Which kinds of supplemental pay (night-shift differential, dive pay, temporary acting-up pay for filling vacant positions, and performance bonuses) count as 'earnable compensation' under O.C.G.A. § 47-2-1(15) for purposes of calculating an Employees' Retirement System member's pension benefit?

Plain-English summary

The Employees' Retirement System (ERS) calculates pension benefits based on "earnable compensation," defined in O.C.G.A. § 47-2-1(15) as "the full rate of regular compensation payable to a member employee for his full normal working time, excluding any supplements from local funds." State agencies report compensation in different ways, so the Interim Director of ERS asked the AG to help standardize treatment of supplemental pay.

AG Thurbert Baker laid out four scenarios:

1. Night-shift differential pay. Counts as earnable compensation. A nurse who works the third shift in a state hospital is being paid for performing regular job duties under specific working conditions; that's "regular compensation for full normal working time."

2. Dive supplement. Counts. Employees who periodically perform scuba dives as part of their regular position duties (DNR scientists, for example) are being compensated for the regular duties of the position, even if those duties happen episodically.

3. Temporary "acting-up" supplements for filling some duties of a vacant position. Treat with special scrutiny. The supplement is individual-specific, not position-specific. Unlike night-shift differential (which attaches to the position and could be paid to anyone filling it), this supplement is paid to a particular individual chosen by the employer to take on additional duties on a temporary basis. The opinion warns that "[t]hese situations may call for special scrutiny by ERS, as they may be subject to manipulation and abuse."

4. Pay bonuses (called "commissions" in the request). Counts only if paid under an "incentive compensation plan" properly developed under O.C.G.A. § 45-21-2(c)(1)(C)-(D). The Code distinguishes "incentive compensation plans" (which feed into earnable compensation) from "incentive award programs" (which do not). It also expressly excludes from earnable compensation: payments under an incentive awards program, recruitment payments under an incentive compensation plan, and payments for learning new critically needed employment skills (O.C.G.A. § 45-21-9(a)).

The AG's broader rule: ERS should accept employer reports of earnable compensation unless something raises "a red flag of impropriety." The benchmark for that red flag is Tate v. Teachers Retirement System of Georgia, 257 Ga. 365 (1987), where a member's last 12 months of compensation was inflated by 43% via a "contract buy-out" arrangement designed to inflate his retirement benefit by 33%. The Georgia Supreme Court agreed that this kind of artificial inflation was outside the definition of earnable compensation.

Other categorical exclusions confirmed in prior letters of advice: county supplements paid to certain Georgia Defined Contribution Plan members; tuition remission/reimbursement under Board of Regents policies; terminal annual leave payments; and workers' compensation benefits.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

In particular, ERS's compensation-reporting rules and the underlying Title 47 retirement system statutes have been updated multiple times since 2004. Anyone determining what counts as earnable compensation for retirement purposes today should consult the current ERS rules and the current statutory definitions.

Common questions

Q: Why does the difference between earnable and non-earnable compensation matter?
A: ERS pension benefits are calculated as a percentage of the member's earnable compensation in the years used to determine the benefit (typically the highest few years). Pay that counts as earnable compensation drives up the pension; pay that does not count is excluded.

Q: Why is "acting-up" pay treated with suspicion?
A: Because the manager has discretion to choose which individual gets the temporary additional duties and additional pay. If the manager picks a soon-to-retire employee for the bonus, the additional pay shows up in that employee's final-years compensation and inflates the pension. That is exactly the kind of manipulation that Tate rejected. Position-specific differentials (like night shift) attach to the slot and apply to anyone filling it, so they are less prone to manipulation.

Q: What's the difference between an "incentive compensation plan" and an "incentive awards program"?
A: The General Assembly drew a careful line in O.C.G.A. § 45-21-1. An "incentive compensation plan" (subsection (6)) is developed under § 45-21-2(c) and pays bonuses tied to ongoing performance against measurable goals; this is treated like part of compensation. An "incentive awards program" (subsection (5)) is developed under § 45-21-2(b) and is more like one-off recognition awards; this is not compensation for retirement purposes. Section 45-21-9(b) keys earnable-compensation inclusion to the former and excludes the latter.

