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New Compensation Rules Effective January 1, 2018

Administrative rules can be useful tools to clarify language we find in statute.  There are new rules in the Arizona Administrative Code going into effect on January 1, 2018, that all employers should be aware of.  Rules R2-8-901, -902, -903, -904, and -905 all clarify the term “compensation,” which is defined in Arizona Revised Statutes (A.R.S.) § 38-711 (7).  It’s important for employers to understand and apply the definition of compensation accurately because it affects the calculation of your employees’ pension benefits.  Employers who remit contributions to the ASRS for amounts that do not qualify as compensation are required to reverse those contributions.

Beginning January 1, 2018, compensation includes the following types of payments.

      • Base pay or regular pay 
      • Pay the member was entitled to receive based on services rendered, but which is deferred into another retirement or investment account, or which is withheld from the member’s pay pursuant to other legal requirements
      • Balance of contract pay
      • Performance or bonus pay
      • Standby or on-call pay
      • Pay in excess of base pay for working hours:
      • During a specific time period 
      • To perform duties involving physical hardship
      • To complete a specific assignment
      • In excess of 40 hours per week
      • Pay from an additional employer under the dual employment grandfather clause
      • Termination pay (only for members whose membership began prior to January 1, 1984)

Any pay members receive which is not one of the above types of payments is not compensation for ASRS purposes going forward from January 1, 2018.  This means that if your employer does pay to an employee a payment which is not in the list of payment types above, then you must not remit contributions on that type of payment made in pay periods ending January 1, 2018 and afterward, even if the payment type was ASRS compensation prior to January 1, 2018.   Common types of payments which were ASRS compensation but will no longer be ASRS compensation as of January 1, 2018 include:

      • Non-accountable reimbursements, which means payments made to reimburse the employee for costs incurred by the employee incidental to the employee’s job and for which the employee is not required to provide proof of actual expenditures
      • Mandatory amounts paid under an employer policy to reduce the member's accrued annual, sick or general leave balance to a prescribed maximum (if not paid because of a member’s pending termination or retirement)

For the full text of these rules and additional information on the rulemaking process, visit the Rules page of the ASRS website.

Written by Wendy Tobin, Employer Liaison

This article appeared in "Employer Relations News" (Q1-2018), a digital publication of the ASRS.

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