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Creditable Sick Pay Compensation
Sick pay is compensation paid under a plan or agreement available on the same
basis to employees generally or in a like class or craft and payable for days
not worked on account of injury, illness, sickness, disease, pregnancy, or
childbirth. Sick pay is creditable as Tier I compensation only . Sick pay does
not yield service months, is not creditable as Tier II compensation, is not
creditable as compensation under the Railroad Unemployment Insurance Act (RUIA),
and is not subject to the hourly supplemental tax.
There are two exceptions where sick pay is also not creditable or taxable as
Tier I compensation. The exemptions are:
- Sick pay paid under the Railroad Unemployment Insurance Act and based on an
on-the-job injury; and
- Sick pay paid subsequent to the sixth month following the month the employee
last worked.
The exemption for crediting sick pay through the sixth month following the
month the employee last worked does not mean that creditable sick pay is limited
to six months in a year. If an employee returns to work and is off sick again, a
new six month period is counted from the month following the latest date worked.
Compensation Reporting Responsibilities
The responsibility for reporting compensation and the liability for
depositing and reporting taxes depends on what type of sick benefit is being
paid and who is making the payment. The responsibilities for three types of sick
benefit payors are as follows.
- Sick Pay Paid by the regular Rail or Labor Employer
If the regular employer directly pays sick pay, the regular employer is
responsible for filing all reports and for withholding and paying all taxes in
connection with the sick pay. The employer files the reports under the
employer's regular BA and EIN numbers. The employer can include the sick pay
compensation with the other compensation on the employee's Form W-2.
- Sick Pay Paid by RRB or an Insurance Company who has Established Sick Pay
Employer Status under the Railroad Retirement and Railroad Unemployment
Insurance Acts
(Insurance companies who have employer status will have been
assigned a BA number by the RRB)
Insurance companies having employer status are referred to in these
instructions as sick pay employers. Companies who do not have employer status
under the Railroad Retirement or Unemployment and Sickness Insurance Acts are
referred to as other third party sickness payors.
- Other Sickness Payors
An employer may arrange for a third party to act as the employer's agent for
the payment of sick pay. The employer may or may not arrange for the third party
to provide administrative services for the employer such as filing Forms CT-1
and BA-10 . These responsibilities are divided by agreement between the employer
and the third party. If the third party does provide such administrative
services, they are doing so as an agent of the railroad employer and not as an
employer under the RRA. Therefore, the third party would file Form BA-10 using
the rail employer's BA number. The employer would include the sick pay
compensation on the employee's Form W-2 along with other compensation.
Division of Responsibilities between Sick
Pay Employer and Regular Rail Employer
RRB/Sick Pay Employer Responsibilities:
- Withhold the employee Tier I tax from the sick pay;
- Deposit the tax withheld with the IRS;
- Notify the employer of the sick pay paid to its employees;
*
- File Form CT-1
 with IRS to report employee Tier I tax on sick pay using the
sick pay payor's EIN;
- File Form BA-10 with the RRB using the sick pay payor's BA number; and
- File Forms W-2 and W-3 with the Social Security Administration. Regular and
dummy forms may be required. See IRS Publication 952 for detailed instructions.
* For example, the RRB's Bureau of Unemployment and Sickness Insurance uses
Form Letter ID-6, Transmittal Report of Tier I Tax Transactions, to notify
railroad employers of the amount of sickness benefits paid.
Regular Railroad Employer's Reporting Responsibilities:
- Provide the sickness payor with the information listed in
Chapter 8;
- Pay the employer matching Tier I tax when notified of the sick pay;
- Include on Form CT-1 filed with IRS, the employer matching Tier I tax on sick
pay.
Coordinating Supplemental Benefits with
Bureau Unemployment Sickness Insurance
If you are paying supplemental sick pay under a plan whereby you pay the
difference between the sick benefits paid by the RRB and a set amount, such as
the employee's regular salary, you will need to have your plan approved by the
Director of Unemployment and Sickness Insurance. You may also want to establish
a procedure whereby you receive notification from the RRB of sickness benefit
payments so that your payments are coordinated with RRB Sickness benefits.
Contact:
Director
Policy, Planning and Evaluation
Railroad Retirement Board
844 North Rush Street
Chicago, Illinois 60611-2092
Railroad Provides Information to their Sick Pay Providers
The railroad employer is responsible for providing the following information
to a third party who is acting as an agent of the employer in paying sick pay.
- The last month the employee worked prior to claiming sick pay;
- The total compensation paid to the employee during the calendar year; and
- The employee's contribution to the sick pay plan, if any.
The above information is needed by the third party in order to determine the
appropriate employee Tier I tax to be withheld from the sick pay.
Sick Pay vs Regular Earnings vs Non-creditable Sick Benefits
Sometimes it is difficult to determine whether a sickness or disability
payment is creditable as regular earnings or as sick pay or whether the
compensation is creditable at all. The following instructions, table, and
examples are to help clarify these distinctions.