Q: Who decides whether a particular bonus is part of an incentive compensation plan or an incentive awards program?
A: Initially the employing agency, which knows whether its plan was developed and approved as one or the other. ERS then accepts the employer's report unless there's a red flag.

Q: What about commissions paid to Department of Corrections employees who supervise prison-industries furniture sales?
A: The opinion specifically says yes, those count. Commissions paid for work performed as part of regular job duties within normal working hours are "earnable compensation."

Q: What about a county supplement paid to a state employee who works in a county office?
A: Excluded. The statutory definition itself excludes "supplements from local funds." This was confirmed in advice ERS had previously received from the AG's office regarding Georgia Defined Contribution Plan members.

Background and statutory framework

The ERS earnable-compensation definition is shared with the Teachers' Retirement System (compare O.C.G.A. § 47-3-1(11)). The two systems use the same statutory phrase, so opinions interpreting one inform the other. Tate was a TRS case but its reasoning applies to ERS.

The statewide incentive-compensation framework is in O.C.G.A. §§ 45-21-1 et seq., which distinguishes "incentive compensation plans" from "incentive awards programs" with different rules for retirement-treatment. Section 45-21-9 directly addresses which payments are excluded from earnable compensation: incentive awards program payments, recruitment payments under incentive compensation plans, and payments for learning critically needed skills.

ERS's institutional role is "collecting information reported and contributions made by employers, and calculating member benefits on the basis of the information reported." It is a data-acceptor, not a fact-finder, except where a report on its face shows manipulation. The opinion's "red flag of impropriety" standard gives ERS flexibility to second-guess clear cases of inflation while still respecting agency reports for ordinary supplemental pay.

Citations and references

Statutes:
- O.C.G.A. § 47-2-1(15) (definition of "earnable compensation")
- O.C.G.A. § 47-3-1(11) (parallel definition for Teachers' Retirement System)
- O.C.G.A. §§ 45-21-1 et seq. (incentive compensation framework)
- O.C.G.A. § 45-21-1(5) (definition of "incentive awards program")
- O.C.G.A. § 45-21-1(6) (definition of "incentive compensation plan")
- O.C.G.A. § 45-21-2(b) and (c) (development of programs and plans)
- O.C.G.A. § 45-21-9(a) (exclusions from earnable compensation)
- O.C.G.A. § 45-21-9(b) (incentive compensation plan inclusion)
- O.C.G.A. §§ 47-22-1 through 47-22-11 (Georgia Defined Contribution Plan)

Cases:
- Tate v. Teachers Retirement System of Georgia, 257 Ga. 365 (1987) (43% pre-retirement salary increase via contract buy-out is not earnable compensation)

Other AG opinions:
- 1960-61 Op. Att'y Gen. 321 (commissions as earnable compensation)
- 1973 Op. Att'y Gen. 73-173 (terminal annual leave not earnable)
- 1980 Op. Att'y Gen. 80-134 (workers' compensation benefits not earnable)
- 1984 Op. Att'y Gen. 84-13 (regular compensation for normal working time)

Source

• Landing page: https://law.georgia.gov/opinions/2004-4
• Original PDF: not linked from landing page

