Under the provisions of an established sick leave plan, the employees of X State continue to receive their salary while absent from work due to illness. These payments are made from the regular salary account of the State from funds appropriated for salary purposes. In addition, there is no statute or other legal authorization for the State to make payments to employees solely on account of sickness, as distinguished from authorization to continue salary payments during periods of illness.
The State has raised the question whether the remuneration paid to the X State employees while on sick leave is considered "wages" within the meaning of the Social Security Act.
Section 209 of the Social Security Act, as amended, defines "wages" as remuneration for employment, with certain specific exceptions. Two of these exceptions, sections 209(b) and 209(d), pertain to payments "on account of * * * sickness" -- the former excluding sick payments made under a plan or system established for his employees generally or for a class or classes of his employees by the employer, and the latter excluding sick payments, not under a plan or system, made to an employee after the expiration of six calendar months after the last calendar month the employee worked for the employer.
Section 209 of the Social Security Act reads in pertinent part as follows:
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In order for sick payments to be excluded from "wages" they must be made on account of sickness; if the same payments would have been made if the employee had not been sick, they cannot be considered made "on account of sickness." The Social Security Administration has recognized a distinction between those situations in which a public employee whose services are covered under a Federal-State social security coverage agreement is absent from work because of sickness and receives what a State considers to be payments from his employer solely on account of sickness, and those in which an employee, while absent from work because of sickness, receives his regular salary despite sickness and absence. The distinction ordinarily is based on the legal authority of the public employer to appropriate public funds; e.g., it may have the legal authority to pay the salary and to excuse absences of sick employees, but not to make payments on account of the employee's sickness.
The legal authority for a governmental entity to make payments on account of sickness can only be established if by legislative enactment, provision is made for "sick pay" from funds appropriate especially for that purpose and separate from salary appropriations. Therefore, payments made by a governmental entity to an employee on sick leave are excluded from "wages" only if there is legal authority for the employer to make payments specifically on account of sickness as distinguished from authorization to merely continue salary payments during periods of absence due to illness.
In this case it is clear that X State is not legally authorized by statute or otherwise to make payments to employees during periods of sickness for other than salary purposes. The payments here are made from the State's regular salary account and exclusively from funds appropriated for salary purposes. Accordingly, it is held, payments made to employees of X State during periods of their absence from work because of sickness constitute continuation of their regular pay and hence are "wages" within the meaning of section 209 of the Social Security Act.
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