Regular Earnings
If an employee is covered under a plan whereby he or she receives regular
earnings or salary while unable to work, this is regular earnings rather than
sick pay. Payments under a wage continuation plan are generally considered
regular earnings. Regular earnings are creditable as Tier I, Tier II, and RUIA
compensation and generate service month credit for the months in which the
compensation is paid. Any payment made through the railroad employer's regular
payroll system is presumed to be regular compensation.
Non-Creditable Sick Benefits
Some payments are excluded from creditable and taxable compensation by law
and regulation whether paid by the employer or another party. Excluded are
payments:
- made under a worker's compensation law;
- made following the sixth month after the month the employee last worked;
- made after the calendar year of the employee's death;
- made under the Railroad Unemployment Insurance Act based on an on-the-job
injury;
- that exceed the Tier I earnings base;
- of medical and hospital expenses; and
- attributable to employee contributions to a sick pay plan made with after-tax
dollars.
Sick Pay vs Regular Earnings vs Non-Creditable Sick Benefits
|
1 |
Full salary while unable to work due to illness, injury etc. |
X |
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2 |
Partial salary while unable to work. |
X |
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3 |
Sick Pay paid by employer to employees generally. (Also see #6
and #7.) |
|
X |
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4 |
Sick Pay paid by employer on a discretionary basis. |
X |
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5 |
Sick Pay paid by RRB, sick pay employer, or other third party.
(Also see #6 and #7.) |
|
X |
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6 |
Sick Pay paid after the 6th month following the month the
employee last worked |
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|
X |
|
7 |
Sick or disability benefit paid under an insurance plan whereby
employee pays the premiums |
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X |
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8 |
Sick or disability benefit paid under an insurance plan where
the employer pays all of the premiums or cost |
|
X |
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9 |
Sick or disability benefit paid under an insurance plan where
both the employee and employer pay part of the premiums |
|
X * |
X * |
|
10 |
Supplemental Sick Pay paid by the employer |
|
X |
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11 |
Disability benefit based on an injury not loss of work |
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|
X |
* The sick benefits are
creditable Tier I compensation in an amount based on the percent the employer
pays for the sick pay insurance premium or cost.
Examples of Above Types of Benefits
| 1 |
An employer pays its employees their full
salary and benefits for 30, 60, or 120 days of sickness depending on the
employee's seniority. |
| 2 |
Same as #1 except employee is carried on the
payroll at 80% of regular salary. For an employee to be considered in
receipt of regular earnings does not require that they receive the full
amount of the regular earnings. The employee would receive the employee
benefits normally accruing with the payment of regular earnings. |
| 3 |
An employer provides sick pay for all salaried
employees equal to 100% of the employees salary for up to 30 days in a
calendar year. |
| 4 |
An employer pays 30 days sick pay to employees
who have maintained an above average rating during the period preceding the
sickness. |
| 5 |
An employer contracts with Provident Insurance
Company to pay supplemental sickness benefits to all employees in the
bargaining unit. |
| 6 |
An employee last worked 11/10/94 and was laid
off. In June 1995, the employee receives sick pay for maternity and child
birth. The sick pay is not creditable or taxable because it was paid after
the sixth month following the month last worked. This determination is based
on the date of the payment rather than the date of the sickness. Therefore,
if the above employee had given birth in December 1994 but through a
processing error was not paid sickness benefits until June 1995, the
benefits would still not be taxable or creditable. |
| 7 |
The employee has $40 withheld from his
earnings each period to pay the premium for a group disability insurance
which will pay full salary for 150 days should the employee become sick or
injured. Even though this group plan is offered only to employees of the
employer, it is a private plan not an employer provided benefit because the
employer incurs no cost. |
| 8 |
The employer offers a cafeteria type benefit
plan under which one of the optional benefits is sick pay. If the employee
elects sick pay, he or she will be paid their full salary if they are off
work due to sickness. Any sick pay paid under this option is creditable as
Tier I sick pay compensation. Sick benefits paid under a cafeteria plan are
considered sick pay because they are either paid by the employer or paid
with pre-tax dollars. |
| 9 |
The employer provides a comprehensive health
care package which includes medical insurance, hospitalization, free exams,
tests and inoculations, and sickness benefits. The employee contributes $90
to the package and the employer contributes $200 each month. If the employee
receives $950 in sick pay under this package, the sick pay is creditable and
taxable in the proportion attributable to the employer's share of the cost,
i.e., 200/290, or $655. |
| 10 |
The employer supplements sickness benefits
paid by the RRB to bring the total paid to 80% of the employee's regular
earnings. |
| 11 |
The employer pays disability benefits of
$35,000 to an employee based on the employee's loss of sight which was not
job related. |
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