leave pay from December 5, 1982, until January 18, 1983, and extended sick leave at one-half pay through May 30, 1983. His official retirement date was May 31, 1983. The claimant estimated that he would receive approximately $7,000 as sick leave payments in 1983.
It was determined that the sick leave payments received by the claimant were considered a continuation of salary during a period of illness and were, thus, not excluded form the definition of "wages." It was also determined that the exclusions to the definition of "wages" found in sections 209(b), 209(b), and 209(i) of the Act did not apply. Therefore, it was concluded that the claimant's 1983 OAIB were subject to work deductions on account of his excess earnings in that year. when the claimant was notified of this determination, he appealed.
Section 203(b)(1) of the Act provides, in pertinent part, that "deductions . . . shall be made from any payment or payments under this title to which an individual is entitled . . . if . . . he is charged with excess earnings, under the provisions of subsection (f). . . ."
Section 203(f)(3) of the Act provides, in pertinent part, that an individual's excess earnings for a taxable year shall be 50 percent of the individual's earnings for such year in excess of the exempt amount applicable to that taxable year ($4,920 for individuals under age 65 in 1983).
Section 203(f)(5)(A) of the Act provides that "[a]n individual's earnings for a taxable year shall be (i) the sum of his wages for services rendered in such year and his net earnings from self-employment for such year, minus (ii) any net loss from self-employment for such year."
Section 203(f)(5)(C) of the Act provides, in pertinent part, that "an individual's wages shall be computed without regard to the limitations as to amounts of remuneration specified in subsections (a), (g)(2), (g)(3), (h)(2), and (j) of section 209. . . ."
Section 203(f)(6) of the Act provides, in pertinent part, that "wages . . . paid to an individual during a taxable year shall be presumed to have been paid to him for services performed in such year until it is shown to the satisfaction of the Secretary that they were paid for services performed in another taxable year. . . ."
Section 209 of the Act provides, in pertinent part, that "the term 'wages' means remuneration paid . . . for employment."
Section 209(b) of the Act, as amended by section 3(a) of Public Law 97-123, effective January 1, 1982, provides, in pertinent part, that the term "wages" does not include "[t]he amount of any 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 a class of his employees . . . on account of (1) sickness or accident disability (but, in the case of payments made to an employee or any of his dependents, this clause shall exclude from the term 'wages' only payments which are received under a workmen's compensation law). . . ."
Section 209(d) of the Act provides, in pertinent part, that the term "wages does not include "[a]ny payment on account of 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 calendar month in which the employee worked for such employer."
Section 209(i) of the Act, as in effect prior to January 1, 1984, provides that the term "wages" does not include "[a]ny payment (other than vacation or sick pay) made to an employee after the month in which he attains age 62 if he did not work for the employer in the period for which such payment is made. As used in this subsection, the term 'sick pay' includes remuneration for service in the employ of a State, a political subdivision . . . of a State . . . paid to an employee thereof for a period during which he was absent from work because of sickness." Sick leave payment from a State or local government are generally considered a continuation of salary. Social Security Rulings 72-56, 78-2, and 79-31 (Cumulative Bulletin 1972, p. 126; Cumulative Bulletin 1978, p. 53; and Cumulative Bulletin 1979, p. 68, respectively) specify when payments to employees of State and local governments can be excluded from "wages" under section 209(b) of the Act. These rulings provide that the employer must have the legal authority to make payments "on account of sickness" and that the payments cannot be merely a continuance of salary while the employee is absent because of illness. Social Security Ruling 78-2 indicates that there is no legal authority for the State of New York to make payments other than salary to employees because payments other than salary would constitute gifts of public money which is prohibited by Article VIII of the New York State Constitution. In any event, sick payments made beginning January 1, 1982, are considered wages for the first six calendar months after the last calendar month an individual rendered services unless they are paid under a workmen's compensation law (section 209(b) as amended by Public Law 97-123). The payments made to the claimant in 1983 would be considered "wages" under section 209 of the Act as they were not paid pursuant to a workmen's compensation law.