Original opinion text

You have asked my opinion on what kinds of supplemental pay constitute "earnable compensation" within the definition at O.C.G.A. § 47 2 1(15). This issue is significant because various employers report employees' supplemental pay to the Employees Retirement System (ERS) in different ways and ERS is seeking to standardize this reporting and its treatment of various types of supplemental pay. To aid in this evaluation you have provided my office with four separate factual scenarios that help to illustrate the issues presented to ERS in this area. I will address those factual situations in the context of my general assessment of the law. It is my official opinion that, when so reported by a state agency, the Employees Retirement System should include as a part of "earnable compensation" conditional pay supplements for duties that are performed as a regular part of an employee's duties and compensation that is paid as a part of an approved incentive compensation plan, unless circumstances indicate that the compensation is so unusual that it may fall outside the statutory definition of "earnable compensation" in the retirement statute. The General Assembly has defined "earnable compensation" by statute, stating that it is the full rate of regular compensation payable to a member employee for his full normal working time, excluding any supplements from local funds. In cases where compensation includes maintenance, the board of trustees shall fix the value of that part of the compensation not paid in cash. O.C.G.A. § 47 2 1(15). In interpreting this statutory provision, this office has opined: The obvious key considerations in the above definition are the phrases "full rate of regular compensation" and "full normal working time." In essence, in order to constitute earnable compensation, compensation must be regular compensation for full normal working time. 1984 Op. Att'y Gen. 84-13, at 30. Because the statute requires a determination that the "compensation paid is a part of an employee's regular compensation for full normal working time," this inquiry is an extremely fact-intensive one that must first be made by the employer, which is the entity best situated to evaluate the compensation in question. This office has recognized this fact-intensive inquiry in prior opinions addressing the issue of "earnable compensation" and in letters of advice issued in relation to specific inquiries. For example, where an employee's compensation for 17 months was compressed into a final 12 months of salary before his retirement, resulting in a 43 % salary increase and an approximate 33% increase in his retirement benefit, this office concluded that this artificial inflation of salary, in an apparent "contract buy-out," rendered the additional monies not "earnable compensation" and advised that they not be used in calculating the retirement benefit due the employee. 1984 Op. Att'y Gen. 84-131. Other opinions of the Attorney General have recognized that neither terminal annual leave payments nor workers' compensation benefits are "earnable compensation." 1973 Op. Att'y Gen. 73-173; 1980 Op. Att'y Gen. 80-134. On a less formal level, various letters of advice from this office have expressed the view that "conditional pay supplements" should be included in a member's earnable compensation for purposes of calculating a member's retirement benefit. "Conditional pay supplements" are granted to employees based on specific work conditions, which may be temporary or indefinite in time. For example, a nurse who works the third shift in a state hospital or a correctional officer who works in a mental health or special management unit of a state prison is entitled to a conditional pay supplement based upon his or her special working conditions. Conditional pay based on work shift, assignment, or detail is part of regular compensation for normal hours worked and should be included as earnable compensation. Likewise, employers that pay salary plus commission, such as the Department of Corrections, which pays commission in addition to the scheduled salary amounts to employees who supervise the manufacture and sale of office furniture to state agencies, should report such an employee's commission plus salary to the retirement system as "earnable compensation." So long as the commissions are payment for work performed as part of the employees' regular job duties within normal working hours, they should be included as their "earnable compensation." See also 1960-61 Op. Att'y Gen. 321. However, this office has also advised that payments made to an employee as a "county supplement" should not be considered when determining contributions to be made by a member of the Georgia Defined Contribution Plan, O.C.G.A. §§ 47 22 1 through 11. Likewise, moneys received by employees of the Board of Regents of the University System of Georgia pursuant to its Tuition Remission and Reimbursement Policy have also been considered excludable from the employees' "earnable compensation" under the Teachers' Retirement System, as reimbursement for tuition costs at Regents' institutions for those employees who opt to take advantage of the program does not constitute regular compensation for full normal working time, but rather is more in the nature of a fringe benefit or other source of income. As noted above, you have outlined four particular factual situations with which ERS must deal in determining retirement benefits. It must be remembered in addressing any such factual situations that, while it is the