Although the claimant last rendered physical services in 1982, he is deemed to have rendered services in the months he received sick leave payments under Social Security Ruling 62-10 (Cumulative Bulletin 1962, p. 70). This ruling indicates that the phrase "rendered services for wages," as contemplated in section 203 of the Act, does not require the actual performance of work, but encompasses the entire employment relationship for which remuneration is paid. Because the claimant's employment relationship was not officially terminated until May 31, 1983, he is deemed to have rendered services for wages during the months in which he was paid sick leave before his termination date.
In his letter of October 9, 1984, the claimant contended that the payments made to him did not constitute "wages" as they were made under an employer plan or system; they were paid out of a separate account because of his actual illness; and they were not considered a continuation of salary. He also contended that his 1983 earnings should be excluded from "wages" under section 209(i) of the Act as he did not receive the type of vacation or sick leave payments specifically excluded by that section. Since the claimant did not render services for wages in 1983, he contended that the payments he received in that year should not be counted for work deduction purposes and that Social Security Ruling 62-10 was not relevant in his case because of the differences in the factual circumstances involved.
The change in section 209(b) of the Act rendered irrelevant the claimant's contention that the payments he received should be excluded form "wages" as they were made under a plan or system. The amendment to section 209(b) of the Act eliminated the exclusion of sick leave payments from the term "wages" for the first six calendar months following the calendar month in which services are last rendered even if they are paid under a plan or system (unless paid pursuant to a workmen's compensation law). This change in the Act was effective January 1, 1982. Since the claimant last worked in December 1982, the sick leave payments made to him from January through May of 1983 were "wages" regardless of whether they were paid under a plan or system.
Although section 209(i) was not stricken from the Act until January 1, 1984, the claimant's payments could not be excluded from "wages" under this section of the Act because they were sick leave payments. Section 209(i) of the Act specifically stated that it did not apply to sick leave payments. It would have made no difference whether the sick leave was under a plan or system or from a private or Government employer.
The claimant's contention that he should not be charged with deductions in 1983 because he did not "render services" for the wages he received in that year did not take into consideration the Social Security Administration's long held policy that "services for wages" are considered rendered in the months of an employee's absence if his employment relationship has not been terminated. Social Security Ruling 62-10 (Cumulative Bulletin 1962, p. 70) involves an employee who returned to work after his period of absence and, thus, his employment relationship was not terminated. Although the claimant did not return to work after December 5, 1982, his employment relationship was not officially terminated until May 31, 1983. Therefore, with respect to both the claimant and the individual involved in the ruling, deductions were imposable against the wages received during a period of absence because the employment relationship had not ended.
The Unified Court System of New York specifically listed the claimant's official termination date as May 31, 1983. Other indications that the court considered him an active employee until then were his continuance on the payroll and his receipt of sick leave payments from the regular salary account. Although the claimant alleged that the payments he received from January 19, 1983, through May 30, 1983, were not a continuation of salary and that they represented payments form a special account due to his illness, the evidence of record did not support his allegation. In a statement of June 9, 1983, signed by the administrative services clerk for the Unified Court System of the State of New York, it was noted that the claimant received "sick leave" at full pay from December 4, 1982, through January 18, 1983, and "sick leave" at half pay from January 19, 1983, through May 30, 1983. Actual earnings for 1983 were listed as $10,461.32, and it was noted that none of these earnings represented income for prior years. It was also noted that the claimant did not receive any leave payments after his official retirement date of May 31, 1983. There was also a statement signed by the administrative services clerk of the Criminal Court Central Payroll Unit listing the actual amounts and dates that the claimant was paid "sick leave" at one-half pay. Although it was noted that the payments were made because of an actual illness, there was no indication that these payments were made from a special fund.
It appears that the payments made to the claimant were paid out of regular salary account. The payments were never designated by State officials as other than salary and there was no indication that a special ordinance or exception to New York State law had been passed to allow sick leave payments to be made out of a separate account for employees of the United Court System. The union agreement submitted by the claimant as the basis for extending "sick leave" at one-half pay did not stipulate that payments were made from separate funds. Furthermore, the claimant, when requesting "sick leave" at one-half pay, actually requested the payments so that he could remain on the "payroll," thus suggesting that his payments came directly from the State's ordinary payroll account.
Because the evidence of record indicated that the claimant continued his employment relationship with the State New York through May 31, 1983, and because the payments he received were paid to him during his employment relationship out of a regular salary account, the AC concluded that these payments must be considered wages and his OAIB were subject to deductions on account of these earnings.
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