employer which must make the initial underlying factual determinations necessary to determine the nature of the compensation in question, ERS retains the ultimate discretion to determine whether to treat reported compensation as "earnable" under the statute. That is, the role of ERS has been, and should remain, that of collecting information reported and contributions made by employers, and calculating member benefits on the basis of the information reported, unless, of course, the information itself raises a red flag of impropriety as did the 43% pay increase in the Tate case. Absent such an indication of impropriety, ERS should accept employers' reports of earnable compensation for purposes of receiving contributions and calculating retirement benefits. The four situations outlined in your specific factual inquiries are: (1) pay supplements for working a night shift; (2) the "dive supplement" paid to those employees who periodically perform scuba dives as part of their normal duties; (3) pay supplements to employees who are assigned some of the duties of a vacant position in addition to their normal responsibilities on a temporary basis; and (4) pay "commissions"2 periodically awarded to employees who reach or exceed a given threshold, e.g., correctional employees who exceed production goals or local tax officials who exceed projected collection rates. The first two situations outlined above appear to constitute conditional pay supplements that should be included as an employee's "earnable compensation," so long as the employer determines that the duties for which the employee is paid are a regular part of the job duties and are performed during the employee's normal work week. A significant factor in this analysis is that the additional duties attach to the position, which could conceivably be filled by any number of employees within an agency, and not to a particular individual who is selected by the employer for a temporary assignment of additional duties for additional pay, which is the third situation you describe. It is exactly this factor that differentiates the third situation from the first two, as it describes an employer's discretionary assignment of job duties of a temporarily vacant position to those of a particular individual, in addition to the regular duties of his position. The instances of current employees receiving increased pay under these circumstances is presumably rare since the employee is temporarily being paid additional funds for doing work that is not part of his regular job duties. Accordingly, these situations may call for special scrutiny by ERS, as they may be subject to manipulation and abuse. The fourth situation, which concerns pay bonuses, falls within the definition of "earnable compensation" only so long as such bonuses are awarded as part of an agency's "incentive compensation plan" as opposed to an "incentive award program."3 Only compensation that meets the definition of an "incentive compensation plan" as defined under O.C.G.A. § 45 21 2(c)(1)(C) and (D) may be included as "earnable compensation." O.C.G.A. § 45 21 9(b). Finally, O.C.G.A. § 45 21 9(a) sets forth the types of incentive payments that are not to be included in "earnable compensation" for purposes of determining retirement benefits: (1) Payments under an incentive awards program [defined at O.C.G.A. § 45 21 1(5)]; (2) Recruitment payments under an incentive compensation plan; or (3) Payments for learning new critically needed employment skills. Again, I emphasize that it is the role of the employer to make the initial factual determination whether compensation paid to an employee falls within these categories or whether there is some factual situation which would otherwise make the payments "earnable compensation," but the ultimate determination must be made by ERS. Therefore, it is my official opinion that, when so reported by a state agency, the Employees Retirement System should include as a part of "earnable compensation" conditional pay supplements for duties that are performed as a regular part of an employee's duties and compensation that is paid as a part of an approved incentive compensation plan, unless circumstances indicate that the compensation is so unusual that it may fall outside the statutory definition of "earnable compensation." Prepared by: ANNETTE M. COWART Senior Assistant Attorney General 1 When this issue was challenged and ultimately appealed, the Supreme Court of Georgia concluded that this was a correct interpretation of Georgia law. Tate v. Teachers Retirement System of Georgia, 257 Ga. 365, 367 (1987). While this situation dealt with a member of the Teachers' Retirement System, the holding appears equally applicable to an ERS member given that both statutes use the same definition of "earnable compensation." See O.C.G.A. § 47 3 1(11). 2 Although your letter refers to such compensation as "commissions," they appear to be more in the nature of pay bonuses, such as those authorized under properly developed employee incentive compensation plans pursuant to O.C.G.A. §§ 45-21-1, et seq. 3 Code Section 45-21-1(6) defines "incentive compensation plan" as "a plan developed by the [State Personnel B]oard under Chapter 20 of this title and subsection (c) of Code Section 45-21-2 or other appointing authority under subsection (c) of Code Section 45-21-2." An incentive compensation plan is distinct from an "incentive award program," defined as "a program developed by the board or other appointing authority under subsection (b) of Code Section 45-21-2."